The Challenges Marketers Face Becoming Digital


Study after study suggests that firms and marketers are having difficulty “becoming digital”. To better understand the nature of the challenge and what leading marketing organizations are doing to rapidly increase their digital sophistication, I turned to Peggy Chen, CMO at SDL. The language and content management company  works with 78 of the top 100 global brands, like Unilever, Phillips, Lexus and others, to create relevant digital experiences for consumers. Below is Chen’s insight on the digital revolution.

Kimberly Whitler: Before we start, I want to ask a basic question. How do you define “digital”? The term is thrown around regularly and with a great degree of looseness, so getting your perspective on what this means would be terrific.

Peggy Chen: It is a key buzzword that is used differently depending on who you talk to. Digital has become the medium through which people communicate—it’s table stakes. It’s how we understand, relate to, and communicate with everyone. Consumers today spend upwards of eight hours a day on any one of their three connected devices. That’s an incredible shift when you think about it.

In our business, we see a lot of people going from print to digital. And even when you are printing, you are still using digital technology. And so, the whole world now is digital. The challenge is that when it comes to communication, in the digital sphere, you tend to lose that personal connection. Consumers are inundated with meaningless messages, and making your brand stand out – in any language, or device, is a major challenge. We are at a turning point. The question is no longer, “how do we get everything on the digital channel”. Instead it’s “how you bring the human elements into digital—bring back the human interaction?” Digital is a means to an end. Now we have to make it more meaningful.

Whitler: What are the top challenges you see firms/marketers face as they attempt to become more digital (i.e., technology, organization, talent, etc.)?

Chen: Because digital is the primary channel of communication, the primary challenge is how to connect with your customers in a meaningful and relevant way (e.g., consumer experience). So now, it’s converting digital into a more effective vehicle. The first stage was to get everything on digital. Now, most companies have accomplished this. Next is to figure out how to integrate the digital experience and engage with consumers before, during and after a sale. This means how to structure the organization, how to change and train the talent, and how to use technology to engage in exciting new ways.

One of the biggest challenges marketers have is in creating the amount of content needed to deliver this level of engagement. How do you create more customized, relevant content across languages, devices, and channels for each and every person? One of our airline customers does just that – giving 100 million passengers (in nine languages) their own individual digital experience. If you want to reach millions of customers, then you’re going to need more content that humans are capable of creating. That’s where technology steps in. Advances in AI and Machine Learning are changing the game, and automating the way content is created, organized, and delivered to global audiences.

Whitler: Do these challenges vary by industry (for example, are there challenges that are unique to CPG or banking or retailing)? Why and in what ways?

Chen: Companies fall into different buckets. B2C companies (like retail and banking), where there is more competition, have been more at the forefront of figuring out how to leverage digital to deliver that integrated experience. If you look at the big high-tech, software companies, where you have lower volume, higher price, and longer relationship development cycles, they have been slower to adopt personalization and become more digitally sophisticated. This is because they have personal relationships with the buyers and so the digital sophistication hasn’t been as critical as retailers, for example, who have millions of customers (rather than hundreds). Another factor that is affecting industry development is regulation—life sciences, pharma, banking, etc. Regulation will push these companies to become more digitally sophisticated faster.

Whitler: What advice would you give to a CMO who wants to become more digitally sophisticated (themselves)?

Chen: There are a couple of pieces of advice I’d provide. First, I’d suggest that CMOs continuously monitor the entire marketing-technology landscape. The way they can do this is by following Gartner, Forrester, and Scott Brinker’s MarTech Landscape (see here). Another piece of advice is to spend time speaking with other CMOs. There are plenty of CMO events and these conferences represent a great opportunity to learn what peers are doing. The key is to find out what others are doing, and to gain insight about what is working, and what isn’t.

Whitler: What advice would you give to a CMO who wants to create a more digitally-capable organization/firm/culture?

Chen: First, understand your firm’s level of development. The key is to understand how the landscape is changing, understand the options, and then do an evaluation on where your company is in the transformation process. Before figuring out what to change, it’s critical to understand where the company stands. Of course, the pace of growth at every company is different, and technology can support whatever pace you choose – but a big part of becoming more sophisticated requires understanding the human transformation piece. You have to understand how the people, training, culture need to change to ensure that the digital transformation is effective. This is another part of transformation that is often ignored, and yet so crucial.

Join the Discussion: @KimWhitler @pbc88 @SDL

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Tencent chairman pledges to advance China chip industry after ZTE 'wake-up' call: reports

HONG KONG (Reuters) – Tencent Holdings chairman pledged to advance China’s semiconductor industry, saying the blow to ZTE Corp from Washington’s ban on U.S. firms supplying telecommunications company was a “wake-up” call, local media reported.

FILE PHOTO: Tencent Holdings Ltd Chairman and CEO Pony Ma attends a news conference announcing the company’s annual results in Hong Kong, China March 21, 2018. REUTERS/Bobby Yip

China’s No.2 telecom equipment maker ZTE was banned in April from buying U.S. technology components for seven years for breaking an agreement reached after it violated U.S. sanctions against Iran and North Korea. American firms are estimated to provide 25-30 percent of the components used in ZTE’s equipment.

While the U.S. administration said on Friday it had reached a deal to put ZTE back in business after the company pays a $1.3 billion fine and makes management changes, the plan has run into resistance in Congress, indicating ZTE was still far from out of the woods. Also, ZTE is yet to confirm the deal.

FILE PHOTO: A sign of Tencent is seen during the third annual World Internet Conference in Wuzhen town of Jiaxing, Zhejiang province, China November 16, 2016. REUTERS/Aly Song/File Photo

“The recent ZTE incident made everyone more clearly realize that however advanced one may be in mobile payment, without the mobile, the chips and the operating system, you still cannot compete,” Chinese media reports cited Tecent’s Pony Ma as saying at a forum in Shenzhen on Saturday.

FILE PHOTO: A sign of ZTE Corp is pictured at its service centre in Hangzhou, Zhejiang province, China May 14, 2018. REUTERS/Stringer

Tencent, which alternates with Alibaba Group to be Asia’s most-valuable listed company, is the largest social media and gaming company in China and operates the popular WeChat app.

Ma said “even though the ZTE situation was in the process of being resolved, we must not lose vigilance at this time and should pay more attention to fundamental scientific research”.

Tencent is looking into ways it could help advance China’s domestic chip industry, which could include leveraging its huge data demand to urge domestic chip suppliers to come up with better solutions, or using its WeChat platform to support application developments based on Chinese chips, Ma said.

“It would probably be better if we could get in to support semiconductor R&D, but that is perhaps admittedly not our strong suit and may need the help of others in the supply chain.”

China has been looking to accelerate plans to develop its semiconductor market to reduce its heavy reliance on imports and has invited overseas investors to invest in the country’s top state-backed chip fund.

Reporting by Sijia Jiang; Editing by Himani Sarkar

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BR Pokes Fun At Real Players And 'NBA 2K18' In Game Of Zones And Draws Repost From Ronnie 2K

If you’ve never watched an episode of Bleacher Report’s fantastic animated short series Game of Zones, you should make it a point to catch an episode. It may be a signal of changes to come with the newest version of NBA 2K.

TIBURON, CA – DECEMBER 9: Ronnie Singh poses for a photograph. Mr. Singh is the public face of the hugely popular NBA2K series. Players tweet and send him private messages asking for and complaining about their ratings on the video game. (Nick Otto for the Washington Post)

If you have strong feelings about the NBA 2K series, you may want to make the episode of GOZ below the first one you watch. Hardcore 2K fans will immediately get the references and the comedic shots taking at the game’s much-maligned virtual currency system, inability to skip cutscenes, the polarizing archetype structure and more.

The video features a character named Ronnie 1K who is a medieval version of Ronnie Singh aka Ronnie 2K. There’s so much 2K Community goodness in this video, it’s hard to mention it all. Take a look:

Ronnie 2K added a portion of it to his Instagram story and tweeted the following:

Though it was playfully addressed in the video, the concerns over the VC structure and other aspects of the game are real. 2K has always been cryptic during the pre-release hype. While the video comes from B/R, is it possible the video was a collaborative effort? After all, there are a lot of hardcore 2K references in the video.

