<![CDATA[Perezonomics - Home]]>Sun, 10 Dec 2017 08:02:30 -0600Weebly<![CDATA[Is the Original Apple Watch Still Useful Today?]]>Sun, 10 Dec 2017 13:51:44 GMThttp://perezonomics.com/home/is-the-original-apple-watch-still-useful-todayIn Defense of “Series 0”
​When Apple (AAPL) released the first-generation Apple Watch back in April of 2015 it took a fair amount of criticism for being slow. But now with over two years of using an Apple Watch, I actually appreciate using the first-generation version, aka Series 0, even more now then back in 2015. Apple greatly improved watchOS with the third and fourth iterations. A first-generation Apple Watch on watchOS 4.2 is a fundamentally different device. One that is still worthy of use today. 
​Over the past month, I’ve been alternating wearing a Series 0 Apple Watch with my newer Series 3 LTE watch just to get a better picture of whether I’d still recommend the original to my friends and family. The price on these early pre-owned models is now so low that they barely cost more than buying a new watch band. And I’ve found that they’re still pretty good.
 
Where I can tell the difference is less in the speed and more in the quality of the on-screen graphics. There are functions where, like the stopwatch, where the Series 0 is just as fast as the Series 3 but the graphics are stuttering. Like you hit start and it seems like nothing is happening and then all of a sudden the watch starts counting up at 3 seconds. It still counted 0-3 but you didn’t see it on-screen. Those didn’t bother me too much and I might not have noticed many instances if I hadn’t been alternating days with my Series 3 watch.
 
 
So why all the initial bad reviews? Hindsight is 20/20. Back in 2015 a lot of reviewers were judging the Apple Watch based on how the 3rd party apps performed. But I dare say that most Apple Watch users today spend over 80% of their time using it to triage messages and e-mail, check reminders, or their calendar. On watchOS 3 or higher, all of these functions are as speedy as a Series 2. People weren’t using their watches to order pizza or run their eBay business. These non-Apple apps is really where the watch got bogged down.
 
In fact, I was one of the few people who said that upgrading to a Series 2 from the original wasn’t recommended unless you had to use a lot of 3rd party apps. Apple’s apps all ran quick on any Apple Watch. The biggest thing about the upgrade to the Series 2 wasn’t the speed but the brighter screen. There really wasn’t a compelling reason to upgrade from the original until Apple launched the Series 3.
 
I’ve had my Series 3 LTE Apple Watch for over a couple of months now so I think I have a pretty good handle on it’s strengths and shortcomings. The big headliner feature is the LTE capability on the Series 3 which isn’t available on the first gen. This is a game changing feature that has changed how I use both my watch and my iPhone. I no longer bring my iPhone with me when I exercise or go for walks. It’s also really nice when you work in a large building and walk to someone’s office or down to a conference room but left your iPhone on your desk. You still get all your notifications as if your iPhone is in your pocket.
 
The other major noticeable difference that upgrading to a Series 3 will bring is Siri. Yeah, it’s available on the Series 0, but it’s just so much faster on Series 3. I wouldn’t say that Siri is unusable on the Series 0 because I still used it all the time. However, you have to get used to the message that says you can go back to what you were doing and Siri would tap you when it was ready. There also seemed to be more instances where I said “Hey, Siri” and the watch would go into an infinite loop where I saw the spinning circle. That hardly ever happens on the Series 3.
 
I’m constantly using my reminders. I both add them on my watch or ask Siri to display reminder lists. When I’m out running I’ll inevitably think of something that I’ll want to remember later so I say “Hey Siri, add toothpaste to my shopping list” or “Hey Siri, at 9pm remind me to write my mother a letter”.
 
Outside of those two things the performance on the Series 0 wasn’t too bad. I like to tap on the messages complication and dictate messages to my wife. There’s not much difference between the Series 0 or 3 for that. I also like to set the stock complication to see the latest stock price for one of my investments. The Series 0 works good for that. And triaging my e-mail on the Series 0 is just as quick and easy on the original Apple Watch. Weather, stopwatch, setting alarms and reminders all work almost as quickly on the Series 0.
 
If you’re willing to carry your iPhone with you in your pocket everywhere and don’t use Siri very much, the first generation Apple Watch would still serve many people just fine today. Especially if you bought the version with a sapphire screen which would still have a crystal clear watch face free of scratches. There would be no need to upgrade if you just want to see text messages and notifications on your wrist. Or if you want an Apple Watch on the cheap and are thinking about getting a used Series 0, go for it.

Now available in iBooks —> The Tesla Bubble
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<![CDATA[Bots Are Driving Up Prices, and It’s Not Just iPhones]]>Sat, 09 Dec 2017 15:47:54 GMThttp://perezonomics.com/home/bots-are-driving-up-prices-and-its-not-just-iphonesThe Rise of the eBay Pirates
​USA Today has a story out written by Natasha Vaughn that describes how prices on popular toy items are getting driven up by “toy bots”.
Not only are there cyber scalpers when it comes to shows and concerts. Now there are “toy bots” that are scooping up all the hot toys and selling them on secondary websites at higher prices.
U.S. Sen. Charles Schumer is calling on retailers to crack down on the "Grinch bots" that are spoiling the holiday season.
Online bots are able to go online and buy out popular holiday toys. That leaves parents having to shop on third-party sites like eBay and Amazon for the items and buy them at a markup from their original price, the New York Democrat said Sunday.
“Grinch bots cannot be allowed to steal Christmas, or dollars, from the wallets of New Yorkers,” Schumer said in a statement. —USA Today
 
I normally disagree with Sen. Schumer, but on this issue, he’s right. Scooping up product to resell on eBay is not capitalism, and I explained my thoughts on it a few weeks ago when Apple’s (AAPL) iPhone came out:
 
I’ve always been a die-hard capitalist who believes in the free market system, but what is happening on iPhone pre-order day is not capitalism in any way, shape, or form. The big influx of resellers who purchase iPhones only to flip them at a profit are more like a parasitic ecosystem that add nothing of value. Instead of providing any kind of product or service for Apple’s customers, they’ve inserted themselves in between Apple and its market as an unwanted middle-man imposing a tax.
Robert Perez - Perezonomics
 
This gets back to my continued theme of how technology changes two things. Both how we move pounds and data. And it is the data part which is changing everything. The rise of computer programs and online shopping has created a new phenomenon. A middle man who adds no value. I wonder how much of the demand issues that Apple faces with its product launches might be related to a similar automated bot army that is snatching up every unit available literally within seconds, only to be placed on eBay minutes later.
 
Getting products manufactured and delivered to customers can be a complex operation. Whether it’s packing the product, delivering it to the warehouse, or even advertising it, everyone in that chain deserves to get paid because they add some kind of value. But new technology has made it possible for a parasitic force to insert itself into that chain and drive up prices for everyone. The impact of new technology isn’t always positive.
 
I’m not sure what can be done about this new trend or even who should do it. Do we want to give the government even more power to say who can buy or sell products? That strikes me as a perilous road to go down in a free market society.
 
This strikes me as more of a customer satisfaction problem that product manufacturers should tackle. If their customers can’t get their products, then they need to pay more attention to what is going on in the selling process. Companies need to harness the power of data to try and prevent the no-value middle man from jumping in front of their true customers.
 
Creating loyalty programs such as the one I outlined earlier for Apple is one small and very direct way.  But that would only work with items that are very cyclical and have repeat buyers. Retailers need to get creative and harness the power of technology and data to ensure distribution to true customers. I don’t know how they’ll do it, but with so much data about customers available to retailers already which is increasing by the day, it won’t be long before a solution presents itself.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[The iPhone X Crushed Two Very Wrong Theories]]>Thu, 07 Dec 2017 03:42:29 GMThttp://perezonomics.com/home/the-iphone-x-crushed-two-very-wrong-theories
​There were two “threats” regarding Apple’s iPhone that were getting repeated so much early in 2016 that a lot of people started to believe them. First, that software platforms posed a threat to Apple’s premium iPhone business. Second, Android was dragging down smartphone average selling prices for everyone and Apple needed to cut the iPhone’s price to stay competitive.
​Now with hindsight, we can comfortably say that both of these ideas were outright wrong. As I wrote in June of 2016, the more that iPhone customers interacted with their software platforms, the more that they’d be willing to spend on their hardware. Jan Dawson of JackDaw couldn’t have been more wrong with his theory that Apple risked getting “hollowed out”. Here’s an excerpt from what I wrote:
 
And just like a car, you will worry about its reliability, how to get it serviced, or even how it complements your image. So just because software services may be cross platform, that doesn’t mean that phone buyers will put their brains on hold when they go shopping for their new handset. They don’t want their personal computing device to leave them stranded, they want it to look good, and they want it fast and efficient. Not all devices are created equal and they are all aimed at different priorities.
 
Not only is Jan’s thesis wrong, it’s 180-degrees wrong. Third party services make the device more important, not less so. Apple’s software ecosystem partners make the device more desirable by allowing the consumer to justify its purchase. The more places that your physical device can take you, the more money you will think it is worth. – Perezonomics, June 24, 2016

 
I was right. The ever-expanding capabilities of software platforms are adding to the value of hardware, not subtracting from it. But no one else was willing to say that out loud at the time.
 
And regarding the danger of Apple’s iPhone falling prey to Android’s downward price spiral, it appears that this theory is also completely wrong. 9to5Mac reported that IHS Markit has data showing that the iPhone X adoption is outpacing iPhone 7 Plus even though the X starts at $999.  And Apple is on track to sell more iPhones than ever despite prices increases for the Plus models.
 
In early 2016 when all the analysts were telling Apple to cut iPhone prices, there had been a few years of consistent iPhone pricing. Except for the new Plus model, Apple followed the typical $650 and $750 pricing tiers. Not only did Apple ignore the harping by all the analysts that said they should drop prices. Apple did the opposite and raised them. A small increase in the fall of 2016 followed by a bigger one in fall of 2017.
 
It’s funny, but we no longer hear from all the analysts predicting doom and gloom if Apple doesn’t go down market and lower prices.  
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<![CDATA[90% of Tesla’s Cars Alleged to be Defective]]>Sun, 03 Dec 2017 14:35:27 GMThttp://perezonomics.com/home/90-of-teslas-cars-alleged-to-be-defectiveViolation of Rule #1
​To this day Tesla (TSLA) refuses to share quality data as forthrightly as other automakers. But with the recent mass layoffs at Tesla some of the former employees are revealing the real story behind the scenes, and it isn’t a pretty picture. Reporting for Reuters, Alexandria Sage writes about how former Tesla employees are communicating what the recent internal quality metrics are like. 
The luxury cars regularly require fixes before they can leave the factory, according to the workers. Quality checks have routinely revealed defects in more than 90 percent of Model S and Model X vehicles inspected after assembly, these individuals said, citing figures from Tesla's internal tracking system as recently as October. Some of these people told Reuters of seeing problems as far back as 2012.
 
At Tesla "so much goes into rework after the car is done ... that's where their money is being spent," a former Tesla supervisor said.
 
Defects included "doors not closing, material trim, missing parts, all kinds of stuff. Loose objects, water leaks, you name it," another former supervisor said. "We've been building a Model S since 2012. How do we still have water leaks?"
 
Snags are normal with any new launch. But chronic defects with Tesla's established Models S and X show a company still struggling to master basic manufacturing, workers said.
 
Employees who worked on Model S and Model X described pressure to keep the assembly line moving, even when problems emerged. Some told of batches of cars being sent through with parts missing - windshields in one case, bumpers in another - because there were none on hand. The understanding, they said, was that these and other flaws would be fixed later.
Quality inspectors would sometimes find more defects than those reported by workers in the internal tracking system when a car came off the line. "We'd see two issues, that's pretty good. But then we'd dig in and there would be like 15 or 20," one person said. – Alexandria Sage, Reuters
What an embarrassment. When I see a Tesla driving down the road I actually feel sorry for the poor guy who owns the car because I know what a glitchy rattle-trap it must be. 
 
