iPhone, iPad Are 80% of Apple’s Profits: Marshall

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Oct, 28 (Bloomberg) -- Brian Marshall, senior managing director at ISI Group, previews fourth-quarter results from Apple, the sales figures he expects on the new iPhones and why he expects the share price to go back above $600. He speaks on Bloomberg Television’s “Bloomberg West.”

? live from pier three in san francisco, welcome to the early edition of "bloomberg west." i am emily chang in her focus is on innovation, technology, and the future of business.

Often called the google of china, baidu is the world's fifth most visited website and china's most popular search engine.

I sat down for a rare and exclusive interview with the company's founder and ceo.

Did apple make a mistake and releasing two separate iphones at the same time?

The company reports earnings later state and we will take a look at what to expect.

Twitter executives kick off the investor roadshow today as the company to visit more than seven cities over the next seven days and one likely area of concern for potential investors is the company's rising operational costs.

Apple is the world's largest company by market cap and today we get a better indication of how business is going as they report for recorder -- fourth- quarter earnings after the bell.

We are looking for how the new iphones are selling, the iphone 5 5s and c were released on september 27 we have a little more than a months worth of sales.

Investors are are wondering if tim cook will announce anything with the 147 billion dollar cash pile.

He has been getting pressure from activist investor carl icahn to buy back more shares.

Let's get straight to jon erlichman who is in los angeles.

It's helpful to know how many phones they are selling an apple told us the of iphones are selling pretty well, 9 million in the first weekend.

The challenge with the core like this is up it comes before the holiday season.

Apple has been rolling a lot of these new devices on the iphones to the ipads in an effort to secure some strong sales for the holidays.

Some might view this as a wait and see quarter and that's why there could likely be attention on the apple cash pile especially as you highlighted with carl icahn pushing for a $150 billion stock buyback.

We will find out how many iphones were sold in the core and find out how much cash was generated from the apple operations.

Those numbers are absolutely monstrous.

This company generated in the neighborhood of $53 billion in cash from operations over the last four quarters.

Even if you take up the capital expenditures, you're talking about $43 billion in pre--- in free cash flow.

It is a cash machine and no doubt tim cook will get questions about what they plan to do with that cash.

Part of what they do at the cash is spending on updating products like the ipad?

Yes, if you think about what happened in this same court last year, one of the takeaways was the company had higher operating expenses because they were rolling out these new devices for the holidays.

They have two new iphones, two new ipads, a couple of mac book pro and another for the desktop so they have had a ton of stuff lately.

There is a big expense with that and there is the expense tied to the unknowns, the stuff apple has been working on.

You wonder if tim cook in the apple executives will share any details on how much cash goes into that if they don't want to necessarily spend all their cash on stock buyback.

We will see what they say later.

Thank you.

For more on what to expect from apple, let's get to new york where brian marshall is standing by, the senior managing director of isi group and he has a price target of $600 brits what are you looking for today?

They preannounced the quarter positively so we think it will be good.

We think it will be realistic.

We think we will see nice earnings acceleration as well as iphone so we are expecting mid 50 millions.

Of iphones sold in the third quarter and we think 22 million ipads.

Collectively, these two product families are present 85% of the company's gross profits.

It's about these two portfolios and the guidance of what they expect.

I think it will be positive after the call.

We have been hearing that apple is selling the 5s more than 2 to 1. will we get any call them the difference between these two phones selling?

Probably not, they might say that we cannot make enough of the 5s. i think they will have positive commentary on the 5c which is the lower end version.

At the end of the day, it is having more success internationally where per capita rates are lower than domestic.

I think people take a u.s.- centric approach when they think about the iphone 5c. it is doing fine internationally but the demand is a little lackluster in the states.

Is that good enough for apple?

Obviously, we're dealing with the company that suffers from the law of large numbers.

The biggest market they are involved in is a 2 billion unit cell phone market.

There's only so much penetration they can have at the high-end.

They generate so much profit off this one market.

They are doing fine and that means great things like north of $40 billion of annual free cash flow.

Expectations are fairly moderated despite the positive announcement.

We think the stock will get to $600 fairly soon.

For the first time in recent history, we have a solid product refresh cycle coupled with improving technicals.

The 10-day is higher than the 50 hi -- day moving average.

]the stars are kind of aligning in with apple.

What about china?

We know their market share is slipping and they are being encroached upon by low-cost competitors.

They have phones that look like iphones.

We are hearing anecdotally that people in china still want the 5s if they are going to buy anything.

Are you concerned about the apple market share in china?

Not really, china is a huge market and we will probably have china mobile start lighting up the iphone here in the near term.

They have almost 200 million subs off of their 800 million sub base.

It is a huge market opportunity.

Chinese consumers want high and.

I think that they want the 5s and it will be interesting to see how many can afford it.

It will be interesting to see how well the iphone 5c does in china.

A couple of months ago, we were probably thinking it would do better than it had done but hopefully we can get a little bit of color over the next quarter on the uptake in china.

There was a little bit of disappointment that apple did not reveal more at the ipad unveiling last week.

You think innovation at apple is alive and well.

What are you expecting and when?

Is it a tv or smart watch?

I think they could probably do both but it is unlikely they do an itv because of the dynamics of the market.

You don't think apple will come out with a tv set?

They could but are they going to make 20% gross margins?

It's going to be a fraction.

It has to be some sort of compelling reason that the carrier like a cable company would actually subsidize the product rate we don't see that happening.

Apple makes its money from high- end carrier subsidies as well as the resell of nanflash.

Based on a $200 billion revenue stream, it does not move the needle from a profit standpoint even if they can replicate the success of the iphone 5 years in.

If they have 10% of the market, the market is probably 150 million units.

You are selling 15 million units at maybe 2000 dollars so maybe $30 billion revenue, those are probably low margins.

It will barely add five percent to the bottom line.

Strategically, i don't know.

It remains to be seen.

I watched a 250 million market but it will probably not move the needle.

If they had a 10% share five years in, i think the company suffers from the law of large numbers.

Their success will be dictated on whether or not they continue to grow materially on the iphone as well as the ipad.

That's were you thinking innovation would come from?

I think so.

The ipad air blew us away.

When i put it in my hands, i was expecting to buy the ipad mini with the retina screen.

The chip is not powerful enough so i wanted to buy the new one.

After i test the ipad air, i felt maybe i will migrate to the larger canvas.

At only one pound, it is like in your hand and you get the extra screen area.

It is a phenomenal product.

You think the biggest risks to apple right now is maintaining and retaining talent.

Tell me about that.

Accompanies lifeblood is its employees.

In technology, you are innovating either through external m&a or internal r&d . it comes down to maintaining/retaining your people.

That's a huge item that apple has on its place.

After steve jobs is no longer with us, the company has to do a good job on the r&d . that is something we monitor as closely as possible.

Brian marshall, thank you.

We will be all over apple on the late show today.

Coming up, the twitter operating costs are rising faster than revenue so find out how their rocky relationship with outside developers is driving costs up next on "liebert west." ?

This text has been automatically generated. It may not be 100% accurate.

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