Could this be the first in the annual string of cryptic media ahead of a 2K release? Fans should be hoping that’s the case. Ronnie 2K’s public acknowledgment of the media could be a good sign. Would a representative from 2K’s marketing department actually add a video poking fun at last year’s game to his one of his social media accounts if there weren’t plans to address these issues?

Probably not, but there are obviously no guarantees this will lead to the kind of upgrades and alterations that will quiet the increasingly louder rumblings from the 2K community. NBA 2K18 has sold a reported 9 million copies across multiple platforms, but the franchise is still in a unique situation.

While the numbers look promising, it would appear public approval for the series is lower than it has been in years. When will that start to be reflected in sales units and decreased microtransactions? It’s hard to tell, but NBA 2K19 see a dip in numbers if public perception isn’t managed. The first step to resolving an issue is acknowledging that it exists.

Perhaps these videos and the Ronnie 2K reposts are a signal of awareness and action.

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Stitch Fix: The Amazing Use Case Of Using Artificial Intelligence In Fashion Retail

, Opinions expressed by Forbes Contributors are their own.

Stitch Fix, established in 2011 in San Francisco, has disrupted the fashion retail industry. With input from the customer and collaboration between artificial intelligence (AI) and human stylists, the online styling subscription service eliminates the need for their customers to go out and shop for clothing or even browse online, because they deliver personalized recommendations right to their door on a regular schedule. The customers can keep all of the products or return what they don’t like or need. That feedback gets input into the company’s data vaults to make the algorithms even better at determining the preferred style for each person and even identify trends.

Adobe Stock

Adobe Stock

In 2017, the company had $1 billion in revenue and 2.2 million active customers, but competitors such as Amazon and Trunk Club are lining up to mimic its style of retail. Here are just a few of the most intriguing ways Stitch Fix uses artificial intelligence in combination with human stylists to propel its business.

Personalization of clothing and accessories

Stitch Fix has combined the expertise of personal stylists with the insight and efficiency of artificial intelligence to analyze data on style trends, body measurements, customer feedback and preferences to arm the human stylists with a culled down version of possible recommendations. This helps the company provide its customers with personalized style recommendations that fit their lifestyle and budgets.

Improve satisfaction rate and lower return rate

The better the Stitch Fix stylists—human and machines—are at providing their customers with products they will love, the better their business runs. As they invest in merchandise they know their customers will love, the less they waste on warehouse space, return costs and donating items that weren’t sold. As Eric Colson, chief algorithm officer at Stitch Fix, said, “Our business is getting relevant things into the hands of our customers.”

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Few Rules Govern Police Use of Facial-Recognition Technology

They call Amazon the everything store—and Tuesday, the world learned about one of its lesser-known but provocative products. Police departments pay the company to use facial-recognition technology Amazon says can “identify persons of interest against a collection of millions of faces in real-time.”

More than two dozen nonprofits wrote to Amazon CEO Jeff Bezos to ask that he stop selling the technology to police, after the ACLU of Northern California revealed documents to shine light on the sales. The letter argues that the technology will inevitably be misused, accusing the company of providing “a powerful surveillance system readily available to violate rights and target communities of color.”

The revelation highlights a key question: What laws or regulations govern police use of the facial-recognition technology? The answer: more or less none.

State and federal laws generally leave police departments free to do things like search video or images collected from public cameras for particular faces, for example. Cities and local departments can set their own policies and guidelines, but even some early adopters of the technology haven’t done so.

Documents released by the ACLU show that the city of Orlando, Florida worked with Amazon to build a system that detects “persons of interest” in real-time using eight public-security cameras. “Since this is a pilot program, a policy has not been written,” a city spokesperson said, when asked whether there are formal guidelines around the system’s use.

“This is a perfect example of technology outpacing the law,” says Jennifer Lynch, senior staff attorney at the Electronic Frontier Foundation. “There are no rules.”

Amazon is not the only company operating in this wide open space. Massachusetts based MorphoTrust provides facial-recognition technology to the FBI, and also markets it to police departments. Detroit police bought similar technology from South Carolina’s Data Works Plus, for a project that looks for violent offenders in footage from gas stations.

The documents released Tuesday provide details about how Orlando, and the sheriff’s department of Oregon’s Washington County use Amazon’s facial recognition technology. Both had previously provided testimonials about the technology for the company’s cloud division.

Orlando got free consulting from Amazon to build out its project, the documents show. In a prior testimonial, Orlando’s chief of police John Mina said that the system could improve public safety and “offer operational efficiency opportunities.” However a city spokesperson told WIRED that “this is very early on and we don’t have data to support that it does or does not work.” The system hasn’t yet been used in investigations, or on imagery of members of the public.

Washington County uses Amazon’s technology to help officers search a database of 300,000 mugshots, using either a desktop computer or a specially built mobile application. Documents obtained by the ACLU also show county employees raising concerns about the security of placing mugshots into Amazon’s cloud storage, and the project being perceived as “the government getting in bed with big data.”

There’s no mention of big data in the US Constitution. It doesn’t provide much protection against facial recognition either, says Jane Bambauer, a law professor at the University of Arizona. Surveillance technology like wiretaps are covered by the Fourth Amendment protections against search and seizure, but most police interest in facial recognition is in applying it to imagery gathered lawfully in public, or to mugshots.

State laws don’t generally have much to say about police use of facial recognition, either. Illinois and Texas are unusual in having biometric privacy laws that can require companies to obtain permission before collecting and sharing data such as fingerprints and facial data, but make exceptions for law enforcement. Lynch of EFF says hearings by the House Oversight Committee last year showed some bipartisan interest in setting limits on law enforcement use of the technology, but the energy dissipated after committee chair Jason Chaffetz resigned last May.

Nicole Ozer, technology and civil liberties director at the ACLU of Northern California, says the best hope for regulating facial recognition for now is pressuring companies like Amazon, police departments, and local communities to set their own limits on use of the technology. “The law moves slowly, but a lot needs to happen here now that this dangerous surveillance is being rolled out,” she says. She says Amazon should stop providing the technology to law enforcement altogether. Police departments should set firm rules in consultation with their communities, she says. In a statement, Amazon said all its customers are bound by terms requiring they comply with the law and “be responsible.” The company does not have a specific terms of service for law enforcement customers.

Some cities have moved to limit use of surveillance. Berkeley, California, recently approved an ordinance requiring certain transparency and consultation steps when procuring or using surveillance technology, including facial recognition. The neighboring city of Oakland recently passed its own law to place oversight on local use of surveillance technology.

Washington County has drawn up guidelines for its use of facial recognition, which the department provided to WIRED. They include a requirement that officers obtain a person’s permission before taking a photo to check their identity, and that officers receive training on appropriate use of the technology before getting access to it. The guidelines also state that facial recognition may be used as investigative tool on “suspects caught on camera.” Jeff Talbot, the deputy spokesperson for the Washington County Sheriff’s Office, said the department is not using the system for “public surveillance, mass surveillance, or for real-time surveillance.”

Ozer and others would like to see more detailed rules and disclosures. They’re worried about evidence that facial recognition and analysis algorithms have been found to be less accurate for non-white faces, and not accurate at all in law enforcement situations. The FBI disclosed in 2017 that its chosen facial-recognition system only had an 85 percent chance of identifying a person within its 50 best guesses from a larger database. A system tested by South Wales Police in the UK during a soccer match last year was only 8 percent accurate.

Lynch of EFF says she believes police departments should disclose accuracy figures for their facial recognition systems, including how they perform on different ethnic groups. She also says that despite the technology’s largely unexamined adoption by local police forces, there’s reason to believe today’s free for all won’t last.

Consider the Stingray devices that many police departments began to quietly use to collect data from cellphones. Amid pressure from citizens, civic society groups, and judges, the Department of Justice and many local departments changed their policies. Some states, such as California, passed laws to protect location information. Lynch believes there could soon be a similar pushback on facial recognition. “I think there is hope,” she says.

Louise Matsakis contributed to this article.

More Great WIRED Stories

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Foxconn's unit targets raising $4.3 billion in biggest China IPO since 2015

TAIPEI/SHANGHAI (Reuters) – Foxconn Industrial Internet (601138.SS), a subsidiary of the world’s largest contract manufacturer Foxconn (2317.TW), announced plans to raise up to 27.1 billion yuan ($4.26 billion) in what will be mainland China’s biggest IPO in almost three years.