Way back in the mid-nineties as a young manufacturing cost accountant fresh out of college, I received a book from my employer titled Lean Thinking. It chronicled in novel format the principles of the Toyota manufacturing method. The best manufacturers in the world follow these basic principles and the most important rule of them all is this. You never, ever, keep the line running if there is a lack of parts or the presence of quality defects. Tesla can’t get rule #1 right.
 
It may seem counterintuitive to not keep your line workers busy at all times but the math is sound. It’s always more efficient and cheaper to fix problems up front and to prevent the accumulation of rework piles.  
 
You can't fix something like this overnight. The Toyota method involves making changes gradually in a methodical way. Considering that Tesla is not even at square one, it’ll take them years to rectify the situation and even get into the same ballpark as everyone else. Years that they don’t have. They’ll run out of money before that happens if customers reject their low-quality cars.
 
What makes Tesla’s sloppiness all the more astounding is that electric vehicles are much less complicated than gas powered cars. Compared to Tesla’s 90% defective rate Toyota’s rate of under 10% seems almost miraculous considering it has exponentially more parts. GM already makes a higher quality EV than the Model 3 with the Bolt. What is Tesla going to do as other EVs that appeal to customers more become widely available? When there are sleek and sexy EVs from Ford, BMW, or Lexus it’s going to mean big trouble for Tesla.
 
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Do We Need Movie Theatres Any More?]]>Sun, 03 Dec 2017 01:18:59 GMThttp://perezonomics.com/home/do-we-need-movie-theatres-any-moreWill Theatres Go the Way of Retail Stores or Arcades?
​The tension between moving data vs moving people/packages is disrupting many industries. Another business coming to grips with new technology that threatens their bread-n-butter is the movie theatre business. Will movie theatres respond more like retail stores or video game arcades? 
It’s been interesting to see how Amazon is taking information technology to a whole new level and out-hustling everyone else in the retail world. We’ve had catalog shopping since Sears & Roebuck serviced the American West in the early 1900s. Catalog shopping used to be insufferably slow, so everyone much preferred to visit their nearest store. But the digital revolution has sped everything up and made deliveries to your home much quicker.
 
Video media is undergoing a similar revolution. The movie theatre arose out of a time when televisions were small, sound was tinny, and clarity was horrible. Even if hardware had been better, media content was sparse and unavailable to the home viewer. But things have changed so much with hardware and content availability in only the last ten years. Watching a movie in your own home on a huge 4K HDR television and nice surround-sound system is a world away from the small and fuzzy black and white televisions of the 1950s.
 
I’m to the point now where I prefer watching movies at home. The thought of going to the movie theatre fills me with so much dread that I won’t do it unless it’s a movie that I absolutely can’t wait to see. That happens about two or three times per year, and it’s typically related to either Star Wars or a Marvel super hero movie.
 
If movie theatres didn’t have exclusive distribution of films, I can comfortably say that I’d never go to the theatre. Even if I had to pay twice as much to watch from my home. I wonder how many other people out there are like me?
 
If movie theaters don’t evolve, I don’t believe they will be around much longer. Video gaming and shopping illustrate two potential directions that the movie theatres can go. Arcades are dead, but retail shopping is evolving to stay relevant. 
 
Video gaming has already migrated to be an in-house experience. The only arcade I’ve seen recently was in the hit TV show Stranger Things. And gamers don’t even go to each other’s homes anymore. For the most part, they just communicate online via headsets now. Moving data vs people won.
 
The retail industry is fighting back against online shopping by giving you what you can’t get via the internet. You can touch the merchandise, speak to knowledgeable sale people, or participate in customer workshops. The Apple Store will let you try out cases for your iPhone. Best Buy will let you listen to headphones before you buy. But how do movie theatres fight back? What can they give you that isn’t better in your own home?
 
In my house, no one behind me is talking or hitting my seat. There are no crying babies or cell phones ringing. Plus, if I do feel like looking at my iPhone or iPad, I can do it without feeling like everyone is staring daggers at me. And here’s the biggie: you can pause the movie and go to the bathroom.
 
I’ve been to movie theatres with reclining seats, and I’ve heard that some now offer gourmet foods. That’s a good start, but I’m not sure it’s enough. I’m not arguing that movie theatres should go away. I would like the option of going to a movie theatre on that special occasion. Plus, especially with comedies or horror, the communal experience is something you can’t get at home. But I resent the iron grip with which the movie theatres hold all new releases. It makes me wish that movie theatres would just go away so that all new movies would go directly to iTunes or Netflix.
 
Movie releases need to go to the small screen at the same time as the big screen. Let the movie theatres that refuse to change with the times die. Those that offer the customer an experience that they can’t get at home will be rewarded with continued business.

​​Bonus Tip: If you're looking for a great place to get movie reviews and news from a conservative slant check out Hollywood in ToTo. It's the best media coverage website out there in my book. 
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<![CDATA[Why Apple’s Services Get No Respect]]>Fri, 01 Dec 2017 04:43:37 GMThttp://perezonomics.com/home/why-apples-services-get-no-respectAs the iPhone Goes, So Goes Services
Writing for Seeking Alpha, Michael Wiggins De Oliveira expressed his sentiment that Apple’s services business doesn’t get enough respect by investors.  
I have felt for some time and continue to believe so now that Apple’s Services opportunity is underappreciated by investors. For a long time, Apple was predominantly a consumer facing product company – with product-like profitability. Regardless of how powerful Apple was at squeezing its supply chain, combined with its economy of scale, it was still, at its core, a product company. However, recently, Apple signaled to the market that it wished to diversify its revenues and increase its exposure to its Service business line- and its associated asset-light profitability and strong accompanying margins. –Michael Wiggins De Oliveira, Seeking Alpha
 
I’ve heard this sentiment expressed from various other places so Wiggins De Oliveira is not alone in this view. However, Apple’s services are more complicated than they seem. Here is my problem with them. Apple services aren’t a true stand-alone business. I agree with Apple CFO Luca Maestri that services are accretive to Apple’s margins but services revenue is directly dependent on hardware sales. If hardware sales go down, so does services revenue. If hardware sales were to collapse, the services revenue would eventually wither and die.
 
When I think of a stand-alone services business, I think of something along the lines of HP or IBM who forked their business into a product side and a services side. The services were able to exist independent of the products in both of those cases. HP and IBM either jettisoned or divorced hardware from services but the services group continued to chug along. This would not be the case for Apple. If everyone switched to Android who would buy their services?
 
Wiggins De Oliveira correctly states that the services business doesn’t get enough respect. That’s because most investors fall more in line with the way I see Apple’s services. My view is that they’re really a dependent offshoot of the hardware business. As the iPhone goes, so goes services.  
 
What would change my view would be a concerted effort by Apple to create a services business that would be popular by non-iPhone users. A business that would not fluctuate with hardware sales. And perhaps they are doing exactly that with their rumored push into original video content. Although, it’s way too early to speculate on what Apple may be planning in this area.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Shrinkflation and the MacBook Pro]]>Thu, 30 Nov 2017 03:07:58 GMThttp://perezonomics.com/home/shrinkflation-and-the-macbook-pro
​Apple (AAPL) has taken a fair amount of criticism lately for the way that it handled its MacBook Pro redesign. Well known iOS developer Marco Arment snubbed Apple’s latest MacBook Pro when he crowned the 2015 model as the best laptop ever made. Although, his written criticism was fairly benign compared to his verbal criticism. I don’t disagree with Marco but that’s because I’m not a heavy MacBook Pro user so I’m not going to say he’s right or wrong. What I will say is that I recognize the underlying currents behind the redesign and I’m not so sure it’s all Jony Ive’s doing. Or at least, not the design group’s alone. 
​I’ve been warning for some time that at some point laptop computer prices would bottom out and prices would start to rise. Much of the price decreases that we’ve seen over the past two decades were due to expanding volume, which allowed the manufacturers of both laptops and components to lower their prices. For laptops, the days of increased economies of scale are over.
 
So how do manufacturers cope with rising costs? One way is “shrinkflation”. That’s the nickname given to the old practice of reducing the amount of product that you sell to the customer but leaving your price the same. You see it in the grocery store all the time when the contents are smaller but the price is the same. It’s actually a sneaky price increase done with the hope that the customer doesn’t notice. I’ve had to work the financials for many a shrinkflation proposal in my time.
 
In a recent interview, Jony Ive said that he doesn’t pay attention to product line financials. Numbers aren’t his thing. But the changes that are being designed into the new MacBook Pro such as removing the SD card slot or Ethernet port have the fortuitous impact of shrinkflation. Whether it’s Jony’s vision to have a sleek device with clean unbroken lines or the finance group’s desire to protect gross margins, it doesn’t matter. The end result is the same. It is a de facto price increase.
 
On the subject of laptop gross margins, I’ll put my experience up against anyone’s. I spent years of my life dissecting Gateway’s laptop profitability in our flagship manufacturing plant in North Sioux City, South Dakota. This is what I learned. There is a direct correlation between a laptop’s profitability and the number of components and ports that it has.
 
Tech pundits cavalierly throw around suggestions about how laptop manufacturers should include this or that as if it is done by magical elves in the middle of the night. It’s not so easy. Holes that need to be drilled, burrs that need to be filed down, or connections that need to soldered all require another stop in the manufacturing process. Each step is another opportunity for defects, which trigger scrap. And it’s not just upfront purchasing or manufacturing costs. There are additional costs on the backside when your customers need service for one of those ports or components.
 
There’s nothing wrong with including all this as long as the customer is willing to pay for it. But if the marketing department is unwilling to go up in price, then there is only one option available. One thing I’ve always appreciated about Apple is that they would rather go upmarket than to sell what they perceive to be an unworthy product. But even Apple customers have their limits. The big question that Apple faces is how many people really miss the features that they’ve omitted? Is it worth infuriating this group of customers in exchange for fulfilling Jony Ive’s vision of the future or protecting the bottom line?
 
I heard a great example from the automotive world by talk show host Stu Burguiere the other day that helps explains Apple’s predicament. He’s recently struggled with the painful process of selecting a baby car seat for his vehicle and lamented what a terrible process it is. Many car seats are made from cheap materials or they don’t fit into his vehicles very well. Not to mention many are just plain ugly. If automakers wanted to, they could sell all vehicles with built-in car seats so that no one would ever to have to buy a separate one.
 
I actually had bought a mini-van back in the 90s that had built-in car seats for small children. It was great because you were never without a car seat, they could fold out of sight and be hidden, and they matched the vehicle interior. However, this would add significant cost to the vehicle when only a minority of customers would actually use the included car seats.
 
Automakers have overwhelmingly decided that it’s not worth the extra cost to all of their customers to provide built-in car seats when only 20% or less of their customers will actually use them. I think Apple has come to similar conclusions, and would have even if Jony Ive wasn’t there.
 
