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On Thursday March 31st, AAPL shipped its 2nd iPad Pro - a mini version of its 12.9" older 'brother' in the traditional 9.7" form factor - the same size display that the original iPad and every iPad since (with the exception of the Mini & Pro) have had. Here's my take on the 9.7" iPad Pro.

The Good:

• Weight & Size: The 12.9" iPad Pro is a great machine, but frankly, it's like carrying around a 13.3" MacBook Air once you add on a silicon case and the AAPL Keyboard.  The 9.7" iPad Pro maintains basically the exact same profile (dimensions - including weight) as the iPad Air 2.  It is definitely a feeling of "welcome back" when you pick up the new iPad Pro and remember how light and thin AAPL has achieved with these devices without compromising battery life.  There is a time-and-a-place for the 12.9" iPad Pro, but for many things, the 9.7" form factor is "just right".
   
• Performance: The 9.7" iPad Pro carries the same silicon as its bigger brother - a 3rd-gen 64-bit A9X CPU with an embedded 3rd gen M9 motion co-processor.  It should be noted, however, that the 9.7" CPU is clocked slightly lower (2.16 GHz) compared with the 12.9" (2.24 GHz), which produces slightly lower single-core and multi-core scores on all of those benchmark scoring apps.  It should be noted that I am not a gamer and have not noticed.
   
• Screen: So AAPL's big feature on the 9.7" iPad Pro was the "True-Tone" Display, which automatically adjusts the color gamut based on the lighting conditions.  Essentially, I see it as a much more powerful and precise version of the "Auto Brightness" feature.  However, instead of adjusting brightness, it adjusts the actual color.  I have tried this out in the sun and then back in darker light and it is pretty amazing.  It definitely cuts down on reflectivity and also produces much more accurate colors in different lighting situations.  This technology should be the standard on AAPL displays going forward as it really does make a difference.
   
• The Speakers: Like its 12.9" counterpart, the 9.7" Pro has 4 speakers and they put out ample sound, or rather, as much as you could ever expect from a device that is 6.1mm thick and weighs less than a pound.  The fact that you have sound coming from all 4 corners is a huge bonus.
   
• AAPL Pencil support: I have praised the AAPL Pencil as likely the best AAPL iOS accessory of all-time and it works exactly the same on the 9.7" Pro as it does with its larger counterpart.
   
• "Antenna-Hide": On every previous iPad that has ever shipped with cellular connectivity (including the 12.9" iPad Pro), AAPL has this plastic antenna bar at the top that is either white or black - it never matches the color of the chassis and is just ugly.  The 9.7" iPad Pro no longer has that plastic discolored cutout, it merely has an antenna line that is nearly identical to the lines that people have complained about on the iPhone 6 models.  However, I will take the lines over the ugly plastic cutout any day - it's not perfect, but it is a step forward.

The Bad:

• Does not Support USB 3.0: So I just got introduced to the 29W USB-C power charger, which I am using with the 12.9" iPad Pro and it is amazing.  It basically charges the 12.9" iPad Pro 3x faster than the 12W power adapter that it ships with.  The 9.7" iPad Pro does not support any USB 3.0 accessories (including the 29W power adapter) and mysteriously ships with a 10W power adapter as compared with the 12W standard.  It's one of those choices that you wish AAPL would have thought a bit more about when it comes to standardizing certain features for the "Pro" moniker - USB 3.0 support SHOULD BE one of those standards.
   
• 2GB of RAM? Once again, I am mystified by the 2GB of RAM, as compared to the 4GB that ships in the 12.9" version.  Like USB 3.0 support, I think 4GB of RAM (or at least parity) across the "Pro" lineup should be the standard.  The fact that the 9.7" iPad Pro ships with the same amount of RAM that is in the new 4" iPhone SE makes me wonder.  The only thing I can think of is that the A9 / A9X chips require a minimum of 2GB of RAM, which would justify the 2GB that is shipping inside the iPhone SE (which also runs the A9 SoC).  It seems that the amount of RAM needed has nothing to do with screen size because the iPad Pro 9.7" display (3.1M pixels) has 4.3x the number of pixels as the 4" iPhone SE (727K pixels).  So I question what functionality or specs of the 12.9" iPad Pro necessitate twice the amount of RAM as the 9.7" version -or put another way- what lack of functionality in the 9.7" version allows for it to get by with just 2GB of RAM? 
   
• The Camera Hump: So as AAPL increased the iSight Camera, they also increased the thickness of the sapphire cover glass so it does not sit flush with the chassis - same as with the iPhones 6, 6+, 6S, and 6S+. It is just annoying.

The "Whatever":

• Improved Cameras: I have never been an iPad camera user and I don't think I ever will be.  Sure, the new 12.0MP iSight camera on the 9.7" iPad Pro with true tone flash is a welcome addition for many.  For me, I don't think it's going to make me want to use the iPad Pro as a camera anymore than it has with any other iPad.  But, you never know...