FILE PHOTO: Visitors are seen at a Foxconn booth at the World Intelligence Congress in Tianjin, China May 19, 2018. REUTERS/Stringe

The Foxconn unit, which is known as FII and makes electronic devices, cloud service equipment and industrial robots, is offering up to 1.97 billion shares at 13.77 yuan per share in Shanghai, according to a statement it filed to the stock exchange late on Tuesday.

With 10 percent of its enlarged capital offered in the initial public offering (IPO), Shenzhen-based FII would have a valuation of about $43 billion at listing. Bookbuilding for the IPO is on May 24.

The listing is widely seen as a step for Terry Gou’s Foxconn, a major Apple Inc (AAPL.O) supplier formally known as Hon Hai Precision Industry Co (2317.TW), to wean itself off heavy reliance on manufacturing smartphones for the California-based iPhone maker and to diversify into new areas.

Foxconn has signaled previously that FII will launch projects in areas including smart manufacturing, industrial internet, cloud computing, and fifth-generation wireless technologies.

The IPO is also a reflection of Beijing’s seriousness in luring tech giants onto mainland exchanges.

At about $43 billion, the unit’s valuation would not be far behind parent company Foxconn’s market capitalization of about $49 billion.

The IPO’s pricing represents 17 times FII’s historical earnings, well below the valuation cap of 23 times favored by Chinese regulators.

FII plans to sell 30 percent of its public share offering to a group of strategic investors in a rare move for mainland deals.

The strategic investors are not being called cornerstones – investors who accept a lock-up period in return for large allocation, which is a practice common in other Asian markets such as Hong Kong to bolster demand for large deals.

However, the group will function as such, with its investments tied up for between one and three years. In an additional unusual move, 70 percent of institutional investors’ allocated shares will also be locked up for 12 months.

FII’s IPO ranks as the fourth largest in the mainland over the past 10 years, outpaced only by China State Construction Engineering (601668.SS), which raised $7.3 billion in 2009; China Railway Construction (601186.SS), which sold shares worth $5.7 billion in 2008; and Guotai Junan Securities (601211.SS), which raised $4.8 billion in 2015.

Clients of FII include companies such as Amazon (AMZN.O), Apple (AAPL.O), Cisco (CSCO.O), Dell, Huawei and Lenovo (0992.HK).

Reporting by Jess Macy Yu in Taipei and Julie Zhu and Jennifer Hughes in Hong Kong; Additional reporting by Engen Tham and Yiming Shen in Shanghai; Editing by Muralikumar Anantharaman

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6 Reasons Apple Could Keep Crushing The Market Over The Next Decade

(Source: imgflip)

My dividend growth retirement portfolio is predicated on one core principle above all else; the right company at the right price. That means that I want to avoid overpaying for a stock at all costs. That’s even for industry-leading blue chips like Apple (AAPL) whose business model I love and that I consider to be a must-own dividend growth stock.


AAPL Total Return Price data by YCharts

But thanks to Apple’s solid returns over the past year, keeping up with the red hot Nasdaq and soundly beating a very strong (and overvalued) S&P 500, I’ve been struggling to justify purchasing Apple. That’s because I use several valuation methods to confirm a good buy, and some of them were giving me conflicting signals about Apple.

However, then I read that Warren Buffett, the greatest value investor in history (and a man who is famous for avoiding overpaying for companies) increased Berkshire Hathaway’s (NYSE:BRK.A) (BRK.B) stake in Apple by a stunning 45% in the past quarter. This made me reconsider my own valuation techniques and take another look at Apple’s long-term fundamentals, including as a dividend growth stock.

After careful analysis, I’ve concluded that I may have been using the wrong valuation methods for the company. In fact, there are six reasons why I now consider Apple to be a strong buy, even near its 52-week highs.

Let’s take a look at why the world’s most valuable company still likely has what it takes to be a strong market beater over the next decade, and possibly far longer. In fact, despite its $930 billion valuation, I think the company can realistically generate 13.2% annual total returns over the next decade, which would probably outperform the S&P 500’s 8.1% likely total returns by about 63% per year.

Apple’s Growth Engine Shows No Signs Of Slowing Down

Ahead of earnings many investors and analysts were expecting disappointing results, particularly due to fears that the flagship iPhone X (which costs $1,149 for the top end model) would disappoint and hurt iPhone revenue.


Q2 Fiscal 2018 Results

First Half Fiscal 2018 Results

Revenue Growth



Operating Income Growth



Net Income Growth



Free Cash Flow Growth



Share Count Growth



EPS Growth



FCF/Share Growth



Forward Dividend Growth



FCF Payout Ratio



(Source: earnings release)

As you can see those fears were wildly overblown. Apple continues to grow strongly, including operating earnings which were not boosted by tax reform. In fact, according to CEO Tim Cook:

Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. We also grew revenue in all of our geographic segments, with over 20% growth in Greater China and Japan.” – Tim Cook

iPhone volumes grew 3% in the past quarter which might not seem like much but keep in mind that global smartphone volumes actually shrank 1.8%. That means that Apple bucked the trend and saw its global market share rise to 14.7%

That was helped by iPhone unit sales growing by double-digits in several markets including: Japan, Canada, Switzerland, Turkey, Central and Eastern Europe, Mexico and Vietnam. Many of these are fast growing emerging markets where Apple is an aspirational brand whose products are highly sought after by consumers in those countries rapidly growing middle class.

(Source: earnings supplement)

This is largely thanks to the highest consumer satisfaction in the industry. According to a survey by 451 research iPhone customer satisfaction stands at 95% across the entire product line. For the top shelf iPhone 8, 8 Plus, and X models it’s 99%. This is why 78% of business buyers who said they were planning on buying a smartphone in the June quarter planned on getting an iPhone.

Meanwhile, its other hardware lines saw flat to modest sales growth. But the star of the show was services and other products, which includes things like Apple Pay, Apple Music, subscription services, AirPods, and Apple Watch (which saw 50% sales growth). Service revenue was up not just 31% YOY in total, but up 25% or more in every single geographic market. This indicates that Apple has cracked the code in terms of monetizing its enormous installed base in every corner of the globe.

Better yet? Apple saw modest to strong growth in all regions it operates in and CFO Luca Maestri offered Q3 guidance that indicates that Apple’s double-digit sales and earnings growth is likely to continue for the rest of the year.


Q3 2018 Guidance

Revenue Growth


Operating Income Growth


(Source: Management guidance, Morningstar)

So fears of Apple’s growth slowing to paltry levels were overblown. But what about the future? What’s going to keep the world’s largest (and most valuable) company growing in the coming years? Fortunately, Apple has two good catalysts to keep investors happy.

Strong 2018 Lineup Of New iPhones

In the previous quarter, Apple’s success with the iPhone X drove an 11% increase in its average selling price to $749. That’s 106% more than the $363 average for the industry. But of course, given that the iPhone X was all new and very popular many are wondering whether this means that the company’s iPhone average selling price or ASP will peak in 2018. While it is certainly possible and iPhone unit volumes might flatline next year I actually think Apple will have another record year in 2019, both in terms of volumes and maybe even continued increases in ASP.

That’s because in late 2018 Apple is expected to once more revamp its iPhone line, including with an introduction of an even more premium phone that analysts are (for now) calling the iPhone X Plus.

(Source: Benjamin Geskin)

According to KGI Securities’ analyst Ming-Chi Kuo (who is usually highly accurate with his predictions), this phone is expected to have a 6.5″ OLED screen. But thanks to a wrap-around edge to edge display, it will have the same physical footprint as the 5.5″ iPhone 8 Plus. Samsung, Apple, and numerous other phone makers have shown that when it comes to screens, bigger is better, especially with consumers in Asia where giant phones are the most popular.