Now available in iBooks —> The Tesla Bubble

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<![CDATA[Where TechCrunch Gets Tesla Wrong]]>Sun, 26 Nov 2017 16:05:29 GMThttp://perezonomics.com/home/where-techcrunch-gets-tesla-wrongTesla's Bankruptcy Is the End
​Jon Evans at TechCrunch wonders out loud if it may be OK for Tesla’s (TSLA) customers if the company goes bankrupt leaving the investors to reap their just rewards. 
We tend to assume that a company’s purpose is to make money for its shareholders, or at least “not go bankrupt,” because money is how we measure success. And this is in fact true of most companies. But it is not true of Tesla. “When a measure becomes a target, it ceases to be a good measure,” and this is as true of money as it is of any other measure. The purpose of Tesla is not to make money; it is to pioneer fleets of smart mass-market electric cars, and the infrastructure to support them, and battery technology which is not limited to cars. Making money is ancillary. —Jon Evans, TechCrunch
 
 
The big problem with Jon’s thesis is that Tesla isn’t a self-sustaining entity. If Tesla wasn’t burning cash faster than a Chevy Suburban burns gasoline he might have a point. But Elon Musk is just as dependent on Wall Street as a gold-digger in high heels looking for her sugar daddy. If investors stop forking over cash to fund Tesla’s day-to-day operations that means Tesla has to turn to banks for loans. And banks will be much less forgiving than investors when it comes to making profits. Plus, Tesla would have to pay interest on their cash which would make their profit target even more difficult to hit.
 
Tesla’s current stock price is based on a scenario where Tesla owns the entire EV market and starts to push out traditional car makers. Anything less than that and the stock price will begin to collapse. A scenario where Tesla is one of many EV makers fighting for a piece of market share would be disaster for investors.
 
The other big flaw in Jon’s writeup is that the investors are the owners of the company. And these pension fund financial managers don’t give a hoot about pioneering smart mass-market electric cars. They are praying to God that the huge profits from Tesla selling EVs will catapult their investment to new heights. Why? Because companies are under funding their pensions. These pension fund managers need their investments to offset the difference or the workers will be at their doorstep with pitchforks and torches wondering where their pensions are. There is nothing altruistic about their investment in Tesla.
 
The other group of investors in Tesla play the stock market like a slot machine. When it becomes apparent that Tesla may never turn a profit, they will pull their investment and move on. They only need one out of ten investments to hit critical mass to end up with a net gain. These are not climate change disciples.
 
A lot of people a whole lot smarter than I have negative views about Tesla’s survival. But I wrote my book about Tesla because I thought it was about time that an independent observer with no financial short interest offered an opinion. I think that electric cars may very well be the future. It just seems obvious to me that Tesla isn’t the company that will usher in the age of the EV.
 
Manufacturing is a highly choreographed art form that takes decades to fine tune. People can say that making EVs is about tech all they want, but at the end of the day, only the best at manufacturing will be the ones to own the EV market.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Thoughts on Bitcoin]]>Sun, 26 Nov 2017 14:02:56 GMThttp://perezonomics.com/home/thoughts-on-bitcoinMoving Data vs Pounds
I formed my world view on how to classify technology while I was working at NASA’s rocket test facility at Stennis Space Center. The best minds at NASA argued that technology is all about either moving things (pounds) or data (information). And moving data is the more consequential of the two. This core belief led me to invest in Bitcoin. 
Moving pounds is all about refining the technological breakthroughs of the 20th century. So, companies which specialize in moving packages or people are more about disrupting an industry than changing society as a whole.
 
Disrupting an Industry
The disruption that Amazon is foisting upon retailers is a great example of how technology is changing an industry but not necessarily society. Retail is all about getting merchandise from manufacturers to the end customer. If you want a new pair of shoes, you now have the option of ordering them online versus driving down the street to your local shoe store. This affords you a much greater selection, the tradeoff being a short wait time.
 
Catalog shopping has been around for decades, but it is advancements in data technology that is bringing down the wait time. And the shorter the delivery period, the more people are willing to get something online. Whether you order your new merchandise online or go to the store to buy it doesn’t really change YOUR life very much. But yes, it’ll wreak massive change within the retail industry. Some companies may go out of business and people will lose jobs, but other companies will grow and hire more people. Churn like this is normal, arising out of changing times.
 
Whether I drive down to Best Buy to pick up a new Bluetooth speaker or order one at Amazon doesn’t make much difference to me. I want a new speaker, and I could go either way.
 
Companies like Amazon and Tesla are in the business of moving pounds. They may be using AI or more sophisticated data management to move those pounds. But ultimately, they are only using this new technology to make an old business more efficient.
 
Changing Society
Technological advancements that transcend the industry and change society are fewer. But the movement of data seems to have a much greater impact on society than the movement of packages and people.
 
Mobile phones and the internet have allowed for the free movement of data at greater speeds than ever before. Companies are able to disseminate information to millions of people instantaneously. But it goes both ways. Companies are also able to gather data from millions of people in the blink of an eye. And now, people are even sharing this data amongst themselves to create instant cooperative efforts.  
 
Bitcoin
The concept of Bitcoin fits my world view of a potential technological breakthrough that could truly change society. It is always quicker, cheaper, and easier to move data vs pounds. Even if Bitcoin does eventually collapse and fail, something like it will necessarily arise one day to take its place.
 
Why do I think that will happen? Because at its essence, currency is data. Money is what we in accounting call “fungible”, meaning that if you loan your friend $20, you aren’t expecting the exact same $20 bill back that you gave your friend. All $20 bills are interchangeable. They are physical representations of value.
 
Because moving gold is so difficult and slow, we’ve for the most part already transitioned to a form of digital currency. Governments hate the gold standard because it denies them a big economic lever. Central banks have adopted the practice of allowing the money supply to grow through the lowering of bank reserves. The increased money supply will stoke economic growth. This new money only exists in the bank ledger and can be a two-edged sword.  Liberal banking policies can cause price inflation, and if they aren’t managed well, a crisis of bank insolvencies can ensue.
 
Gold won’t ever trigger inflation, because you can’t conjure gold up out of nothing. Either you own gold in a vault somewhere or you don’t. Bitcoin is like gold in one very important way. No one can increase the money supply by fiat because the blockchain technology employed makes it impossible for Bitcoin to be in two places at once. Bitcoin seems to enjoy the benefits of both being easy to transfer and hold and being impervious to currency manipulation. Bitcoin seems to be the first reasonable attempt I’ve heard of that seems to have the best of both worlds.
 
I’m not going to recommend that anyone invest in Bitcoin, because at this point it is still a risky bet. I’m more than pleased with the return on my investment thus far, but Bitcoin is a volatile instrument. It could be back to $0 in a day. There are a whole slew of reasons besides the fractional banking system that governments would probably like to kill Bitcoin. But I do think that something like Bitcoin is in our future.
 
The concept of Bitcoin seems to elevate currency into its final form of data. And if there is one hallmark of the 21st century, it is that the free movement of data is molding our society, like a riverbed cutting through rock.
 
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Apple Should Have Shrunk the iPhone Around the Screen]]>Sat, 25 Nov 2017 15:45:45 GMThttp://perezonomics.com/home/apple-should-have-shrunk-the-iphone-around-the-screenInstead They Grew the Screen to Fill the Body
​Dennis Green at Business Insider offered an explanation for why he’s decided to stop using the iPhone X and go back to a Plus and it brings up a lot of feeling I’ve had about Apple’s (AAPL) new iPhone lately.
But there's really only one flaw that really matters to me: the phone is impossible for me to use with one hand.
 
Though the phone is only a bit bigger than the iPhone 6, 7, and 8, the bezel-less screen makes for an enormous size increase.
 
The new gestures required by the notch mean there's no way to look at my notifications with only one hand, or access the control center. Those are pretty essential functions, and it drastically limits the usability of the phone when I'm on the go or when I only have one hand free.— Dennis Green, Business Insider
 
I’ve been thinking about this a lot lately. The narrow aspect ratio of the iPhone X is to make one-handed use easier but the user interface makes two hands a necessity. I swing back and forth between upgrading to an 8 Plus or an iPhone X.  I’m torn between the Plus’s wider aspect ratio or getting the iPhone X’s awesome FaceID.
 
I still think that the iPhone X is the best phone you can possibly get but the size was somewhat of a compromise. I constantly come back to the fact that I wish Apple had shrunk the iPhone 7 and 7 Plus so that the the screen sizes had remained unchanged and the bezels around them had shrunk.
 
If Apple had shrunk the phone body around the 4.7” screen then one-handed use on the whole screen would have remained possible for most people. Further, a lot of SE owners, like my wife, would have finally been able to upgrade to the 4.7” screen. This group would have been ecstatic.
 
Also, a lot of us users of the 5.5” Plus prefer this wide aspect ratio because the extra width makes everything feel more spacious. Video detail is easier to see and fonts everywhere are bigger. The 5.8” screen on the X is actually larger and can physically display more data. But due to the narrow width it looks cramped in comparison to the 5.5” Plus.
 
I compared my phone to my co-workers X and found some interesting differences. All the text and pictures on my 7 Plus were larger. You can see much more content on the X but everything is much smaller. Apple seems to be making an attempt to mitigate this by making the fonts render thicker. The letters look much bolder than on my 7 Plus. It does help somewhat but doesn’t change the fact that the letters on the 7 Plus are significantly larger and easier to read. I can read the 7 Plus without zooming in on the text. I can’t do that on the X which renders its size advantage moot.
​My problem with the Plus has always been the length of the phone, not the width. It is difficult to fit into pockets, will physically hurt your hip in tight pants, and is prone to flipping back due to the higher center of gravity. If Apple had removed the home button and shrunk all the bezels around the 5.5” screen I would have been overjoyed. The 5.5” screen is 4.75” tall. If Apple shrunk the bezels around this size screen the phone would be shorter than the iPhone 8 which is 5.45” tall. Can you imagine the Plus sized iPhone being shorter than the iPhone 8? That would be awesome.
 
Apple tried to split the difference between the 7 and 7 Plus but for a lot of Plus owners it feels like a step backwards. If Apple had shrunk the bezels on the 4.7” and 5.5” phones everyone would have been happy. A lot of 4.7” owners would have upgraded to the 5.5” phone but this would have been offset by 4.0” SE owners upgrading to the 4.7” phone. 

​​If Apple had simply shrunk the bezels on their screens one-handed use would have been possible on the 4.7” phone and would be easier on a 5.5” screen than the current tall 5.8” screen. I thought the benefit of a narrow phone was that it was easier to use one-handed? If I need to use two hands, I might as well get the benefit of a wider screen. 
Now that Apple has started down the road of tall narrow screens I’m not so sure that the rumored “X Plus” next year is going be the phone that I want. It’ll probably be an improvement over the current 5.8” X but it’s not going to be the small bezel 5.5” screen that I wanted. There’s no way that Apple could make the X Plus screen smaller than the X. That means that any X Plus screen is probably going to be even taller and harder to use. Apple will probably make an X Plus phone that is no shorter in height than the 8 Plus or maybe even slightly taller. Again, not what I wanted. Height is the worst thing about the current Plus.
 
 
I still think that the iPhone X is the best phone on the market, bar none. It has the best screen quality and I’m seriously wanting that optical 2X camera lens with optical image stabilization. Also, as a runner who can never get TouchID to work after a sweaty summer run, FaceID looks like a Godsend. I just wish that Apple had shrunk the bodies around the screens and not grown the screens to fill the bodies.
 
 Now available in iBooks —> The Tesla Bubble
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<![CDATA[Will Samsung’s Galaxy S9 Be an iPhone X Killer? Not So Much]]>Wed, 22 Nov 2017 16:17:23 GMThttp://perezonomics.com/home/will-samsungs-galaxy-s9-be-an-iphone-x-killer-not-so-muchSamsung Is Falling Further Behind Every Year
The Android Authority has a report by Oliver Cragg warning Samsung fans not to get their hopes up too much on the next Galaxy S9 being some kind of iPhone X killer phone. 
According to Business Korea’s sources, Samsung has chosen to ignore 3D technology for its front-facing camera due to “technological limitations” and concerns over user security. While recent speculation suggested that the Galaxy S9’s iris scanner and facial recognition tech will still receive a minor boost, the potential lack of 3D sensing features could disappoint buyers looking for advanced augmented reality-focused features.
 
