26 January 2016

"A Man's Got to Know His Limitations" [update]

Today we muse on Apple and Data Science. Apple's quarterly is due after market close today, and more and more tutorials/explanations/paeans to Data Science appear. Let's see what they may have in common.

Apple has been on a growth spurt ever since the iPhone came into being. Those with short memories may have forgotten that it was a sick puppy at birth. Teeny display. Barely 3G capable. Exclusive to the lousiest carrier in the country. But the Apple crowd bought into the reality distortion field meme that the iPhone was somehow different and better. "They" concluded that Apple had made the first smartphone. Not hardly. What Apple had was a lock, for a time, on cap touchscreens. Kind of hard for anyone else to make a phone with one. Skip happily forward to today, and iPhone accounts for about 2/3 of company revenue and more net income (including spend on that "ecosystem").

The nature of today's quarterly is written about by the tonne of virtual ink. Mostly, "channel checking" says that iPhone sales, at best, are flat for the current quarter and next; at worse, both fall a bit. The compromise is that current quarter meets expectations, but guidance for next is down.

But, isn't this just the strong suit of Data Science? Accumulating unstructured data, analysing with arcane Bayesian functions, and confirming the priors? What could be easier? Wait... Cook has, in the past, tut-tut-ed the analysts for extrapolating from their channel checking to conclusions about Apple. Could he be right again, this time?

The stock market is an insiders' game first, last, and always. Corporations are under no obligation to report material issues other than in filings, and, on the whole, each company decides the meaning of "material". Prominently displaying pretty financial results, aka non-GAAP, while burying the legal numbers in footnotes is a common tactic. Shareholders in biopharma companies get blindsided every morning. Nearly all meaningful financial data is quarterly/annual filings. Every blue moon there might be a separate filing on a material issue, but often only good news and mostly not direct financial information. Like, "we told our suppliers to reduce deliveries by 30% this and next quarters". Doesn't happen. Management, or anyone else for that matter (just ask Martha Stewart), isn't supposed to go out and trade company instruments knowing such non-public information. Since Apple is a significant component in mutual funds, hedge funds, indexes, and ETFs one might wonder whether Tim et al is allowed to trade those instruments? Clearly, the NASDAQ has been down because Apple has been down. Some people think so. Research it if you're interested.

If Data Science were all such magic that real stat can't do, wouldn't we already know what Apple will say a bit after 4:00 Eastern?

Well, the verdict is in: the channel check looks mostly right. Moreover, many have pooh-poohed Beijing's remnimbi rumba as no big deal. Not so much, it turns out. Not so many rich Chinese, either.

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