Playing off the “bigger is better if it’s the same size” strategy Apple is expected to launch a total of four new models in September 2018, with three carryovers to sell at lower cost points. Overall here’s what the new line-up is expected to look like including projected starting prices:

  • New: iPhone SE 2: $349
  • Retained: iPhone 7 and iPhone 7 Plus: $449 and $569
  • Retained: iPhone 8 and iPhone 8 Plus: $549 and $669
  • New: 6.1-inch iPhone with Face ID: $649, $749, or $799
  • New: 5.8-inch second-generation iPhone X: $899
  • New: 6.5-inch second-generation iPhone X Plus: $999

Assuming that the lineup predictions are correct, I expect that the introduction of a larger iPhone might very well keep volumes growing steadily (about 2% to 3% in 2019). In addition, I wouldn’t be surprised if, given the success of the iPhone X so far, the price point on that phone is retained and the starting price on the X Plus is actually $1,099 (with top model $1,249).

After all these price projections, showing Apple cutting the prices on its major phones, came during a time when rumors were swirling that the iPhone X was seeing disappointing demand. Now that we know those rumors were 100% false and that demand for super priced iPhones remains robust, I think Apple could potentially see not just further volume sales growth in 2019, but a rising ASP as well. That’s because if the X Plus is good enough (in terms of features and quality) there are plenty of people that might be willing to pay the higher price, especially given the 99% customer satisfaction survey results we’ve seen on the iPhone X.

Ok, but even if Apple does reveal an improved line-up of phones in September, including a larger, better, and more expensive X Plus, that only grows sales and earnings through 2019. There must be a limit to how big smartphones can get and we’re likely approaching that limit. Fortunately, the future of Apple’s strong growth lies not in hardware, but in software.

Behold The Future Of Apple’s Growth: Services

Apple’s future growth is not in the iPhone, but in monetizing its enormous installed base of 1.3 billion devices. In other words, Apple wants to grow its subscription services to generate steady, recurring, and high margin cash flow. Currently, Apple’s subscriber base is 270 million, up 170% from 100 million a year ago (and up 30 million in the last 90 days). What’s more user transactions on things like digital subscriptions, AppleCare, Apple Pay, and Apple Music tripled over last year driving 31% revenue growth in service revenue.

(Source: earnings supplements)

This is the thing that Wall Street largely seems to miss. That Apple’s future lies in its services, where revenue is not just growing the fastest but accelerating over time. In fact, service revenue went from 6.4% of total sales in Q1 2015 to 15.0% in the last quarter. Management expects that by 2020 service revenue will have grown to $50 billion (Credit Suisse (NYSE:CS) thinks it will hit $53 billion that year). But to keep that strong service growth going Apple needs to ensure its ecosystem remains top-notch. This is where R&D and growth investment comes in.

In recent years, Apple has been massively boosting its R&D and CapEx spending. Those investments are going into key strategic initiatives that are designed to make the Apple ecosystem even stickier, keep iPhone sales growing (to expand the installed base), and keep service revenue growth accelerating.

For instance, it plans to invest $30 billion in US growth capex over the next five years, (and hire 20,000 new American workers). Meanwhile, R&D spending on new products continues to hit new all-time highs.


AAPL Research and Development Expense (NYSE:TTM) data by YCharts

In fact, the company’s R&D as a percentage of revenue is at its highest levels in 14 years. And given how much larger Apple has grown since then that’s saying something.


AAPL R&D to Revenue (TTM) data by YCharts

What is all that money going towards? Well, a few things. First Apple is doubling down on artificial intelligence or AI. That’s because Siri is far behind rival AI systems like Alphabet’s (NASDAQ:GOOGL) (GOOG) Google Now, Microsoft’s (MSFT) Cortana, and Amazon’s (AMZN) Alexa. So Apple has hired John Giannandrea, former head of Google’s AI department, to help improve its AI integration across its ecosystem. That integration involves partnerships with IBM (IBM) to create Watson integrated enterprise applications for every industry from insurance and cyber security to healthcare.

In addition, Apple is doubling down on in house engineering, specifically making more of its internal components for the iPhone, Mac, and other hardware. This is a trend that larger phone makers have been pursuing including Samsung (OTC:SSNLF) and Huawei. This started with Apple’s 2008 acquisition of P.A Semiconductor which led to Apple’s switch to its A-series of chips beginning with the A-4 in 2010.

Apple’s plans for the future involve designing more and better chips for the iPhone, its wearables (sales up 50% YOY), and even potentially Macs by as early as 2020. Apple’s logic is that customers pay for a premium experience so it wants total control of chip design so it can optimize its hardware and software.

(Source: Tom’s Guide)

This has been a winning strategy thus far with Apple’s A-series chips helping its phones run circles around the competition year after year.

Now Bloomberg is reporting that Apple wants to take even more of its component designs in house by developing its own displays. Apple co-developed OLED display tech with Samsung and then outsourced manufacture to LG (OTC:LGEAF). However, LG has had a tough time keeping up with strong demand for the iPhone X. And with Apple planning on an even larger and potentially better selling OLED phone coming this year the company wants to improve its supply chain.

Apple apparently wants to design MicroLED screens, which are the next generation of display technology promising “to make future gadgets slimmer, brighter and less power-hungry.”

The bottom line is that for all those investors who worried that Apple wasn’t spending enough on innovation or R&D, well you can rest easy. Apple is going full bore on growth investment, but in a smart and disciplined manner.

One that optimizes its current growth strategy of maximizing its install base and then monetizing it to efficiently, profitably, and at an accelerating rate. And given that Apple’s trailing 12-month returns on invested capital were 21.6%, all that extra spending means that earnings and free cash flow growth should continue to grow strongly for years.

More importantly, Apple has another major growth catalyst to help boost its EPS and FCF/share, which likely spells great news for dividend investors.

Epic Cash Return Program Makes Apple The Ultimate Low Risk Dividend Growth Investment

One of the biggest reasons I plan to own Apple is because its massive cash hoard means strong buybacks and double-digit dividend growth for as far as the eye can see.

(Source: Apple)

Keep in mind that Apple paid a $38 billion repatriation tax which means that had it not been for that one-time event the total cash position would have grown to an all-time high of $305 billion.

That’s despite returning over $275 billion in cash to shareholders over the past six years. This is due to the company’s prodigious ability to generate free cash flow including $54.1 billion in the last 12 months or a FCF margin of 22%. Note that this figure has been declining a bit over time (in recent years, it was as high as 25%). But that’s not a bad thing because Apple is doing what it’s supposed to and accelerating growth investment.

Our current net cash position is $163 billion and given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral over time.” – Luca Maestri, CFO

According to Luca Maestri, Apple’s CFO, Apple wants to reduce its net cash position to zero over time. That’s why the company announced an additional $100 billion in buyback authorization on top of the existing one which runs out at the end of the current quarter. It’s also why Apple hiked its dividend by 16% for 2018, the largest increase ever since it re-instated a quarterly payment in 2012.

As importantly Maestri said the company’s M&A strategy of relatively small and strategic bolt-ons to “accelerate our product road maps” won’t change. So anyone hoping that Apple would go on a wild buying bender and purchase Tesla (TSLA), sorry you’re out of luck.

Why am I so excited about Apple’s capital return program? Because unlike most buyback programs which peak during times when a company’s earnings (and share price) are at their maximum, Apple is able to aggressively repurchase shares that are almost perennially undervalued.


AAPL P/E Ratio (Forward) data by YCharts

For example, since the buyback program began in 2012 Apple has never once repurchased shares at a forward PE of greater than 18.1. In fact, most of the time it’s been repurchasing shares at a PE multiple of about 15, far below that of the broader market.

And each share Apple buys back at a reasonable (or sometimes deeply undervalued) price means that its fast growing dividend costs less. Remember that FCF/share is ultimately what funds the dividend. So by reducing the share count Apple is boosting its FCF/share growth and thus keeping its payout ratio very low. That allows faster (but highly safe) dividend growth for longer. Just how long and fast?

Well, consider this. Right now Apple’s net cash position is $145 billion and the new dividend (assuming zero buybacks) is $15 billion for the next 12 months. This means that after accounting for the dividend Apple could theoretically buyback $130 billion of shares or 14.2% of its shares.

That would reduce the cost of the dividend to about $13 billion (what it was before the hike). Then Apple, with no net cash left, would have to fund its capital returns purely from annual free cash flow. Assuming a modest 10% growth in annual FCF (which we are easily on track for) that means $60 billion in FCF over the next year. Subtract $13 billion for the dividend and that leaves $47 billion to repurchase an additional 5.1% of the shares. That reduces the dividend cost by $660 million a year and means that Apple can hike the dividend by 5.1% in 2019. That assumes zero additional growth in free cash flow, and is purely on the strength of its buybacks.