The unnamed sources also quash rumors that the Galaxy S9 will include two dual-camera units. Instead, the S9 and its larger sibling will allegedly feature a rear, dual-lens camera with a three-layer sensor capable of taking up to 1,000 pictures in a second. The front camera, on the other hand, is said to be a traditional, single-sensor shooter. —Oliver Cragg, Android Authority
 
I find a few things interesting in this report.
 
  1. Samsung has given up on an under-screen fingerprint sensor. Why? Simply because Apple has made it uncool? If the iPhone 8 had been Apple’s marquee device this year I’m guessing that Samsung would have triumphantly touted their new under-screen fingerprint sensor solution.
  2.  No 3D sensing features. Samsung didn’t have enough time. I almost wonder if Apple is the true clandestine leaker behind the rumor that they were working on in-screen fingerprint sensors. It would serve Apple’s purpose of pushing Samsung back a year in working on their own 3D face sensors. It would also have allowed Apple to rip Samsung’s in-screen triumph away because it would look inferior to FaceID.
  3. No forward facing dual-camera. This says to me that Samsung sees little growth prospects for the S9 and this is a concession to try and keep gross margins from falling. We already know that Samsung is making money on selling iPhone components to Apple. Samsung’s own mobile business has been struggling lately. I’m guessing if Samsung added a dual-camera to the front that they’d either have to raise the price or take a hit in margins. Neither of which is a good solution.
 
Samsung phones still are not able to copy 3D Touch or have anything equivalent to Apple’s W1 chip. Apple system on chips are leaps and bounds ahead of Android SOCs.  Samsung’s lack of 3D face sensing technology will deny the Galaxy S9 the augmented reality options that the iPhone X has. Now in one fell swoop, Apple just beat Samsung at its own game and designed the best OLED screen in the world. And Samsung has to grit their teeth and make it for them.  
 
I don’t know how you could compare these two companies and say that Samsung isn’t just behind, but they’re falling further behind every year. As I’ve written before, the real reason for the antagonistic commercials poking fun of iPhone users is because they are aimed at their current customers to try and prevent them from jumping ship. Samsung’s been relying on marketing dollars and platform lock-in to keep their mobile phone business going. The very thing that they try and poke fun of Apple about. When in reality, Apple spends comparatively much less than Samsung on marketing and derives much of their growth from Android users.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[The Roadster Is a Sign of How Bad Things Are Getting at Tesla]]>Mon, 20 Nov 2017 03:51:33 GMThttp://perezonomics.com/home/the-roadster-is-a-sign-of-how-bad-things-are-getting-at-teslaWhy Volume Won't Save Tesla
​One of my favorite television shows of all time is Arrested Development. It’s a comedy about the dysfunctional Bluth family that runs a housing business. In one episode, when faced with imminent bankruptcy the company president comes up with a plan to keep them afloat. They will build a fake model home in order to announce a big new development project that doesn’t exist. When investors start to give them their deposits they’ll be able to use that money to get their current creditors off their backs.
 
This is essentially what Tesla did this week. I’m sure a lot of Tesla fans are scratching their heads on why Tesla would start taking deposits on a truck and new roadster when they have their hands full with the Model 3. That’s because it’s all a show for Wall Street to prevent the stock price from collapsing. Just like the Bluth family’s fake model home, Elon Musk needed to bring in some investor cash and prop up investor hopes. 
As we all learned in Tesla’s Q3 earnings release, they are quickly burning through their cash. They need to gin up some investor confidence so that they can go back to the well for more money. Tesla is having an existential crisis right now. They’re losing top executives almost every month, they’re laying off hundreds of employees, and their investors are starting to turn on them. Things are getting really, really bad in Tesla central. Perfect time for a distraction.
 
Investors are hoping that Tesla can one day turn a profit by spreading their costs over exponentially more units sold. But more volume only cures your ills when fixed costs are your main problem. Here’s the problem with Tesla. Their SG&A problems are variable. Meaning that the more cars Tesla sells, the higher their costs become. More volume doesn’t do anything to help this situation.
 
More volume can help you turn a profit because the fixed assets help you sell more product and you don’t increase your costs. Such as investing in more stores or automated checkout kiosks. There’s an enormous cost up front that is more than made up with increased profits down the road. That’s because your revenue can go up more than your costs.
 
But Tesla’s problems with quality return to them as service problems later on. These are variable costs that go up with sales. It is extremely expensive for any company to have to rework products after they are delivered. And the more cars that Tesla sells, the more service issues they will have to fix.
 
It’s the same thing for their charging network. Electricity is very costly and may even be the straw that finally breaks the camel’s back in Tesla’s case. To make matters worse, Tesla received a great many sweetheart deals when they started leasing their supercharger stations. These will soon be going away and Tesla’s infrastructure costs will grow.
 
Contrary to what many think, the unveiling of the Tesla truck and roadster is a bad sign for Tesla. It shows that Tesla is doing everything they can to take the focus off of the Model 3. If things were going well with the Model 3, that is where Tesla would want the spotlight. The unveiling of the roadster and truck also indicate that their cash position may be far worse than we realize.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Economics Rules the World]]>Sat, 18 Nov 2017 15:45:46 GMThttp://perezonomics.com/home/economics-rules-the-worldScience and Technology Are a Means to Profit
​I was listening to an interview with former automotive executive Bob Lutz this week talking about his views on the future of the automotive industry. I agree with most of what he thinks. Driving will one day be illegal and driving automobiles will be like horses today. A hobby for rich people. The concept of the automobile brand will fade away and smaller automotive companies that don’t add anything of value outside of their brand will too. 
Bob also talked about the tension within the corporation that exists between the most talented minds in the world and the “bean counters”. Judging by the tone in Bob’s voice, he’s tangled with more than one financial analyst and there was no love lost between them. Bob Lutz has always been a product guy at heart. I chuckled because I’ve had to dash the hopes of more than one Vice President with big ideas that didn’t make financial sense.
 
Bob’s description of the tension within the corporation was accurate. But it’s much bigger than that. The same two forces in conflict within the corporation are the same two forces that shape the progress of society at large. Science and Economics.
 
My big problem with so-called “futurists” and millennial journalists who’ve never done anything other than write is that they all focus on the science part and forget about the more important force at play. The economics. Economics, for better or worse, exerts a strong gravitational force that influences the order in which problems get solved or technology is implemented.
 
All technological advances get weighed upon the scales of economics. Just because something is possible doesn’t mean that it’s going to be implemented any time soon. Corporations thumb their collective noses to all manner of technological improvements if the economics don’t make sense. It’s the reason that companies still use Windows XP ten years after its expiration date.
 
Typically when some breakthrough happens in science or technology everyone assumes that we’ll soon see a massive change in the way we do things or the way that our cities are designed. But the big variable that they’re not taking into account is the economics. Who stands to make more or less money due to this new breakthrough?
 
Take self-driving trucks for instance. Everyone assumes that all companies would love to convert to automated trucking so that they don’t have to deal with paying human drivers right? Not necessarily. From a logistics financial modeling standpoint, the cost of a human driver is the smallest of the major variables. The biggest variables are the capital cost of the trucks and miles travelled(fuel). Expensive new high-tech trucks only exacerbate the situation. The cost per mile goes up, not down. Only a large corporation like Walmart more interested in positive PR than the unfavorable economics can afford to dabble in the latest technology.
 
 
Even governments are powerless in the face of economic realities. The best that they can do is try and channel the economic forces into the direction that they hope it goes. But if they meddle too much, they end up killing the source. Kind of like bending a hose too much so that the kink cuts off the flow of water.
 
I’m not saying that we won’t see continuation of the massive change that has already taken place. But I am reminding everyone to be cognizant of the economics involved. It moves and shapes society every bit as much as science and technology. And when they are in direct opposition, economic forces will win every time.
 
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Apple Is the Undisputed Leader In Tech Innovation]]>Thu, 16 Nov 2017 04:07:49 GMThttp://perezonomics.com/home/apple-is-the-undisputed-leader-in-tech-innovationInnovation Also Involves Solving Problems Picture

I just finished reading some comparisons of Google’s Pixel Buds compared to Apple’s AirPods, and I can’t help but think that this is a continuation of a theme lately. Apple is leaps and bounds ahead of everyone else when it comes to tech innovation, whether you’re contemplating the AirPods and their proprietary new W1 chip, the iPad Pro’s 120ghz screen and magical Apple Pencil, or the fact that someone finally made FaceID work. Even if you look at Samsung’s turf, displays, the iPhone X now has a better display than any Samsung phone ever. And this is an Apple-designed display which Samsung had nothing to do with the designing, only screwing it together. Because they didn’t design it, you’ll never see this screen in any Android phone. 
​The Apple Watch is one of the most accurate heart rate monitors in the world, can pay for my gas when I forget my wallet, and can even unlock my MacBook just by being nearby. But the security employed is just as amazing. Paying with my Apple Watch is more secure due to the one-time use number created, the Bluetooth time-of-flight calculation prevents any one from spoofing my MacBook remotely, and the authentication routines on Apple HomeKit devices are unparalleled in the internet-of-things universe. On and on the under-the-hood miracles go.
 
But the appreciation for Apple’s innovation goes beyond simply watching them do something new or better. It is also rooted in how they prioritize where to spend their time. Getting Bluetooth headphones to pair with new devices has always been a pain, using TouchID after a long sweaty run sucks, and typing passwords into your MacBook every time you come back is a drag. These are all common everyday pain points that Apple has made better. The fact that our AirPods can’t translate French isn’t a big deal because how often are we going to need that? Curved edges on a phone display may look cool but what problem is it solving?
 
Last fall when Apple released the iPhone 7, Tim Cook got more questions about Apple losing their edge in innovation than Donald Trump gets about Russian collusion. Tim always replied with a smile and something vague about their promising pipeline of products. Well, now we can see the reason for his quiet confidence. 
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<![CDATA[Nadella’s Swipe at the iPad Only Highlights Its Growing Utility]]>Mon, 13 Nov 2017 00:17:49 GMThttp://perezonomics.com/home/nadellas-swipe-at-the-ipad-only-highlights-its-growing-utilityYes, You Can Get Some Real Work Done on an iPad
​Chris Matyszczyk over at CNET wrote about Microsoft’s Satya Nadella joking with a couple of journalists to “get a real computer”.
In many ways, the job Nadella has done to try to make Microsoft relevant in the modern world -- and still a competitor in some spheres to Apple -- has been praiseworthy.  
 
Indeed, he seems to be so confident now that he'll cheerily make quips about Apple.
 
As TechRadar's Sahil Mohan Gupta reports, Nadella walked into a room and couldn't help but chuckle.
 
"Nadella spots that I and a colleague have iPads and cheerfully says, 'You need to get a real computer, my friend,'" said Gupta. – Chris Matyszczyk, CNET
 
Satya Nadella’s little joke seems to have backfired. His lighthearted jab at the iPad only highlights the fact that real journalists are actually using iPads for work out in the field. When I read this story, my takeaway wasn’t that Nadella was slamming the iPad, it was  “Cool, real journalists are actually working on iPads.” Now that this little story has gone viral it’s actually a great advertisement for the iPad…courtesy of Satya Nadella.
 
Personally, I much prefer working on my iPad over my MacBook Air so I’m not too surprised. 
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<![CDATA[Will Social Media Addiction Trigger a Smart Phone Backlash?]]>Sun, 12 Nov 2017 14:51:55 GMThttp://perezonomics.com/home/will-social-media-addiction-trigger-a-smart-phone-backlashDon’t Ditch Your iPhone, Get an Apple Watch
J​ust prior to Apple’s (AAPL) big release of the iPhone X, CBS Philly had a report on a potential backlash against smartphone addiction which results in the uptick in sales of dumb phones.
As Apple and Android release $1,000 smartphones, with more features than ever, could dumbphones be the next big seller?
 