The Things That Make You Say "Hmmm":

• 256GB Storage Support: While I think it is great that AAPL has made its first iOS device with a 256GB storage option, I question why it wasn't made available on the 12.9" version.  Now, there may be a very legitimate reason for this.  Samsung announced in late-February that it had produced the first 256GB Universal Flash Storage chip for high-end mobile devices.  My guess is that this is the chip that is in the 256GB versions of the 9.7" iPad Pro that simply were not available in mass quantities at the time the 12.9" went into production.  My guess is that all future iPad Pros and perhaps all future flagship iPhones will include a 256GB storage configuration.  And yes, AAPL will make a killing on selling you that additional storage capacity.

Overall Take:

The greatest part of the 9.7" iPad Pro is that there are no surprises.  It brings me back to the "Air-like" size & weight of iPad's from the past, yet packs a powerful punch with the A9X processor.  The new display technology is pretty amazing that really can't be described until you have used the device in an array of lighting conditions.  I am disappointed by the lack of USB 3.0 support, which would have enabled use of the 29W power adapter for super fast charging.  I have not seen any negative effects of the 2GB of RAM (as compared to the 4GB on the 12.9" version), but perhaps I am the very user that AAPL thought of when making that decision.  The AAPL Pencil is as amazing with the 9.7" Pro as it is with the 12.9" Pro.  Both iPad's are keepers for me.  If I was using the iPad Air 2, I'm not sure I would make the jump to the 9.7" Pro unless you do heavy graphic design or other precision work that things like "AAPL Pencil support" will really make a difference -or- if you happen to be one of those people that loves using your iPad to take pictures it may also be a worthy upgrade.  If I was running anything prior to the iPad Air, it is a great upgrade that will provide a host of power and benefits that 2.5-year old devices in today's world simply cannot. 

Random prediction: The iPad Mini will stay in the lineup, but I think it will essentially become the iPhone SE for iPads.  It will get updated, but those updates will be far less frequent and it will be sold in limited configurations. The good news is that I could see AAPL phasing out the iPod Touch in favor of the iPad Mini and with that, we should continue to see its entry-price move down to access more markets overseas.  The reality is that AAPL wants to sell more iPhone 5.5" phablets, not more iPad Mini's - that is a business decision focused on margins and upgrade cycle that the iPhone simply kills the iPad at.   

iPad Pro 12.9" vs. 9.7" Tech Specs:

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It is no secret that AAPL has faced significant foreign currency headwinds across the world as its worldwide revenue diversity has increased in combination with the strengthening of the U.S. dollar against nearly every foreign currency. Below is a chart of what each iPhone model costs by-configuration from a cross-section of key AAPL sales' regions across the world including China, Japan, Australia, the UK, and Italy.

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Notes:
1) Premium represents price gap between local currencies (as converted to USD) over U.S. prices
2) Conversion prices as of March 29, 2016

Source: Apple.com

Key Observations:

• All current iPhone models carry an average premium of 25% over U.S. prices across the 5 regions - based on all models and configurations (storage capacities).
   
• HIGHEST / LOWEST Premium by Model / Configuration / Region:
  
  HIGHEST: 16GB iPhone SE in Italy (43.8% price premium over U.S.)
  LOWEST: 64GB iPhone SE in Japan (15.1% price premium over U.S.)
   
• HIGHEST / LOWEST Average Price Premium by Region:
  
  HIGHEST: The region with the HIGHEST average price premium is Italy (Euro), where the average premium for all 5 models is 34.1%.
  LOWEST: The region with the LOWEST average price premium is Japan (Yen), where the average premium for all 5 models is 17.6%.
   
• The newest iPhone SE actually carries the highest average premium across the 5 regions - an average of 27.9% over the prices in the U.S.
   
• The Model / Country with the lowest premium over U.S. prices is ironically, the iPhone SE in Japan, where both configurations are priced on-average, 16.2% above U.S. prices for the same phone.  I find it ironic for 2 reasons: 1) the iPhone SE overall carries the highest premium over U.S. prices (+27.9%); and, 2) the Yen, in-particular, has been particularly weak compared to the U.S. dollar.
   
• AAPL's current flagship phones (the iPhone 6S / 6S+) carry the lowest average price premiums across the 5 regions with the iPhone 6S carrying a 23.9% premium and the iPhone 6S+ carrying a 23.2% premium.

Much speculation has been floating around and virtually confirmed that AAPL does indeed plan to release an updated 4" iPhone, named the iPhone 5se. Many of the rumors claim that the new device will use virtually the same chassis as the iPhone 5s, which was released in September-2013 - shocking, I know.  However, what's really important is what the new device will have inside, rather than what it looks like on the outside.

Why would AAPL release a new 4" iPhone

The fact of the matter is....as much as people have embraced the 4.7" and 5.5" phablets that AAPL debuted with the iPhone's 6 and 6+, there is still a large contingent of people who want a smaller device.  However, what they also want is a smaller device that has all of the power and features of the new devices. But don't think this is about price - AAPL has already tried that with the iPhone 5C and I just don't think it ever caught on very well. The iPhone 5se is STILL going to be a premium-priced phone. It will be cheaper than the the newest devices, but don't expect a $350 phone.  AAPL has gone on record time-and-again and said, "we're not going to build a cheap phone for the sake of capturing market share". They want to capture market share, yes, but they are far more concerned with the "quality of that market share" to continue fueling that little $22 billion services business that they have going.