In reality, Apple’s strong growth catalysts likely mean it will be able to generate organic (non buyback induced) earnings and free cash flow growth of 6% to 8%. But when you add in the effects of 4% to 5% long-term share repurchases that means that Apple’s bottom line (and dividend) could continue growing at low single digits for the foreseeable future. Which in turn would likely drive very strong market beating returns over time.

Dividend Profile: Double-Digit Payout Growth Potential Means Apple Could Outperform Market By 63% Per Year Over The Next Decade



TTM FCF Payout Ratio

Projected 10 Year FCF/Share Growth

10 Year Potential Annual Total Return




11% to 12%

12.6% to 13.6%

S&P 500





(Sources: earnings release, Gurufocus, F.A.S.T.Graphs, Multpl, CSImarketing)

The most important part of deciding whether to buy (and recommend) a dividend stock is the payout profile which consists of three parts: yield, safety, and long-term growth potential.

Now I’ll be the first to admit that Apple’s 1.6% yield is rather paltry. This is not the stock for you if you are looking for generous income right now. However, Apple’s dividend is not just low risk, it’s one of the safest on Wall Street.

That’s because the new dividend’s trailing 12-month FCF payout ratio is under 28% meaning that it’s barely making a dent in Apple’s river of fast growing free cash flow. But there’s more to dividend safety than just a well-covered payout. The balance sheet is also important, so that management doesn’t have to choose between investing in future growth and paying investors.



Interest Coverage Ratio

S&P Credit Rating

Interest Rate






Industry Average





(Source: earnings release, Morningstar, Gurufocus, F.A.S.T.Graphs)

Apple’s balance sheet doesn’t appear that impressive if we just use standard relative debt metrics. After all, it does owe $122 billion. And while its leverage ratio is below that of most tech companies, the interest coverage ratio is only about half as large.

However, we can’t forget that Apple’s net cash position of $145 billion means that such comparisons are largely superfluous. Apple can literally repay all its debt at any time. However, because of its incredibly strong credit rating it was able to borrow at an average interest rate of just 2.3%. And the post-tax (interest is tax deductible) effective interest rate is about 2.0%. This means that Apple has no reason to repay its debts early but just as they mature.

What about the long-term dividend growth prospects? Well, it’s certainly possible that Apple might continue hiking the dividend by a larger amount, say 15% to 20% per year. But for long-term modeling purposes the truth is that what matters isn’t the dividend growth but the growth in FCF/share.

That’s because over the long-term studies show that total returns for dividend stocks approximate yield + dividend growth. However, that model (called the Gordon Dividend Growth model or GDGM) assumes a constant payout ratio implying that dividend growth is a proxy for earnings and cash flow growth.

Or to put another way the GDGM says that your total returns will approximate the income you are getting now plus the capital gains that result from a company’s growth in the bottom line. That’s because over time a stock’s yield will fluctuate around a fixed point meaning that as the dividend grows in line with earnings and cash flow the price should rise at roughly the same rate (over the long term).

This means that even if Apple were to grow its dividend faster than FCF/share the share price likely won’t appreciate at the faster rate. This is because investors would realize that the more rapid growth was a result of payout ratio expansion that must ultimately stop once it reaches some level (say 50%).

Still the end result is that Apple appears to have long-term FCF/share growth potential of 11% to 12% (analyst consensus 11.6%). So under the GDGM that would imply a 13.2% total return potential. Given the S&P 500’s current valuations it’s likely that Apple will be able to handily beat the 8.1% total returns the broader market is likely to generate over the next decade. And even if the S&P 500 manages its historical 9.2% total return (since 1871) Apple will still prove a superior investment.

Valuation: Believe It Or Not Apple Is Still A Great Deal


AAPL Total Return Price data by YCharts

Given that Apple is near its 52-week high and has easily beaten both the tech-heavy Nasdaq and S&P 500 this year, it’s understandable that many investors are worried about buying at current levels.

The thing about valuations is there is no objectively correct method. That’s why I usually use at least three valuation models to determine whether or not a stock is trading at fair value or less.

The first is using the Gordon Dividend Growth Model to see whether or not a stock has the potential to reach my personal total return target of 10+%. Apple passes that test easily.

Another model I use is comparing the yield against its historical average. Remember that over time a stock’s yield will mean-revert, or fluctuate around a relatively fixed point that can serve as a good proxy of fair value.

(Source: Simply Safe Dividends)

This is where I’ve always run into trouble with Apple, because since early 2017 the company’s valuation under this method has shown it to be overvalued. I generally err on the side of conservatism and require a stock to pass all three of my valuation tests before buying it.

However, with tech stocks (which are usually not owned for their dividends) I’m sometimes willing to make an exception. That’s especially true for industry-leading blue chips like Apple. Specifically that means that I ‘m willing to buy it if it passes just 2/3 of my valuation screens.

What is the third screen? Looking at the earnings multiple, which is where Apple shines.

Forward PE Ratio

Implied Growth Rate

Historical (13 Year Median) PE Ratio

Estimated Benjamin Graham Fair Value PE

Potential Discount To Fair Value






(Sources: F.A.S.T.Graphs, Gurufocus, Benjamin Graham)

There are two parts to this screen. The first is comparing the forward P/E to the historical P/E. As you can see that comparison makes Apple appear extremely undervalued. Of course, since Apple was previously growing at 100+% for several years that figure is skewed much higher and thus shouldn’t necessarily be trusted on its own.

Which is where I turn to Benjamin Graham, the father of modern value investing (and Buffett’s mentor). Graham developed a simple rule of thumb formula for determining whether or not a stock was reasonably priced.

Fair Value P/E = (8.5 + (2 X 7 to 10 year projected growth rate))/ Discount Rate

The idea is that even a company that’s not growing (but has a stable business generating good cash flow) is worth something. This formula can serve as a good test of any company’s current earnings multiple to see whether it is reasonable given realistic growth potential. If a company isn’t growing at all then using a 9.1% discount rate (what a low cost S&P 500 index ETF would have generated since 1871 net of expenses) shows that buying that company at an earnings multiple of 7.8 is reasonable. Assuming all the earnings get paid out as a dividend, it means you’ll earn the same return as the market. Anything below that is a bargain and any multiple above it is overpaying.

For Apple using the current analyst consensus that would imply a fair value Benjamin Graham PE of 29.1 or about $334 per share for Apple. Now that implies that Apple is currently 44.3% undervalued which might raise some eyebrows. That’s good because while models are useful you always need to remember that they are only as good as the assumptions and projections baked into them.

The question is how realistic are analyst’s long-term growth assumptions of 11.6%? Well, given that Apple can easily buy back 4% to 5% of its shares using purely organic excess FCF (after paying the dividend), they seem pretty realistic to me. In fact, since Apple’s enormous net cash position should allow it to repurchase 6% to 7% of its shares for several years, the company requires very little actual revenue growth as long as it can maintain its margins.

The other useful thing about the Benjamin Graham model is that it allows us to determine an implied growth rate. In other words, given Apple’s current earnings multiple what growth rate does Wall Street appear to be pricing in. The answer is 3.9% earnings (and FCF) growth per share over the next decade. Now this is where my confidence in recommending Apple at today’s price really goes up.

Because even if Apple were to do something incredibly stupid, such as pay out all of its net cash as a one-time dividend, the organic buyback rate of 4% to 5% per year would allow it to easily meet or likely beat that low hurdle. And given that Apple is likely to buy back shares at a much faster rate, and continues to generate strong organic sales and earnings growth as well, I have no qualms about declaring it a strong buy at today’s price.

Of course, that is only if you are comfortable with the company’s risk profile.

Risks To Consider

There are three risks to keep in mind with Apple.

In the short term, the company might see margin pressure for two reasons. The first is that the company is starting to see higher component costs. This can be partially offset by higher average selling prices on iPhones but there is a limit to how high that can go. For example, if past trends (of Apple’s largest iPhone being its most popular) hold then success in the iPhone X Plus should mean ASPs rise into 2019. However, it’s always possible that Apple’s margins on that super premium phone might actually be lower than its less expensive models.