The $150 Light phone, which only makes and takes calls, transfers them straight from your smartphone, giving you a break from technology.
The $295 Punkt phone lets you talk, text, set alarms and use a calendar.
 
Nokia has also launched a “back to basics” version of its mobile device, citing durability and battery life as reasons to buy.
 
“I think there’s a lot to be said for a product that makes you nostalgic,” said Darren Zygadlo, creator of onecutreviews.com.
 
He has reviewed thousands of products, including top of the line smartphones.
“We’ve hit a point where we can pretty much do everything with these phones and I think some people are finding themselves saying, ‘What do I need all that for?’”
 
Having evaluated the Punkt model, he says stripped down cell phones could be the next trend.
“I think some will gravitate to dumpphones because they want simplicity. They want their lives back.” -- CBSPhilly
​I’m sure that any movement back to dumb phones would be relatively small. But I don’t doubt that there’s a significant number of people who’ve decided that they can’t have an iPhone in their pocket because they can’t handle the temptation.
 
However, why does it need to be all or nothing? One of the great options for iPhone users who have a Series 3 LTE Apple Watch is that we can pick and choose when we need to be fully or minimally connected. If you want to be minimally connected like with a dumb phone you can leave your iPhone at home and just take your LTE watch. This takes away the temptation to surf the web or peruse social media while sitting with your family at dinner. But yet, you can still get any important messages.
But as much as I appreciate the ability to stay minimally connected while out with my wife on a Friday night, there are still situations that I want all the power that my iPhone can bring. And it doesn’t necessarily have to be for something important. Like what if you need to renew your driver’s license and are heading to the DMV for an hour or two in the waiting room? You might want to take your iPhone with you just to kill time. Or what if you’re going on a trip to an unfamiliar city? Having a dumb phone that can’t help you get around or even find a good restaurant would be a real pain.
 
I applaud the people who’ve decided that enough is enough and completely ditch their smartphones to avoid all temptation to waste away their life. Addiction to social media is a real thing and it’s harming relationships. I’m just not sure that it’s necessary to take such drastic measures.
 
For the rest of use looking for a balance. Bouncing back and forth between our iPhone and LTE Apple Watch allows us to fine tune that balance a little easier.  Depending on the activities of the day, we can be either fully connected and run a business on our pocket computer. Or we can be minimally connected without all the temptations of that big colorful screen. We get the best of both worlds.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Why the Apple Watch Crown Belongs on the Outside]]>Sat, 11 Nov 2017 13:55:51 GMThttp://perezonomics.com/home/why-the-apple-watch-crown-belongs-on-the-outside
​When the Apple Watch first debuted in early 2015, I was struck with the genius of including the crown on the side to handle scrolling and zoom tasks. It didn’t block your view or get your screen smudged. I used it so much that I would instinctively reach for it on my iPhone at times. If you’re scrolling through a bunch of data on a narrow screen, it seems easier to use a small dial than long swipes on the glass. 
Knowing this, I’m often surprised when I’m surfing the web and stumble upon pictures of people who use their Apple Watch with the crown on the inside as opposed to the usual outside. I’ve even read one attempt by an inside-crown enthusiast to try and justify why the crown is better that way. It isn’t. Since I hadn’t seen anyone make the opposing argument, I thought I’d add my two cents.
 
Here’s the big problem. Since you turn the crown with your opposing hand, the crown needs to be easily accessible to your other hand, which would be towards the outside. If you wear the watch with the crown on the inside, you have to reach past your watch to try and get to the crown. You can do it, but it’s a lot less convenient when the watch body is in the way.
 
The reason I have such strong feelings about the crown placement is because about three days a week, I’m forced to reverse the crown orientation on my watch from outside to inside. Those would be my weight training days. If I don’t reverse the orientation, my weight lifting gloves will trigger the emergency function during certain exercises.
 
As I wear my watch in this reverse orientation, I’m struck with how inconvenient crown usage is. Besides the fact that it’s just harder to reach on the inside, you also have to be much more careful with pressure. Any excess pressure causes your finger to slide off of the crown. If you use the crown on the outside, a little more pressure gives you a more secure grip.
 
Also, since you’re reaching across the screen, your finger will block the lower left quadrant of the screen. Any complication in this lower left corner will be blocked to your view while turning the crown. To prevent this, you need to move your arm over more. I’ve been using the crown on the inside for over two years, and I hate it just as much now as in the beginning.
 
I don’t doubt that there may be a few people who prefer the crown on the inside. But I have to wonder if they actually use the crown very much. I suspect they don’t.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Early Tesla Model 3 Reports Indicate Poor Quality]]>Sat, 11 Nov 2017 02:02:38 GMThttp://perezonomics.com/home/early-tesla-model-3-reports-indicate-poor-qualitySG&A Is Tesla's Real Problem
​The real problem with Tesla (TSLA) isn’t even spoken about very much in the press. It isn’t that Tesla can’t build enough of the Model 3s, it’s that Tesla can’t afford to. And if Elon Musk says that the Model 3 gross margins are great, be very worried. Because if Elon Musk goes out of his way to emphatically state something, it typically means that the complete opposite is true. 
So what do I mean by the fact that Tesla can’t afford to build the Model 3? Service and support is going to eat them alive. When you consistently crank out low quality vehicles with fit and finish problems your warranty costs can be every bit as dangerous as high manufacturing costs.
 
Ethan Baron writing for siliconbeat described what one analyst who was given the chance to examine a pair of Tesla’s Model 3s had to say.
 
Bernstein analyst Toni Sacconaghi examined two Model 3s supplied by Tesla in Brooklyn, and went for a test drive. He did not give the car five stars.
 
 “The analyst found a misalignment in the Model 3’s glass roof, body panel gaps, rubber trim issues around windows and misaligned seams in the interior ceiling of the car,” CNBC reported, based on a note Sacconaghi sent to clients Nov. 10.
 
Tesla did not immediately respond to a request for comment.
 
Here’s how Sacconaghi described the car he was given for the test drive:
“Our inspection revealed widespread shortcomings in fit and finish,” he wrote. “Fit and finish on the two demo cars we saw – perhaps not surprisingly – was relatively poor.” — Ethan Baron, siliconbeat
 
As bad as the Model 3 might be, I find the fact that this Model S owner has a long story of poor quality to tell, even more disturbing. The Model S has been around for many years and Tesla still can’t get basic fit and finish right. American automakers not getting fit and finish right is the reason that German and Japanese companies were able to make so much headway in the United States in the 1970s.
For those unaware, service and support is not part of gross margin. It falls below in what financial types call SG&A. And Tesla doesn’t like to talk about SG&A. They like to keep the focus on gross margins even though it’s not an apples to apples comparison with the other auto makers who use a dealership network.
 
Tesla’s problems with Model 3 production are only the tip of the iceberg. Their problems with SG&A are far more severe. If I was an investor in Tesla this is where my focus would be. Because it doesn’t matter whether or not they can manufacture more cars if the price of their vehicles doesn’t cover all their expenses.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Mocking iPhone Users: Who Is Samsung's Intended Audience?]]>Wed, 08 Nov 2017 04:12:16 GMThttp://perezonomics.com/home/mocking-iphone-users-who-is-samsungs-intended-audienceBashing iPhone Users Only Makes Sense In One Scenario
​Samsung this week seems to have resumed their old practice of poking fun of iPhone users. They had retreated from that somewhat over the past two years but now with a new CEO at the helm it seems that their old favorite subject is back in vogue. 
But I could never understand the marketing strategy behind ostracizing potential buyers. I’m not in marketing but I’ve been in the business world for over twenty years and I’m familiar with rule number one. You can poke fun of products but not at potential customers. Even when Apple made fun of Microsoft they were always careful to leave PC users out of it.
 
So is Samsung trying to woo iPhone users…by ridiculing them? It seems that this would only anger iPhone users to the point that even if they did ever decide to go Android, that they’d pick any Android phone other than Samsung. In politics, candidates always attack their opponent but never the voters. Why? Because attacking your opponents voters is the best way to ensure that you won’t steal any of their votes.
 
Is Samsung trying to steal buyers of the Google Pixel, Essential phone, or OnePlus etc? Unlikely. These users don’t need to be convinced that the iPhone is a poor alternative. Plus, deep down, Samsung does realize that if you want to to get people to come over, you don’t make fun of them. And they are having success at getting other Android users to switch to Samsung.
 
I may not be a marketing maven but I am a thinker. And this is what Samsung’s ad blitz says to me.
 
  1. They’ve given up on getting iPhone buyers.
  2. Samsung is losing customers to Apple.
 
iPhone users are famously loyal to Apple. Once you’ve experienced a cohesive system where your laptop, tablet, phone, watch, and headphones all work together like one symbiotic organism, you’re not tempted to leave. Even Samsung isn’t stupid enough to think that making fun of potential buyers is a good move. The reason that they do it is because they know that they’re not risking much. They’re were going to get relatively few iPhone switchers anyway.
 
So why do they do it? I’ve game planned all the financial outcomes and there’s only one that seems to make any sense. Samsung is losing customers to Apple. They tried a two year détente in an effort to pull in some Apple switchers and it didn’t work too well. Sure, Samsung Semiconductor and the component business is happy, but not Samsung’s mobile phone division, the group behind the ad blitz.
 
Samsung is ridiculing the iPhone customers in an effort to prevent more of their current customers from becoming one of them. Since they’re not getting many iPhone switchers they don’t really stand to lose much. The true intent for these iPhone bashing commercials isn’t to gain iPhone switchers, it’s to stop the Samsung defectors. This is the only scenario that makes sense.
 
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Kudos to the Apple PR Team]]>Mon, 06 Nov 2017 00:47:44 GMThttp://perezonomics.com/home/kudos-to-the-apple-pr-teamPower to the People
​When Apple didn’t do their typical wide-scale distribution of review units for the iPhone X to the usual tech outlets I raised an eyebrow but didn’t think too much about it until today. Now I see that the iPhone X is literally available for pickup at every Apple store within a 250 mile radius of my house. If I wanted one, which I don’t, it would be fairly easy to go get one. However,  I find the easy availability of the new iPhone all the more curious because it means that Apple didn’t limit review units due to supply constraints. 
So the limit on review units to tech sites was a deliberate strategy employed for a specific aim or to correct some kind of weakness.
 
I’ve written before about how coverage of new products by the tech press is broken. Tech journalists seem more interested in playing their little game of “find a gripe” to impress their fellow tech journalists than they do in actually serving their readers.
 
Having a critical press is one of the benefits of owning an iPhone versus any Android but the coverage on Apple products that I’ve seen is often laughably ridiculous. My problem with the tech press is that they say they’re writing for the average guy, but they’re not. They get hung up on things that no one cares about. Most people don’t care about rounded corners on icons or if there is a blue tint at a ridiculous 30 degree angle.
 
Another thing that bothers me is that reviewers at tech sites don’t compare and contrast Apple devices against the best competition on the market. Instead, like with the Apple Watch, they simply gripe that it doesn’t do the impossible yet. Apple was derided by a good many watch reviewers simply because they weren’t “wowed”, never mind that it was the best smart watch on the market by a good margin. Samsung gets compared to Apple, and Apple gets compared to God. Why? Because a lot of the tech journalists seem to care more about impressing their fellow tech reviewer friends who they’re going to party with at the next WWDC.
 
Compounding the problem is that these reviews are when products are typically at their worst. To use a college football analogy, you want to stack your pre-conference schedule with powder puffs while your quarterback is still working out the kinks. On the software front, Apple tends to improve its products as time goes on. However, they do the anti-college football method. They face their harshest critics up front and later on the friendlier outlets will do their write ups. Although, products like the Apple TV 4K and LTE Series 3 Apple Watch will be better products a month or two later.