So what will the iPhone 5se have?

• Chassis: Aluminium - would expect them to be able to use much of the same tooling that they have been using on the iPhone 5S to keep the cost curve down.
• Processor: A9 - I would fully expect them to use the TSMC A9 processors - TSMC has the scale and has been able to move down the cost curve and is fully capable of supplying AAPL with enough A9 processors for this new device.
• Screen Size: 4" - AAPL will use the same LED screen that is used on the iPhone 5s - a 1136 x 640 screen that produces a resolution of 326 pixels-per-inch (PPI)
• Camera: 8mp shooter w/ Sony sensor - live photos
• 3D Touch: No - cost prohibitive and would require too much internal re-tooling to enable the feature
• TouchID: Yes - same as iPhone 5S (the first AAPL device ever to support the biometric sensor)
• Apple Watch Support: Yes
• Storage Configurations: 16GB / 64GB / 128GB
• Unsubsidized Prices (US): $549 / $649 / $749
• Colors: Space Gray / Silver / Yellow Gold / Rose Gold
• Unveiling Date: Tuesday, March 15th - Yerba Buena Center (YBC) in San Francisco
• Release Date: Friday, March 18th

A look into AAPL's FQ1-2016 quarter - was it as bad as it looked? Download file here.

I looked at the past 7 quarters of share repurchases (all of the quarters post-split).  During that period, the company repurchased 591.6 Million Shares (420.6 Million in Open Market and 171.0 Million through an Accelerated Share Repurchase (ASR) Program).  The total amount of open market purchases is $46 Billion at a weighted-average price of $109.37, which is ~15% higher than it trades today.  The Company was on a buying spree leading up to the holiday quarter.  In the September-2015 quarter alone, the company repurchased / retired 132 Million shares, the second highest quarterly repurchase in the period I looked at (they retired 162 Million shares in the September-2014 quarter).

In a recent discussion with Ovi Popescu he mentioned something to me that I didn't really think about when looking at the Company's FQ1-16 results - the relatively small amount of stock that the company repurchased during the quarter. As many know, the Company has a $200 Billion capital return program in-place, which is a combination of both share repurchases & dividends.  Through the December-15 quarter, the Company has returned $153 Billion of that $200 Billion, with $110 Billion coming in the form of Share Repurchases.  

But in the most recent quarter (Dec-2015), the Company only repurchased 46.4 Million shares - the lowest of the 7 quarters.  Now, to be fair, they only repurchased 53 Million shares last holiday quarter (Dec-2014).  There's always a big debate about share repurchases and the financial engineering that companies mess around with.  That said, I think AAPL truly buys back shares when it feels like the Company is undervalued.  I still think they believe it's undervalued, but the repurchases in Dec-2015 prove that they are a bit more cautious on that thought.

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Note: Does not include shares that are retired as part of the net issuance of RSUs to employees.

When looking through AAPL's financial statements for its first fiscal quarter of 2016, I noticed something odd when looking at its cash flow statement. Although AAPL generated $337 million more in Net Income, it somehow generated $6.3 billion less in Operating Cash Flow. Last holiday quarter (FQ1-15), AAPL converted 45.2 cents of every revenue dollar booked during the quarter to cash. This quarter (FQ1-16), AAPL only converted 36.2 cents of every revenue dollar booked during the quarter to cash - a year-over-year drop of 20% - I would call that significant:

Source: Apple.com 10-Q Filing

So when you look at the line item details of the cash flow statement there are a few big items that swing the number in both directions, but ultimately the negatives far outweigh the positives. 

Large Gains:

• Accounts receivable, net: AAPL generated $3.9B more this holiday quarter compared to last
• Vendor non-trade receivables: AAPL generated $5.3B more this holiday quarter compared to last

Large Declines:

• Accounts payable: AAPL used $9.9B more this holiday quarter compared to last
• Other current and non-current liabilities: AAPL used $5.0B more this holiday quarter compared to last

All-in-all, these declines outweighed the gains to the tune of $6.3B. The odd thing is that these big shifts all occurred in accounts that one would consider "normal, ordinary-course, working-capital accounts". The one that baffles me the most is Accounts Payable. To see a $9.9B year-over-year decline in that account alone is pretty remarkable. I'm an accountant - I understand that balance sheets are snapshots-in-time and that there could be extenuating factors that play into an account moving significantly, but this takes "significantly" to a new level. Even if AAPL received a generous offer to pay its A/P early, that just seems like a lot of cash to move.  I've charted Operating Cash Flow as a % of Revenue for the last 13-quarters, and of all the holiday quarters, Dec-2015 (FQ1-16) was the lowest out of the past four holiday quarters:

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