That’s because Apple’s flagship usually comes with the company’s most advanced tech which can mean higher production costs than simpler models. The good news is that as the world’s second largest smartphone maker Apple has enormous pricing power with suppliers. Thus it will likely always hold a competitive advantage compared to its smaller peers, meaning that any margin compression is likely to be smaller and potentially last shorter than for other phone manufacturers.

In addition, a rising ASP on new iPhone models could help to offset rising input prices, assuming the iPhone X Plus isn’t loaded with too much expensive Star Trek tech. But given that I doubt Apple will be launching an even larger and more premium line after that (say a 7″ iPhone X Plus Pro) then future ASP increases will largely have to come from Apple’s strong pricing power via annual price increases.

The other potential margin pressure point is the rising dollar. Remember that Apple generates most of its sales overseas. This means that if the US dollar strengthens relative to local currencies than not only will its products become more expensive in those markets (potentially hurting sales growth) but its bottom line could also fall. That is because a rising dollar creates growth headwinds as foreign profits end up converting to fewer dollars for accounting (and capital return) purposes.


^DXY data by YCharts

Through most of 2017 optimism about stronger coordinated economic growth around the world caused the US dollar to fall significantly against most currencies. This was because investors expected foreign central banks to start raising interest rates faster matching rising rates in the US.

However, in the first quarter of 2018 growth has slowed down worldwide, and central banks have thus held off ending quantitative easing and have not started hiking rates. Meanwhile, continued strong economic growth in the US has caused our long-term rates to rise. In addition, the Federal Reserve has said it plans seven more rate hikes through the end of 2020 (which will likely push up short-term rates).

Since global capital flows to where it can get the best return, US rates rising while rates in other economies don’t can create stronger demand for US dollars that causes its relative value to increase. Note that this means that all multinational US corporations could be facing a currency growth headwind for the next year or two.

The second risk is longer-term and ties into the first, which is Apple’s pricing power. That is based on the strength of its brand and stickiness of the ecosystem. For years many analysts and investors have worried that Apple was doomed to follow in the footsteps of BlackBerry (BB) and Sony (SNE), once dominant consumer tech companies who became complacent and were later disrupted.

Thus far Apple has done a masterful job of continuing to improve iOS as well as its service offerings, resulting in continued strong growth in both iPhones and a booming subscription business. And its increasing R&D spending gives me confidence that management will avoid the kind of complacency that spelled the downfall of earlier consumer electronic companies.

But that being said Apple’s ultimate growth potential rests on one key factor. It must maintain strong market share in emerging markets like China, India, Latin America and eventually Africa (which is expected to see its population grow by 1.3 billion by 2050).

The risk is that technology by its very nature tends to become commoditized, meaning that prices/capability fall over time. While Apple has managed to remain an industry leader by adding new features that delight its users, ultimately much cheaper smartphones might prove “good enough” for the needs of many poorer consumers around the world. Or to put another way, in the long term it’s hard to say whether or not Apple will be able to keep its product offerings far enough ahead of lower cost budget Android phone makers to maintain enough future global smartphone market.

Global Smartphone Sales Projections

(Source: Statista)

And even if Apple can maintain its current market share in premium smartphones the overall growth rate of that market is expected to slow down and potentially peak in 2021. Note that this is likely due to consumers (especially in emerging markets) upgrading at a slower pace (phones are “good enough”). Over the long term, continued population and economic growth around the world (mostly emerging markets) should cause smartphones sales to continue rising over time.

However, as we know the market can be a fickle mistress. Which means that bears and fair weather bulls (who only love a stock if its constantly rising) could fixate on slowing iPhone sales in the future resulting in short to medium-term price volatility.

Fortunately, as long as Apple’s iPhone sales remain flat it will still represent a large and growing user base that it can monetize via its fast-growing and increasingly profitable service business.

Finally while it’s a more speculative risk, and certainly a good problem to have, I am a bit worried that if Apple can’t get to its net cash goal of zero fast enough management might eventually start to feel pressure to do something stupid. That might including splashy acquisitions that numerous analysts have recommended over the years.

  • Netflix (NFLX): $141.0 billion
  • PayPal (PYPL): $95.5 billion market cap
  • Tesla: $47.0 billion
  • Activision Blizzard (ATVI) $54.8 billion
  • Pandora (P): $1.9 billion

Apple could easily acquire any of these companies and plausible sounding cases can be made that buying something like Netflix or Pandora would fit nicely into Apple’s service oriented growth future. However, thus far the company has managed to do a great job at compounding shareholder value without such giant and overpriced acquisitions. Rather Apple is famous for smaller bolt-on purchases that fit into management’s long-term strategy. And given the CFO’s comments during the last conference call I have little concern that Apple is going to potentially make such bone headed deals in the future.

What is a larger concern is the potential for a giant one-time special dividend. I’m extremely opposed to such an idea because a one-time dividend literally creates no long-term value. The share price is reduced by the same amount on ex-dividend day, and the cash that’s distributed reduces the value of the company by that much. What’s worse such a one-time dividend would mean far smaller future buybacks and slower dividend growth, which is the core of my long-term investment thesis for the company.

Fortunately, it appears that at least for now Tim Cook and company are avoiding activist pressure for such a pointless short-term capital allocation move. And given that management has said that it agrees with me that shares remain highly undervalued, chances are that Apple will simply accelerate the buyback program to meet its long-term net cash zero target.

Bottom Line: Apple Remains A Must Own Dividend Growth Stock And A Strong Buy At Today’s Valuation

Don’t get me wrong I’m not saying that Apple is going to continue soaring like it has this year or last year. In the short term, there is no telling what factors the market might fixate on, which could drive wild swings in the price of any company.

What I do know is that Apple, despite trading at near 52-week highs, is still undervalued based on its top-notch fundamentals and realistic long-term growth potential. Growth potential that will be driven by strong short and long-term growth catalysts and the largest capital return program in history.

All of which is why I plan to take an initial position in Apple next week. That’s because I have high confidence that management will do a great job of exponentially compounding my wealth over the next decade, thanks to double-digit dividend hikes for the foreseeable future.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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OnePlus 6 Review: The Best Affordable Android Phone of 2018

OnePlus is an odd duck in the smartphone business. It tends to make one phone at a time with a simple and clear goal: to pack all the latest trends and tech into an Android phone that costs about $500. It doesn’t waste time developing a ton of custom features, like LG’s crazy AI-powered camera, nor does it make any effort to woo U.S. wireless carriers. If you want a OnePlus phone, you have to buy it unlocked, directly from OnePlus. For as offbeat as it seems, the strategy appears to be working.

The 2017 OnePlus 5T sold out faster than anticipated and now OnePlus is back a mere six months later with its successor. If you obsessively follow smartphone trends, you can probably guess the OnePlus 6’s new features: A longer screen with a notch cutout up top, glass on the back, Android 8 Oreo, and a top-shelf Qualcomm Snapdragon 845 processor.

The OnePlus 6 holds no major surprises, and that’s exactly how OnePlus likes it.

Gestures and Glass

Metal frame. Gorilla Glass back with curved edges. If you’ve held a top-tier smartphone in the last year, you can imagine exactly what the OnePlus 6 feels like.

The 6 is roughly the same size as the 5T, with a taller 6.28-inch 1080p AMOLED screen (spoiler warning: it looks great in spite of its HD resolution) that stretches from the bottom (almost) all the way up to the tippy top. Unlike LG’s G7, OnePlus makes no major effort to hide its notch. It’s only 3/4 of an inch across, which makes it less distracting than Apple’s iconic (or, depending on how you feel, infamous) iPhone X notch, which is so wide that there’s little room for anything else along the top edge.

The fingerprint sensor sits a bit lower on the back of the phone, but I noticed that it seemed less capable than before. It’s still speedy at unlocking, but one of my favorite features on the 5T was the ability to swipe the fingerprint sensor to pull down the notification tray. The 6 cannot do that. Luckily you can still swipe down from anywhere on the home screen to open notifications, or swipe up to pull out the app drawer. These are simple features that make life with a large-screened phone way more enjoyable. I can only hope that OnePlus adds this functionality with a software update.

OnePlus’s mute switch is now on the right side of the phone, letting you easily switch to vibrate and silent modes, much like the toggle on the side of every iPhone. The built-in audio jack is also a godsend if you love music. You get the versatility of USB-C and a 3.5mm headphone jack, so you can jam out while you charge the device.