I, for one, applaud Apple for eschewing the usual tech sites and trying to find “regular people” who will focus on the things that regular people care about. I don’t care what Nilay Patel at The Verge thinks about any device because I know he’s a cynical grump who will dwell on the molehill versus the mountain. I’m much more interested in the viewpoint of the non-tech types on YouTube who will focus on what grabs their attention first and foremost. They will focus on what’s new and will connect with your average consumer much better than a jaded journalist at the Wall Street Journal.
 
Perhaps Apple has finally had enough of the petty gripes and decided to take a new approach. If so, it’s about time.
 
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Tesla’s Horrific Q3 Earnings Release]]>Sun, 05 Nov 2017 14:58:40 GMThttp://perezonomics.com/home/teslas-horrific-q3-earnings-release
​Tesla (TSLA) released their Q3 quarterly earnings on Wednesday and the results were horrific. Even the Tesla bulls, who’ve shrugged off losses in the past, were shaken by the sheer magnitude. I’m not surprised one bit. Tesla is exactly following the path that I’ve predicted in my book. 
I expected that the stock price would float up and up until the launch of the Model 3 on optimism unencumbered by reality. Then problems would work to slowly strangle Tesla and bleed away their cash.
 
If you were to get all of your information about Tesla from the tech press you’d think that they’re doing great. They all think that demand for the Model 3 will cure all their problems if they ever solve their manufacturing issues. They also think Tesla’s nationwide infrastructure will save them. When, in fact, the opposite is true.
 
The Model 3 will exacerbate Tesla’s problems. Sales of the Model S and X are down so Tesla will be exchanging higher margin premium sales for lower margin economy units. Not good.
 
Tesla’s charging network is getting more and more expensive. It’s not an advantage, it’s an albatross. EVs from competitors won’t have to shoulder these costs and will be able to undercut Tesla in price in the future. If EVs ever take off, gas stations will transition to meet the new demand and stay relevant.
 
People have been wondering how long investors would be patient with Tesla. Everyone knows at some point the tide of opinion will start to turn on Tesla and investors will begin to change their tune. Wednesday’s conference call was that pivotal point. Elon Musk was called out by investors for his empty promises. It was the beginning of the end.
 
Copied below is a great recap of Tesla’s investor conference call by Tesla analyst Montana Skeptic.

Conference Call Confirms Tesla's Model 3 Faces Huge Problems $TSLA
 
Summary
  • Wednesday’s conference call? I won’t be able to do it justice, but I’ll try.
  • Big problems in Fremont. Bigger problems in Sparks.
  • That China factory? Sorry, it's not about to happen any time soon.
  • Tony Sacconaghi seems unhappy with getting the CapEx runaround.
  • Model 3 production capacity about which, three months ago, Musk assured you should have “zero concern?" Well, now you should be very concerned.

O for a muse of fire...
I’m writing about Tesla’s (NASDAQ:TSLA) conference call, but there is no way my abridged description can fully capture its surreal quality. There was:
·       The moment when Elon Musk, in high dudgeon, expressed outrage at the “journalists and editors with low integrity” who have reported that Tesla fired employees despite the absence of negative performance reviews. “Shame,” he said (though he never refuted any of the facts reported);
·       the seemingly endless pause after Musk was reminded that three months ago he professed to be absolutely certain Tesla will achieve a Model 3 production rate of 10,000 by some point in 2018, and was asked whether he was still equally certain (spoiler alert: that was then; this is now);
·       pretentious blather about step exponentials, S curves, vertical climbs, air friction, pushing robots to the limit, and speed as the ultimate weapon; and
·       a series of statements so fatuous that respected members of the auto industry press are openly mocking Tesla and Musk as rank amateurs (for an example, start here at 13:30).
With that preface, here are what I regard as the key points of the quarterly update and conference call:

Record Losses
The operating losses were, just as CoverDrive forecast more than a month ago, an all-time record. They were, in fact, significantly higher than expected. I hope to put up a blog post soon wrapping up what CoverDrive nailed (a lot) and what he missed (not much).

Problems In Fremont
Even worse, as I wrote Wednesday evening, Tesla confirmed it has built only one Model 3 production line, capable of producing (at most) 250,000 Model 3 cars per year.
Much of the line has not yet been paid for. Another line likely will require another manufacturing facility. Paying for all that will require, in my estimation, several billion dollars.
And, of course, the one Model 3 line at Fremont is plagued with problems. How bad are those problems? Tesla is downplaying them, but jalopnik.com, in this deeply researched, must-read article, is not.
The Financial Times (subscription required) has just filed its own dispatchabout the Fremont factory:
Newly-installed Kuka robots designed to speed up production are still being operated by hand, according to two people who visited the site in recent weeks.
“I have never seen so much manual labour on a line,” says one person, who has inspected car plants all over the world.
“It was swarming with people. When I go to a plant and it’s automated I expect to see a lot fewer people.”

Problems In Sparks
The Tesla team assembled for the conference call at the Nevada Gigafactory because, as Musk said, he wants to be at the place where the biggest problems lie.
Musk detailed problems with the Gigafactory battery module assembly, and blamed them on an unnamed subcontractor. Musk claimed Tesla has now rewritten 20 to 30 man years of software code writing in only four weeks, and indicated Tesla is throwing all its resources at the problem.
Meanwhile, one can only imagine the number of Panasonic cells stacking up while Tesla attempts to figure out how to package them into modules. Oh, how wise does Panasonic now appear for insisting on the “safety stock” provisions in its Gigafactory agreements.

About That "Zero Concern"…
At August’s conference call to review Q2 results, Musk stated:
What people should absolutely have zero concern about, and I mean zero, is that Tesla will achieve a 10,000-unit production week by the end of next year.
Ryan Brinkman of JPMorgan Securities (NYSE:JPM) evidently was curious to learn whether Musk still has zero concern:
But I think it's less clear, from reading the letter, what's happening with the previous guidance of the 10,000 units per week at some point in 2018. Is that now like beyond 2018?
Here, the great pause ensued. Someone gulped deeply and swallowed. Red Bull? Wine with Ambien? Having only audio and a transcript, I cannot say.
At long last, Musk spoke. It is, he said, “a bit too early” to make such forecasts. (Except, wait, didn’t you make it with absolute certitude three months ago?!)
But I mean, if you extrapolate from 5,000 units towards the end of Q1, we don’t want to call upon significant CapEx until we are confident about cash flow on Model 3, so then that's a question of how long it takes to implement. I mean, that's where you get to 10,000 units a week for Model 3, which is a number we are confident can be sustained from a demand standpoint.
I cannot adequately underscore the significance of this information. If one reviews the spreadsheets that accompany the target price analyses of Tesla's bullish analysts, one sees they premised their valuations on the company's ability to manufacture 400,000 Model 3 cars in 2018 or, if worst comes to worst, 2019.
It is now clear Tesla is unlikely to produce even half that number in 2018. Worse, Tesla will need to spend billions more ("significant CapEx") to reach such capacity. That is, let us note, money Tesla does not presently have.
(And the money won't be coming from profits, at least not in 2018. There will be none. Forecasts for 2018 losses continue to grow. Goldman Sachs (NYSE:GS), for instance, just increased its forecast of 2018 losses to $843 million.)
Even if afforded the time and money, the additional Model 3 capacity would arrive well after more formidable EV competition arrives.
In short, Tesla is far from ready to produce the promised number of Model 3 cars. It needs lots more time. It needs lots more money.
I do not believe Tesla's share price comes close to reflecting this reality. This news has not yet sunk in.

Tesla In China: Hype, But No Substance
Stories circulating several weeks ago suggested Tesla was on the cusp of signing some important deal that would give the company access to Chinese customers on favorable, tariff-free terms.
There is no such deal. Rod Lache of Deutsche Bank (NYSE:DB) asked about China, and Musk answered:
The China plant is sort of something like – this is just a like don't say, but it's sort of a rough target of start of production in about three years and it would be serving the China market and perhaps some other countries in the region and that's really the intent, is to be able to provide Model 3 and Model – won't be making Model S and Model X, but we'll be making probably Model 3, probably Model Y primarily for the local Chinese market and it's really the only way to make the cars affordable in China, but it's three years out, so.
Musk also indicated there would be no material capital expended on China until at least 2019. Assuming two years to build a factory in China, that means no Tesla production in China until 2021 at the earliest.
Assuming, of course, Tesla has funds on hand for such capital expenditures, which it doesn’t.
And assuming Tesla had reached a deal to free it from Chinese tariffs, which it hasn't.

Flashing Red Lights On Autopilot
I’m far from an expert on autonomous driving. I hope Paulo Santos, who is such an expert, will soon write about the latest developments at length.
In a key exchange, the Nomura (NYSE:NMR) analyst noted that Nvidia (NASDAQ:NVDA) is claiming its newest autonomous driving hardware is 10 times more powerful that what Tesla is using. Do you need hardware upgrades, asked the analyst, “to advance Autopilot?”

Elon Reeve Musk - Tesla, Inc.
Well, first of all, I think that we will be able to achieve full autonomy with the current hardware. The question is, it's not just full autonomy, but full autonomy with what level of reliability, and what will be acceptable to regulators. But I feel quite confident that we can achieve human level – approximately human level autonomy with the current computing hardware.
Now, regulators may require some significant margin above human capability in order for a full autonomy to be engaged. They may say, it needs to be 50% safer, 100% safer, 1000% safer, I don't know. I'm not sure they know, either. But that's – but I think I'm confident that we can get to approximately human level with our current hardware. And, yeah, we'll have more to say on the hardware front soon, we're just not ready to say anything now. But I feel very optimistic on that front.
For customers that have signed up for full software capability, we'll push that option. The – if it does turn out that, that a computer upgrade is necessary in order to meet the regulatory requirements in that area, we will replace the computer with something with greater power, which is sort of, unplug the old one, plug the new one in. But we feel confident of the competitiveness of our hardware strategy. I would say that, we are certain that our hardware strategy is better than any other option, by a lot.
Read that carefully. Haven’t we always been told that Tesla’s autonomous driving far exceed human capability?
Also, are we now hearing, far more explicitly than ever before, a warning that Tesla’s system may not meet regulatory scrutiny?
And, is not Musk acknowledging Tesla may need to replace the hardware it is now installing in cars it claims will be capable of Level 5 full self-driving? Does anyone believe such a replacement is merely a matter of unplugging an old one and plugging in a new one?
Tesla car buyers already have filed a class action lawsuit claiming Tesla fraudulently inflated its autonomous driving claims. I see only more trouble ahead. Your mileage may vary.

