In the days after Apple Inc. (AAPL) released its worst earnings report in years, management has gone on a charm offensive to reassure investors — and maybe even themselves as well. CEO Tim Cook has never had the star power that Steve Jobs did, but now the company has been thrown into a position of having to show and prove.
There’s no more benefit of the doubt.
For the fiscal second quarter, Apple saw results miss on both the top and bottom lines. Earnings of $1.90 a share were down from $2.33 a share last year and $0.10 below estimates, while revenue of $50.6 billion came in $1.5 billion short of expectations.
This was AAPL’s first quarterly drop in sales since 2003. Adding to the injury, iPhone unit sales fell 16% in the quarter, and sales in Greater China declined 26%. Guidance for the third quarter was also lower than expected, with management looking for revenue of $41 to $43 billion compared to estimates closer to $45 billion.
In addition, management announced a 10% hike to its dividend and a $50 billion increase to its capital return program. But with that still leaving Apple sitting on more cash than many of the world’s nations, investors are antsy to learn how the company plans to spend that all that money. And political candidates see it as greed personified.
Why MBLY Would Be Good for AAPL
The company said it plans to spend $250 billion by the end of March 2018, and is now talking about acquisitions both large and small. That, coupled with an increasing need for a new company with a wow factor, and I’m led to believe we’re looking at the driverless car.
If that’s the case, AAPL needs to power up on technology, and in my opinion that puts Mobileye NV (MBLY) in the bullseye. Mobileye is a key player in the autonomous automobile industry, which is an area that I think will come to fruition much sooner than many expect.
Its technology is based on advanced vision algorithms that help motorists avoid collisions by interpreting a scene in real time and taking immediate evasive action. This system is known as the Advanced Driver Assistance System, and it’s pretty cool stuff.
There’s no denying this is a crowded field, but the stakes are so high that every major Silicon Valley tech giant is a player. So I think there’s probably a 50% chance we see AAPL make a bid for Mobileye. And if it doesn’t, one of the giants should.
In the most recent quarter, MBLY earned $0.15 a share and saw revenue grow 65% to $75.2 million. Both numbers beat the Street. The number of EyeQ chips sold jumped 62% over a year ago, and the average selling price increased from $43.70 to $44.20.
Mobileye stock has been edging higher, and a close above $40 could spark a massive rally higher. It will be interesting to see whether a buyout offer comes before that move or not, but nonetheless, MBLY remains an attractive target for any of the tech giants.
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