The slick glass back may give you trouble, though. It’s more slippery than some Android phones, which has led to a few slip-ups where I had to catch the phone before it hit the ground. It also attracts fingerprints and converts them into a gross, gunky patina at an alarming rate. To my surprise, OnePlus includes a semi-transparent plastic case with each OnePlus 6, which makes it a bit easier to grip, and should offer some protection. If you’re paranoid, this Dretal case should buy you even more peace of mind.

The screen protector that comes preinstalled on the OnePlus 6 should also help the phone stay protected. That is, as long as you don’t accidentally tear it off like I did. Oops.

Snappy and Speedy

OnePlus doesn’t mess with Android Oreo much with its variant it calls OxygenOS. My unit got the latest security patch (hopefully the first of many), and the experience is nearly identical to a Google Pixel 2—currently our favorite Android phone because of its camera and thanks to feature and security updates direct from Google.


The OnePlus 6 is particularly snappy. Apps and menus seem to open even faster than the LG G7, another 2018 phone with a Snapdragon 845 chip. OnePlus explained that this added quickness is because it prioritizes what parts of an app it needs to load, increasing speeds by about 10 percent. It also made small efforts to increase performance in games and can boost network speed of those games by slowing down any apps sucking up data in the background.

Battery life is about 1.5 days—nothing dramatic but also no worse than most high-end phones. There’s no wireless charging, but the custom USB-C charger does juice up the phone very quickly by offloading some charging management to the included fast charger.

A Capable Cam

Photo quality continues to slowly improve with each new OnePlus. The 16-megapixel main rear camera has a bigger sensor this time around, and does an adequate job under most conditions, even if it still struggles in low light sometimes. The background-blurring portrait mode seems to be more reliable, but it’s still not uncommon for the phone to accidentally blur part of a foreground object.

There’s a super slow-mo mode now (netting you 480 fps at 720p), and added optical image stabilization for video, which can record in 4K at 60 frames per second.

The 16-megapixel selfie cam takes a sufficient selfie that’s noticeably less washed out in bright light, but I’m still bothered by the odd way it saves them mirrored (backward) by default. You can fix this by swiping up from the bottom of the camera app and hitting the settings button that’s hiding in the corner.

I’d be remiss if I didn’t mention the convenient Face Unlock feature. It’s quick and works well enough that I hardly notice it, though I worry about security since it’s not nearly as robust as a Galaxy S9 or an iPhone X in that regard. Hopefully there aren’t a lot of phone thieves out there with 3D-printed copies of my face. If there are, I might be in trouble. Then again, maybe not.

On the whole, the camera is good relative to the cost of the phone, but it’s nowhere near the quality of the Pixel 2.

A Bargain Without the Bin

I might not love its fragile glass construction or its middle-of-the-road camera, but let me make it abundantly clear: the OnePlus 6 is a kickass Android phone and the best unlocked device you can buy for around $500. The only big caveat worth highlighting is carrier compatibility. The OnePlus 6 still only works on AT&T, T-Mobile, U.S. Cellular, and others that use similar networks. Even though it technically has the right bands, it won’t run on CDMA carriers like Sprint or Verizon.

OnePlus sells two unlocked versions of the 6: a $529 model with 6GB RAM and 64GB of file and photo storage and a $579 upgrade with 8GB RAM and 128GB of storage. If you have a lot of photos or apps, get the 128GB version. There is no way to expand the phone’s memory, so once you’re out of storage space, you’ll have to start micromanaging your memory, which isn’t fun. For most folks, 64GB should be enough, but check the capacity of your current device just to be sure.

If you want the best of the best, you can purchase Android phones that edge out the OnePlus 6 in one regard or another, but it’s hard to beat a phone that’s as powerful as a Galaxy S9, yet nearly $200 cheaper. OnePlus continues to offer stellar value here, making the OnePlus 6 a true bargain.

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Bank Of America: This 6.00% Preferred Stock Has Begun Trading On The NYSE

In this article, we want to shed light on a new Preferred Stock issued by Bank Of America Corporation (BAC).

Our goal is purely to inform you about the product while refraining ourselves from an investment recommendation. Even though the product might not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we get into our brief analysis, here is a link to the prospectus.

For a total of 48M shares issued, the total gross proceeds to the company are $1.2B. You can find some relevant information about the new preferred stock in the table below:

Source: Author’s spreadsheet

Bank of America Corporation 6.000% Non-Cumulative Preferred Stock Series GG (BAC-B) pays a qualified fixed dividend at a rate of 6.00%. The new preferred stock has a BBB- Standard & Poor’s rating and is callable as of May 16, 2023. Currently, the new issue trades close to its par value at a price of $25.09 and has a current yield of 5.98% and yield-to-call of 5.92%.

Here is what the stock’s YTC curve looks like right now:

Source: Author’s spreadsheet

The Company

As per Reuters:

Bank of America Corporation, incorporated on July 31, 1998, is a bank holding company and a financial holding company. The Company is a financial institution, serving individual consumers, small- and middle-market businesses, institutional investors, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. The Company, through its banking and various non-bank subsidiaries, throughout the United States and in international markets, provides a range of banking and non-bank financial services and products through its business segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, Global Markets and All Other.

As it is the one of the most famous and the second biggest U.S. banks, there is no need for a very in-depth presentation. So, it’s better to move on to the dividend and profitability information about the common stock, BAC.


And here’s the market opinion:


The dividend paid by BAC is constantly increasing, from $0.04 in 2013 to $0.39 in 2017. There’s a bullish expectation for the next couple of years as well. As an absolute value, for the last year, the company paid an almost $4B yearly dividend. In addition, the market capitalization of the company is around $306B, which makes Bank of America the second largest money center bank.

Capital Structure

Below you can see a snapshot of Bank of America’s capital structure as of its last quarterly report in March 2018. You can also see how the capital structure evolved historically:


As of Q1 2018, BAC had a total debt of $270.3B ranking senior to the newly issued preferred stock. The new Series GG preferred shares rank junior to all outstanding debt and equal to the other outstanding preferred stocks, which total $24.6B.

The Bank of America Corporation Family

The company has 16 more outstanding preferred stocks and a third-party security, listed on a National Exchange under the umbrella of BAC:

Source: Author’s database

Recently, the company announced the redemption of Merrill Lynch Capital Trust III (MER-P*) and Countrywide Capital V (CFC-B*) on June 6, 2018, and the redemption of its 6.625% Non-Cumulative Preferred Stock, Series I (BAC-I*) on July 2, 2018; as such, they will not be a part of the following bubble chart. Furthermore, Bank of America has submitted a redemption notice of approximately three-fourths of its 6.204% Non-Cumulative Preferred Stock, Series D (BAC-D).

Source: Author’s database

If we compare the newly issued Series GG preferred stock with the rest of BAC’s preferred stocks, we can see that it seems to be fairly priced vs. its closest “brothers,” BAC-A and BAC-C. Furthermore, there are a plethora of corporate bonds issued by the company; the picture below presents only a small part of it:

Source: FINRA

For my comparison, I choose a fixed-rate bond that matures almost the same as the call date of BAC-B, May 15, 2023.

Source: FINRA

BAC4126820, as it is the FINRA ticker, is rated an A- and has a yield-to-maturity of 3.676%. This should be compared to the 5.92% yield-to-call of BAC-B, but when making that comparison, remember that BAC-B’s YTC is the maximum you could realize if you hold the preferred stock until 2023. This result is a yield spread of 2.3% between the two securities. This yield margin seems to be a little high, despite the higher rank in the capital structure and the higher credit rating of the bond, especially given how well capitalized BAC seems to be. At these price levels, BAC-B looks like the better security of the two.

Sector Comparison

The chart below contains all preferred stocks in the money center banks sector (according to that pay a fixed dividend rate and have a par value of $25. It is important to take note that none of these preferred stocks are eligible for the 15% federal tax rate.

Source: Author’s database

Take a look at the investment grades only:

Source: Author’s database

And look at these, with a positive yield-to-call:

Source: Author’s database

The Banking Preferreds

The chart below contains all preferred stocks issued by a bank with a par value of $25 that have qualified fixed dividend rate.