We Badly Need Superchargers And Service Centers, But We’re Going To Conserve Cash
CFO Deepak Ahuja spoke about the “positive virtuous cycle of cash flow” whereby Tesla first collects proceeds for a Model 3 sale and only then pays its suppliers. (Question for Mr. Ahuja: how, exactly, is that working out?)
He said Tesla would be paying off “all the remaining Model 3 related CapEx” during this quarter and the next, after which “CapEx payments will start to decline.” In other words, Tesla will “manage” capital expenditures related to service centers and Superchargers.
This stunned the highly respected Tony Sacconaghi of Sanford C. Bernstein & Co., who recently expressed concerns with Tesla’s shortcomings in customer service.
Elon, you just talked about sort of this trade-off between growth and capital spending. And quite frankly, I think it's really the first time that I've heard you talk about that potential trade-off. Usually, Tesla's been all about doing as much as quickly as possible to lead the move to electrification, to establish a first-mover advantage, et cetera.
So, is the hesitancy in going all-out growth, is that a concern that you might run out of cash and have to raise more cash? Is that a bandwidth concern for the organization in terms of trying to do too much, too quickly? Is that a concern about using capital effectively? What's at the root of that decision? And why is there even a decision, I guess, is the question.
Musk, Ahuja, and Straubel began discussing "nutty" and "crazy" growth rates, and comparing Tesla's progress with Henry Ford's Model T. Musk said that if Tesla continues at its present rate, "Tesla will be the largest car company in the world by volume as well."
(As well as what? Largest in the world by operating losses? By cash burn? And, in point of fact, Tesla's trailing-12-month numbers show hardly any growth at all.)
Go to the transcript and judge for yourself, but I found the answers to be elliptical, vague, and evasive.
As, evidently, did Mr. Sacconaghi. Because he then did something that hardly ever happens in a Tesla quarterly conference call. He followed up on his question:
But, really, perhaps to punctuate a little bit more, you've talked about pretty soon you're going to be close to cash flow generative once you get the volume on the Model 3. And so, I'm just surprised why you're actually not trying to step on that as quickly as possible because ostensibly once you get to that level, then cash flow really doesn't become a problem.
And so, is there any difference in that view? Otherwise I'm just struggling to sort of reconcile why you don't want to get to scale, get to volume, get to positive operating cash flow, as quickly as possible?
Once again, Musk, Ahuja, and Straubel all chimed in. To my way of thinking, the answers went round and round the mulberry bush.
Was Mr. Sacconaghi satisfied with the answers? He did finally say, "fair enough" and moved on to another topic. But, were those answers truly fair enough for him? TBD.

Solar Roof Tiles
I described earlier this week how Tesla, in its quarterly update, offered nothing but vague generalities about the solar roof tile product. The topic did not come up in the conference call.
My own guess, based on what one sees and what one does not see, is that this product, which had not been fully developed or minimally tested before it was shown off a year ago, has run into significant problems. Which may be just as well because it’s hard to conceive how it could ever be more than a tiny niche enterprise.

Tesla Energy Cells
Are any cells for Tesla Energy products now being made at the Gigafactory? (We know, for instance, that the cells for the South Australia project were manufactured by Samsung (OTC:SSNLF).)
No one asked, and Tesla did not volunteer the information.

Tesla-Speak
I've already discussed the exchange between Tony Sacconaghi and the Tesla officers. What evidently sparked Mr. Sacconaghi’s curiosity about capital expenditures was an earlier question by Deutsche Bank’s Rod Lache, inquiring about whether Tesla's 2018 capital expenditures would be lower than those in 2017.
Here’s the answer from CEO Musk:
Yeah, absolutely. Some elements will require almost no CapEx. It really comes to realize that the – you really want to make a factory that grows incredibly fast.
Like, really, I think speed is the ultimate weapon when it comes to innovation or production. And we are pushing robots to the limit in terms of the speed that they can operate at, and asking our suppliers to make robots go way faster, and they are shocked because nobody has ever asked them that question. It's like if you can see the robot move, it's too slow. We should be caring about air friction like things moving so fast. You should need a strobe light to see it.
And that's incredibly critical to CapEx efficiency. And obviously we're going to be designing a lot of the robotic elements and what makes the robots internally. So, yes, because current suppliers are just too slow to respond in some cases.
If you are long Tesla, or wanting to be, and the force and logic of that answer impresses you, then you might well view the recent share price dive as a buying opportunity.
If you are long Tesla, and the glibness and vacuity of that answer concerns you (and, in case there is any doubt, my personal view is that the answer is glib and vacuous), then perhaps now might be a good time to sell.
Not as good as last week, to be sure, but still good.

The New Tax Bill
House Republicans have now unveiled the details of their new tax bill. It eliminates the federal income tax credit for electric vehicles, effective December 31 of this year. It also scales back various solar tax credits.
Whether any such tax reform bill passes, and even if it does, whether such provisions survive the inevitable legislative horse trading, are open questions.
Musk in the past has claimed Tesla does not need subsidies. I imagine, though, that we will soon be hearing a different story from Tesla, and concerted lobbying against these provisions.
A topic for another day, but obviously one worth following.


Now available in iBooks —> The Tesla Bubble

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<![CDATA[The iPhone X Is an Upgrade For the 4.7” iPhone, Not the Plus]]>Sat, 04 Nov 2017 12:20:44 GMThttp://perezonomics.com/home/the-iphone-x-is-an-upgrade-for-the-47-iphone-not-the-plusI Want Wider Not Taller
I’ve made two assertions financially about the iPhone that were confirmed in Apple’s Q1 guidance this week. First, that the iPhone X isn’t less profitable than the iPhone 8. Apple forecast gross margins of 38-38.5% which are higher than Q4 and on par with Q1 of 2017. So any downtick in iPhone 8 unit sales are being offset by the higher margin iPhone X. Second, I said that this dual-stage launch may be Apple’s most successful ever. Apple forecasted record revenues for Q1 of $84-$87 million. That means that both the iPhone 8 is selling quite well and the production bottlenecks for the iPhone X were way overblown.
But just because the iPhone X is both profitable and selling well doesn’t mean that I like it.
 
Like others who succumbed to the charms of the 5.5” Plus-sized iPhone, I developed a love-hate relationship with it. I loved that big wide screen but I hated how it literally caused me physical pain at times. The main problem? The phone was too long. It would dig into my hip bone at times when sitting down and had to be readjusted.
 
But the iPhone X wasn’t meant to be an upgrade for people like me who liked the big wide screen of the iPhone 7 Plus. Which really drives me crazy. Instead, Apple focused on the needs of the smaller iPhone users who wanted a bigger screen and dual camera’s but couldn’t handle the size of the Plus.
 
Back when the iPhone X was still in its formative stages, Apple had two choices before them. And for this first iteration they could only pick one. Either create a taller iPhone 7 or a shorter 7 Plus. They chose the former.
 
The iPhone 8 Plus has a superior screen aspect ratio. It’s easier to type on, text on all web pages is bigger, and it’s easier to reach the top. I was so excited when the rumors started coming out that Apple was working on a 5.8” screened iPhone that had almost no bezels. I assumed my dream of removing the top and bottom from the Plus was about to come true. Then the rumors started centering around a tall narrow aspect ratio and my dreams were dashed.
 
The problem with the 7 Plus was the length, not the width. In fact, the width was its main selling point. People who didn’t want to buy a separate tablet could use their Plus as a mini-tablet of sorts since text was bigger than on the regular iPhones. Older people with bad eyesight could see big bold lettering much easier on a Plus.
 
You get a few more vertical rows of information on the iPhone X but at what cost? The appeal of the 4.7” iPhone is that you can still one-hand most everything. Now on the X something as basic as reaching the control center requires two hands. And reaching the top part of the screen is more difficult than on the 8 Plus. At least on the Plus, you told yourself that the benefit of using two hands was an easier to use keyboard, larger text, and bigger portrait videos.

​On the iPhone X there is no change from the 4.7” iPhone in these areas. And yet, you pay just as high a price as if you'd bought a Plus. You lose one-handed maneuverability.
 
I’m all for big phone screens. But I want bigger keyboards, bigger fonts, and bigger portrait videos in return. And now with my new LTE Apple Watch the price for the big size isn’t so bad because I no longer have to carry that big phone with me when I exercise or other times it would be inconvenient.
 
From a financial perspective, Apple’s strategy makes sense so I can’t knock them too hard for choosing this route. The iPhone X probably began development two or three years ago. And back then, the Plus-sized iPhone was a much smaller piece of the pie. Apple would have wanted to mitigate their risk of selling a very expensive iPhone with no TouchID and a different user interface. Having only one model of the iPhone X aimed at the majority of your market is the safe way to go.
 
But in the process, Apple also has just set themselves up for another iPhone 6 type upgrade cycle. There was so much pent up demand in 2014 for an iPhone screen that was bigger than 4” that even Apple was taken by surprise. Now if or when they do make another big fat wide-screened iPhone that has no bezels, there will be another super-big upgrade cycle led by everyone yearning to get back to an iPhone screen not shaped like a grocery store receipt.
 
If Apple had made two sizes of the iPhone X this year, all the Plus owners would have opted for the bigger screen and probably been very happy with it. And this would have led to less upgrades in 2018 by content X owners content to wait another year after paying $1150 for a phone.
 
I don’t think that this is the primary reason why there is only a skinny iPhone X. But the thought of building up pressure for another super-cycle sure makes the decision of sticking with one size, that much easier.

Related:
I Don't Want a Narrower iPhone
The Web Is Better on Wider iPhones
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[Apple Needs an iPhone Loyalty Program]]>Thu, 02 Nov 2017 03:04:40 GMThttp://perezonomics.com/home/apple-needs-an-iphone-loyalty-program
​Every year when Apple releases their new iPhone, there’s a huge rush of buyers trying to get their orders in literally within seconds. This is to ensure that they’ll be a part of the first wave that will ship on launch day. Although, I always wonder how many of these launch day sales actually go to real iPhone fans versus enterprising resellers. I’m sure the majority of the units go to end users, but I wouldn’t be surprised if over 10% of the units go to scalpers. Which means that millions more will get up on Day 1 of iPhone pre-order day only to find that the stock was all snapped up while they slept. 
I’ve always been a die-hard capitalist who believes in the free market system, but what is happening on iPhone pre-order day is not capitalism in any way, shape, or form. The big influx of resellers who purchase iPhones only to flip them at a profit are more like a parasitic ecosystem that add nothing of value. Instead of providing any kind of product or service for Apple’s customers, they’ve inserted themselves in between Apple and its market as an unwanted middle-man imposing a tax.
 
Capitalism is built on a couple of principles.
 
  1. Man should serve his fellow man
  2. He who shoulders the greatest risk deserves the greatest reward
 
There is a great deal of value in delivering goods and services when customers can’t get them otherwise. If you risk armed robbery by delivering gasoline to Florida before a hurricane and then weathering the storm, you deserve to be paid a premium. You are serving your fellow man, and you are the one who stands to lose a great deal of money. But those customers paying those high gas prices would all be stranded without your effort. They may not like the high prices, but they can at least see where you’re adding value.
 
The Craigslist and eBay resellers are not capitalists but parasites. It’s like someone is following you to the grocery store, grabbing everything you’re about to reach for, and then selling it to you higher than the price tag says.
 
Anything Apple can do to reduce the number of its iPhones that get hijacked and held for ransom by people who have no intention of using them would be welcome. I’ve thought for a while that Apple needs some kind of loyalty program, a way to give their best customers a chance to ensure that they’ll be a part of that first wave of iPhone shipments.
 
With shipping over 200 million iPhones out per year, Apple can’t have 50 million people on the waiting list for that first wave, so they’d have to cull the list somehow. That shouldn’t be too hard though. They could add stipulations like paying for the device in full up front. Or they could kill two birds with one stone and only make it available to people who purchased both an iPhone and an iPad in the previous year.
 
I’d love it if Apple sent me a letter or e-mail in August saying that I’d met their requirements and that I qualify for an early pre-order. Apple could then open a special preorder window for its gold star customers right after the iPhone event.
 