Source: Author’s database

Again, the investment grades only:

Source: Author’s database

And these have a positive yield-to-call:

Source: Author’s database

All BBB- Preferred Stocks

The last chart contains all preferred stocks that pay a fixed dividend rate, have a par value of $25, a BBB- Standard & Poor’s rating and a positive yield-to-call.

Source: Author’s database

The main group:

Source: Author’s database

Redemption Following a Regulatory Capital Event

As per BAC’s 424B5 filing:

At any time within 90 days after a capital treatment event, and at the option of our board of directors or any duly authorized committee of our board of directors, we may provide notice to holders of the Preferred Stock that we will redeem the Preferred Stock in accordance with the procedures described below, and subsequently redeem, out of funds legally available therefor, the Preferred Stock in whole, but not in part, at a redemption price equal to $25,000 per share (…) For purposes of the above, “capital treatment event” means the good faith determination by us that, as a result of any:

  • proposed changes in those laws or regulations that is announced or becomes effective after the initial issuance of any shares of the Preferred Stock; or
  • official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced or becomes effective after the initial issuance of any shares of Preferred Stock,

there is more than an insubstantial risk that we will not be entitled to treat an amount equal to the full liquidation preference of all shares of Preferred Stock then outstanding as additional Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Federal Reserve or other appropriate federal banking agency, as then in effect and applicable, for as long as any share of Preferred Stock is outstanding.

Redemption of the Preferred Stock is subject to our receipt of any required prior approvals from the Federal Reserve or other appropriate federal banking agency.

Use of Proceeds

We intend to use the net proceeds from the sale of the depositary shares representing interests in the Preferred Stock for general corporate purposes, including, but not limited to, the repurchase or redemption of outstanding preferred securities.

Addition to the S&P preferred stock index

With the current market capitalization of the new issue of $1.2B, it is a potential addition to the S&P U.S. Preferred Stock iShares Index (NASDAQ:PFF). If the average monthly volume of BAC-B after its first six months trading on the NYSE is more than 250,000, it would be eligible to be included in the S&P U.S. Preferred Stock Index. With fewer than six months of trading history, issues are evaluated over the available period and may be included if available trading history infers the issue will satisfy this requirement.


This is an informational article about the new preferred stock, BAC-B. With this kind of article, we want to keep you informed of all new preferred stock and baby bonds IPOs. I believe that BAC-B offers good returns when compared to other securities in BAC’s capital structure and to other preferred stocks in its peer group. The issuer company is well capitalized and is poised to increase its profitability in the coming year. Overall, I think that BAC-B offers nice returns for the risks that you are taking.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Enbridge Simplification: A Slap In The Face To Shareholders

The simplification transaction announced by Enbridge (ENB) on Thursday, May 17, is a massive one, a nearly $10 billion deal in what will be all-stock consideration. It is also turning out to be a harsh lesson for shareholders of the company’s sponsored vehicles: Enbridge Energy Partners (EEP), Enbridge Energy Management (EEQ), Enbridge Income Fund (OTC:EBGUF), and Spectra Energy Partners (SEP). Such simplification transactions are getting more commonplace within the master limited partnership (MLP) space recently, and some parts of this deal were widely expected to occur over the next several years.

What was not expected was just how harsh the deal terms are for shareholders and the highly aggressive language taken toward its daughter firms. The reasons for the deal rationale represent a complete turn from statements made just a few months prior. While this deal certainly benefits Enbridge, it cripples any good will with shareholders of daughter firms. I suspect there are going to be some very irate shareholders sitting on large tax bills and shareholder lawsuits are probably inevitable. For those of us that avoided the firm, the proposal unfortunately might drive investor capital away from the subsector when it needs it most.

Management’s Take on Simplification

For Enbridge, management touted the transaction’s ability to simplify the corporate and capital structure, allowing Enbridge to have full ownership of core strategic assets. That’s a true statement. However, the tone toward its daughter firms was incredibly negative and is a complete turnaround from statements made recently. For perspective, within its presentation of deal economics, Enbridge stated it should see its own credit profile enhanced by “eliminating sponsored vehicle public distributions” (I’m sure Seeking Alpha income investors love that part) and that “sponsored vehicles are ineffective and unreliable standalone financing vehicles.”

The blame for this has been pinned on a weak market for public valuations of midstream firms, the change in FERC policy on cost recovery, and lasting impact from U.S. tax reform. This broad blanket statement on the MLP structure is an ignorant one in my opinion. There are more than a few MLPs out there – correctly run – that have very low costs of capital, even in this environment: MPLX (MPLX), Shell Midstream (SHLX), and Phillips 66 Partners (PSXP) are all examples. Instead of taking responsibility for its own poor decisions in building out the capital structure and getting itself into this mess in the first place, management has decided to shirk responsibility and cast blame elsewhere.

Source: Enbridge Partners Simplification Transaction, Slide 6

Some Seeking Alpha readers often chide me (or other contributors for that matter) for not listening to management guidance or taking statements made on conference calls as gospel. In other words, “management knows best.” For every company I research, I form my own opinion before reading or listening to a single sentence on a conference call. This Enbridge saga is yet another opportunity to show why shareholders need to do their own due diligence and come to their conclusions. Let us wind back the clock and see what Chief Financial Officer of Enbridge John Whelen had to say just two months ago on the Q4 conference call (paywall):

With respect to our sponsored vehicles, the good news is that the legislation maintained the competitive tax advantages of our MLPs relative to corporate structures through at least 2025.

This was followed by a statement, picked up by other Seeking Alpha contributors, that the losses faced at Enbridge Energy Partners would be balanced out by gains for Enbridge Income Fund. In other words, neutral to earnings across the firms.

Looking forward, on balance, the Fund Group will actually benefit modestly from tax reform. As I noted earlier, EEP’s FSM tolls will be reduced as a result of the reduction in U.S. tax rates. To the extent the EEP tolls go down, ENF will see a corresponding uptick in its Canadian Mainline toll revenue under the existing International Joint Tolling framework.

Just two months ago, the competitive tax advantage of MLPs had been maintained and the FERC policy change would have no real change on dollars flowing to the Enbridge family due to the Joint Tolling Framework. Compare those statements with the ones made as part of this deal announcement. It is startling. Make no mistake, nothing has materially changed in the past two months. Was the tone on the Q1 conference call a little more negative? Sure, but management was just one week out from dropping this bombshell on investors. In short, management was happy to assuage investor concerns before pulling the rug out from under them.

Premium? What Premium?

If a company is going to roll up assets that are not being valued correctly in the public market, the least most of these firms do is throw a bone to shareholders. Slap a 10, 15, or 20% premium on the deal and the acquirer is still getting a steal on the assets versus replacement cost. Further, this placates shareholders a bit who have undergone quite a bit of pain and helps aid the transaction in getting past the conflicts committee. As a result, hopefully the general partner avoids getting sued in the process. What did Enbridge offer shareholders?

  • SEP unitholders will receive 1.0123 common shares of Enbridge per SEP unit, representing a value of US$33.10 per SEP unit based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of SEP’s common units on the NYSE on such date.
  • EEP unitholders will receive 0.3083 common shares of Enbridge per EEP unit, representing a value of US$10.08 per EEP unit based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of EEP’s common units on the NYSE on such date.
  • EEQ shareholders will receive 0.2887 common shares of Enbridge per EEQ share, representing a value of US$9.44 per EEQ share based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of EEQ’s common shares on the NYSE on such date.

Investors won’t find that here. Not even a dollar. And that whole “EEQ shares are equivalent to EEP shares” thesis? The 10-K might say that they are equivalent, but management has certainly taken the stance that 1:1 does not mean 1:1. For all their trouble of forming an investor base for Enbridge to fund dropdowns, these investors will be locking in a massive loss, eating a major tax bill made worse by return of capital lowering their basis, and are being rewarded with Enbridge common stock and not cash.

While I’m sure some will try to spin this positively, even as a non-shareholder and someone who recommended against buying any of these companies in the past, it just leaves a sour taste in my mouth. Enbridge is a massive entity and the actions it takes have broad implications across the entire MLP space. Management teams that would never dream of trying to pull off a transaction like this due some sense of fiduciary duty will unfortunately have to deal with the consequences of an impaired investor base that might never invest a dollar in these types of assets again.

Disclosure: I am/we are long MPLS, SHLX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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