I’m not going to hold my breath that Apple is ever going to create any kind of loyalty program, even if it would bump up customer satisfaction. They probably don’t want to deal with creating a new bureaucracy in order to manage the program.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[This May Be Apple’s Most Successful iPhone Launch Ever]]>Sun, 29 Oct 2017 13:18:58 GMThttp://perezonomics.com/home/this-may-be-apples-most-successful-iphone-launch-everWhere the Telegraph Gets It Wrong
This article from the Telegraph trying to make the case that Apple (AAPL) is at risk of taking a profit hit due to the way that they handled the iPhone launch this year is ridiculous. Their big flaw is in the graph listing the iPhone 8 demand at much lower than the iPhone 7. But that’s because iPhone 8 demand will be more smooth and distributed evenly across the year as opposed to the peaks that new models typically get. The part that they didn’t show is how last year the iPhone 7 had a severe drop off in Q2 whereas the iPhone 8 probably won’t. 
In the operations side of the business there is one thing that every plant or logistics manager hates, artificial demand. Most demand is fairly constant. But marketing and sales policies like price hikes or a big sale can cause artificial spikes in demand that are followed by a corresponding dip. This wreaks havoc in a manufacturing plant because it costs a lot to pay overtime premiums or train new temporary workers. Then when the dip comes, you end up either laying people off or carrying them even though you don’t need them. The bottom line is higher costs that could have been avoided if demand had stayed constant. Tim Cook hails from operations, and Apple never stokes artificial demand via some big marketing push. Coincidence? I think not.
 
But when it comes to the annual launch of the iPhone, there’s not much that can be done about a burst of pent up demand causing a massive spike in sales. Anything that can be done to minimize that spike and spread it out is helpful. Which is exactly what Apple did this year.
 
For weeks now I’ve been hearing pundits say that you may not be able to get an iPhone X until early 2018. But that doesn’t seem to be how things turned out. Anecdotally, everyone I’ve spoken to who wanted an iPhone X and got up at 3 a.m. has one on the way next Friday. No big deal. Further, Apple is shortening the wait time for those who missed the first wave.
 
As of this writing the day after orders opened, the wait time is 5-6 weeks and not three months like many predicted. A 5-6 week wait is pretty much par for the course on any typical iPhone launch. Even at 6 weeks out, that puts the delivery and sale solidly in Apple’s all-important first quarter. It looks to me like everything is working out pretty well.
 
So what did everyone miss? Why all the gloom and doom about 3-month wait times for a new iPhone X? I think it’s the fact that you can pretty much divide the annual swell of iPhone upgraders into two camps. Those who needed a new iPhone and simply waited to ensure that they didn’t get a soon-to-be obsolete model. They intend to keep their phone for another three years and didn’t want the old one. Then there’s the group of upgraders who want the best of the best, regardless of cost.
 
The iPhone 8 upgraders had a fairly pleasant upgrade experience this year. No lines and plenty of stock. There isn’t the big push on day one, but that’s because these people are in no hurry. However, much to Apple’s delight, they’ll be buying iPhone 8s just as quickly in 2 or 3 months as they are now. No spike in demand, but demand is smooth.
 
The iPhone X upgraders had the standard experience this year. Get up at 3 a.m. to make sure you get your order in, or wait until the next day and wait 5-6 weeks. There’s not much Apple can do for this group due to limited supply. But what Apple did do is greatly reduce the number of people who end up waiting.
 
Smoothing out the demand by breaking it up into two waves helps both the customer and Apple. All those iPhone users still using busted up iPhone 5s don’t have to wait so long to get a new iPhone. For Apple, cutting the volume spike down and smoothing out some of the demand takes a lot of pressure off of the manufacturing and logistics groups. That means lower costs and higher margins. So by splitting their iPhone launch into two and aiming it at two very different groups, Apple ends up with overall higher gross margins, lower manufacturing costs, and higher customer satisfaction. Everyone’s happy and I’m not seeing any downsides here.
 
The part that I’m fuzzy about though is whether this was by design or a lucky happenstance? This all works to Apple’s advantage, but was it blind luck caused by manufacturing problems that they stumbled on a dual-stage launch? Will they want to do something like this every year now?
 
If I had to guess, I’d say that this wasn’t Apple’s plan. Launching two models is easier for manufacturing and logistics but places more strain in other areas like engineering and design. Although, with the way things seem to be going so far, I’m sure Apple has a lot to discuss regarding how they want to approach the annual upgrade cycle now.
 
Now available in iBooks —> The Tesla Bubble
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<![CDATA[The Best iPad Keyboard Case I've Ever Used]]>Sat, 28 Oct 2017 16:22:34 GMThttp://perezonomics.com/home/the-best-ipad-keyboard-case-ive-ever-usedThe Logitech Slim Combo Case for 10.5" iPad Pro
​Apple launched the new 10.5” iPad Pro in July and since then it’s been my main workhouse machine. I use it to do all of my business and writing at home and I take it to work every day to use as my note pad and organizer. One of the things that I love about my iPad Pro is that I get to choose which keyboard I want to use based on the occasion.  Unlike MacBook Pro users who are unhappy with Apple’s choice of the new shallow keys. They can’t just swap the keyboard for a different brand like an iPad user can. But I digress.
​I don’t do regular product reviews so I won’t write about a new case unless it really speaks to me. However, this new Logitech Slim Combo is so good that I can comfortably say that it is the best case I’ve ever used. It’s better than any other case I’ve tried in the past seven years for any iPad. And I’ve tried many. My previous all-time favorite was the Belkin QODE Ultimate Pro for the iPad Air 2. And at $129 the Slim Combo is cheaper than the much less versatile Apple Smart Keyboard case which is $159.
 
The funny part is that I heard so many negative things about the Slim Combo from the tech press that I actually tried to cancel my order with Logitech before I ever got it. The complaints about it being thick, having an unstable ribbon connection, or a weak magnet all convinced me not to even try it. For whatever reason, Logitech ignored my cancellation request and sent me the case anyway. I was angry when it arrived and decided since I already had it I might as well try it out for a couple of weeks before I sent it back.
 
The Glorious Kickstand
And I’m glad I did. I was using Apple’s Smart Keyboard cover until this case arrived and haven’t touched it since. The Slim Combo makes my iPad even more comfortable to use in more situations. I’ve always like the versatility of the iPad which allowed me to remove the keyboard and to use it like a book or a note pad. However, I’ve now added a new mode which I don’t know how to describe. When Microsoft launched their Surface Studio I was immediately intrigued by how comfortable it looked. It seemed like the first device which effectively bridged the gap between tablet and laptop. What do I mean by that?
 
People who love to surf the web on their laptops cite the fact that they like not holding their screen and being able to angle it any way they like. People who love to surf the web on their iPads say that they love being able to hold their screen up close and swiping.  The Surface Studio made me jealous because it seemed like the perfect device which accommodated both the iPad and laptop camps at the same time. You don’t have to hold the screen, you can angle it how you’d like, but you can still get close to the screen to allow for touching and swiping. 
​The Logitech Slim is the first iPad case I’ve used that allows for a Surface Studio type experience. That’s because it’s the first iPad case I’ve ever used which has a Microsoft Surface type kickstand in the back. And I’ve quickly become addicted to it. I actually like it better than the kickstand on my first generation Surface Pro that I own due to the much greater range of angles. Something that Microsoft fixed in later generations of Surface Pros.
 
I still like to hold my iPad with both hands for typical web surfing. But there are a lot of situations where I like to place it on my lap and angle it up towards my eyes. Like if I’m watching TV, talking on the phone, or eating a snack.
 
I also like to use my iPad for watching video around the house when I’m doing chores. The big screen on the iPad makes it much more enjoyable than using even a Plus-sized iPhone. You can put away your laundry and still see the screen fairly good from ten feet away. I used to go and hunt for an iPad stand but now it is so nice to be able to just plop my iPad down anywhere I’d like and angle it towards me. Or if I’m eating alone, I can prop up my iPad towards me and read the news. Plus, using my Apple Pencil for navigation my screen won’t get all smeared either.
 
 
The Keyboard
I do a lot of typing so the keyboard feel is one of the most important things to me. I also do a lot of typing in very dark settings (can you say emoji movie?) so a backlit keyboard is a must. And this Logitech keyboard is great. It has island keys with a good amount of travel that feel so much like a laptop that you’ll be tempted to reach for the trackpad occasionally. I like the backlit keys but I’m disappointed at how aggressively it shuts off when you don’t touch the keys for more than 5 seconds. Sometimes when I’m writing I need a lot more than 5 seconds to compose my next sentence. I’m an accountant not a writer.  You’d think since it’s connected to the iPad that you could simply toggle the light on/off. I thought that one advantage of hooking up to the iPad was that you’d not have to worry about battery management?
 
I don’t understand any criticism of the strength of the magnet connection between the keyboard and the iPad. I’ve never been disappointed by an unexpected disconnect. In fact, the connection is so strong that you can literally lift the iPad by the keyboard alone and let the iPad dangle underneath. 
I also don’t understand the complaints regarding the flexible ribbon connector. It actually makes the whole package less jittery when you move your legs or when you bang on your keyboard. If you have a MacBook on your lap and you are moving your keyboard back and forth a couple millimeters when you type, guess what? Your screen is going to move back and forth too. This flexible ribbon mitigates that somewhat and is actually a superior design which makes your screen more stable.
 
Lets Talk About That Thickness
There is one valid complaint about this case and that would be how thick it is. But thickness is not a big deal to me unless you’re talking about a phone. It’s not like you’re trying to fit your iPad into your pocket. Weight is more important than thickness when it comes to iPads.
 
But I’m completely dumbfounded why they named it the Logitech “Slim” Keyboard Case. They were just asking for criticism. There’s nothing slim about this case and the name exacerbates the situation by calling it out. I think if they had left the word slim out of the name that this case would have received much more favorable reviews at the beginning because reviewers wouldn’t have been distracted by an obvious misnomer.
 
The thickness isn’t without cause though. The iPad back cover has a built-in lip which is meant to protect the screen of your thousand dollar iPad Pro in the event of a fall. I’m not going to try it but I’d guess that if I was walking across my concrete patio and dropped my iPad that this case would prevent any damage from happening. The case is made of thick plastic and it’s raised about a quarter of an inch above the screen. I’ve never seen another case put such a large buffer around the screen outside of the big Otterbox types. That same lip above the screen provides for a good air gap between your keyboard and screen. So if you squeeze your iPad into your backpack and lean against a wall later you’re not going to end up with your finger grease on your screen.
 
Yeah, this isn’t the slimmest iPad case around but that’s mainly when you have the keyboard attached. I rarely every leave my keyboard attached so it doesn’t matter to me. My standard practice is to leave my keyboard by my favorite sitting chair. So when I feel inspired to write I can attach it on a whim. Or if I’m feeling like doing some serious writing, I head to my desk and place my iPad in an elevated holder and use my good keyboard.
 
Which brings me to another reason I like this keyboard case so much. The keyboard is detachable. I hated the Logitech Create because I don’t want to carry around a keyboard with me everywhere I go. I never take an iPad keyboard to work. At work, my main laptop keyboard is a Bluetooth switchable keyboard that I can use with my Lenovo laptop or my iPad. I only every carry around my iPad and never a keyboard. So to me this case never really feels all that thick.
 
Conclusion
Having a detachable keyboard on a case with a highly adjustable kickstand is the zenith of iPad case development. Any future case I use from now on will have to be a variation of this format. This example from Logitech is the best thus far but there is still some room for improvement. I’d like to see a way to toggle on the backlight for the keys to remain on and a tablet mode which allowed you to flip the keyboard back behind the iPad to read.
 
Protection was not an afterthought. When they designed this case they made protecting your iPad its main feature. And not just in clamshell mode but without the keyboard too. Versatility is great. I want the option of leaving my keyboard behind. After all, that’s why I use an iPad and not a laptop. And the new kickstand has allowed me to use my iPad in a new hands-free format that I call the “Surface Studio” mode. A sort of laptop/tablet hybrid mode which allows me to swipe, but not hold, my iPad.
 
This is the best iPad case I’ve ever used. And I’m not just comparing to other iPad Pro cases, but for any case for any iPad ever.  
 
Now available in iBooks —> The Tesla Bubble
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