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August 15, 2014

Comments

Daniel Ahmad

Going back to the Xiaomi post I made. Tomi is still wrong with the numbers he posted here.

Xiaomi themselves clearly stated that they shipped 26.11m smartphones in the first half of 2014. This is manufacturer data. Yet Tomi has Xiaomi at 22.7m for the first half. That is a huge discrepancy of ~3.4m smartphones. If Tomi is going to use official data provided by Sony and LG then why doesn't he use data from Xiaomi themselves.

So once again, Xiaomi's numbers should be ~15m for this quarter. Even Xiaomi's blog states these numbers.
http://blog.xiaomi.com/?p=1560

So please fix it otherwise the data here is just wrong.

AppleTurfer

@Rotten - on the surface things do look great for Apple. We agree. Of course, at EVERY layer, things look amazing for Apple. They've had a great run and are positioned to have another amazing year. China Mobile is still at the beginning stages of rolling out 4G across the country and Apple is picking up a huge section of these sales. USA/Japan remain firmly in love with the iPhone. Throw in a healthy UK market and you have ALL YOU NEED for another great year in light of the release of the much desired larger versions of the iPhone. Even as marketshare will fall due to faster growth in the low end. Apple's sales will increase, profits will increase.

You are right that there will INEVITABLY be a saturation of Apple's target market. Inevitably the growth curve will look like the population growth curve. And there will inevitably come a time when buyers won't want a new phone every year or two.

Not this year, but some year. Maybe next year even.

Poor Apple with a measly 150 billion in the bank...oh how will they SURVIVE the coming lessening of their growth rate....or going from making 10-20 billion per QUARTER to...5-10 billion. The HORRORS that await Apple and ONLY Apple.

Right? Only Apple desires to sell phones with nice profit margins so only Apple will be affected. Just look to the PC industry. Apple stands tall making the most money by far with a tiny marketshare and has done so for decades.

IBM got out of the PC business. Dell had to go private. Sony got out of the business this year. HP, the largest PC company considered getting out last year. All while Apple has a great business selling the only truly profitable PC's. There is so little money to be made in the windows pc market that manufacturers depend on Intel and Microsoft to design new pc's for them. Microsoft HAD to start making their own PC's because nobody was able to come up with an answer to Apple's ability to produce a product people were willing to pay a premium for.

Welcome to the smartphone future. If Apple's profits take a hit as commoditazation takes hold...what of the likes of poor Samsung, Sony, HTC, Lenovo?

Apple has options. They can release a cheaper phone (not cheap, but cheaper) and they can reduce margin. And be just fine making less money when there is no better option for them. Less money, but still a whole lot more than anybody else is going to be making.

chithanh

@AppleTurfer
About PCs:
I think you don't characterize the PC business correctly. Sure, the traditional PC faces declining sales. But these can be made up with new form factors and non-traditional devices.

In HP, only the then-CEO *three* years ago seriously entertained the idea of exiting the PC business, among with a number of other questionable decisions. He was swiftly removed from office (imagine how the smartphone world would be different today if the same had happened to Elop). Today, HP is doing well again.

IBM sold the PC business to China for political reasons, not because they wanted to get out of it.
http://www.nytimes.com/2012/01/01/business/how-samuel-palmisano-of-ibm-stayed-a-step-ahead-unboxed.html

Lenovo, who bought the PC business from IBM, are also doing well.

About smartphones:
If Samsung, Sony, HTC or Lenovo fail, they will do so because other vendors provide better value and eat into their sales. Essentially, a failure of one company will transfer marketshare between Android makers. So no problem for the Android ecosystem which dwarfs all others.

Your argument basically boils down to "Apple makes profits", but that is not of interest for shaping the mobile future. Tomi has repeatedly said that such statements belong to an investment blog, not here.

John Alatalo

I agree that Windows Phone have problems. But that not mean that the platform is dead.

One explanation for the low numbers can be that Windows Phone 8.1 was showed in april, but you cold not buy a device pre-installed with it until about three months later.
I think many waited for them instead to by a Nokia Lumia smartphone with the "old" Windows Phone 8.

HTC One (M8) with Windows just recently going to sale with a very good implementation with Windows Phone 8.1.1 (the latest firmware) you can buy it from Verizon. Even AT&T and Sprint will get it.

Prestigio MultiPhone 8500 DUO and MultiPhone 8400 DUO are also now aviable around Europe.
Hisense Nana are a new Chinese model to just released.
Micromax and Xolo from India will release there models also.

So it not just about Nokia anymore, around 18 OEM.s in total.


Microsoft/Nokia will show new models to in IFA Germany 4 September.

I would not be suprised if Windows Phone marketshare will be much higher in Q4 2014 and Q1 2015.
Going for just 4 brands to about 20 are important.

AndThisWillBeToo

@chithanh
"Tomi has repeatedly said that such statements belong to an investment blog, not here."

That is the problem of this forum. In here people must keep their comments inside the frame where everyone in the industry work for charity and profits are just a thing the shareholders look after, nothing more.
Imagine thay there would be just three companies in the business:
One selling to top 15% with highest profit margins, taking 70% of the profits.
Second selling to next 30%, taking 29% of the profits.
Third would be selling for last 55% of the market - more than others combined - and taking 1% of the industry profits.

What comes to survival capability of these three companies, first one makes literal billions of dollars per quarter so they have lots of cash to use if their business needs adjusting. Second one makes less than half of what previous, but is still having a bad day reserve that increases. Third one is lucky its not on red. In case of disruption of the market it dies not have cash to spend for realigning.

If you get to be one of these companies, be the first one.

In this forum we cannot talk about profits which means the performance order of those three is reversed and the last of the pack is "winning", while in reality it's just a sneeze away from being bankrupt.

Do you realize how twisted it makes things?
Do you realize how damaging it is for this forum that comments referring to profits and profitability are deleted?

RottenApple

@AndThisWillBeToo:

That's nonsense. If we went that route, it'd be Apple, Apple, Apple - market share be damned.
But that's not what mobile is about. It'd completely ignore that as a whole, the importance of Apple's influence is slowly declining.

It also misses the point that Apple is the only significant player that is not sharing its platform.
If any one of the other dies, it will just be eaten up by the competition with hardly any effect on the market as a whole.

Not so much for Apple. If something happens to them their platform will be toast.
So, Apple is basically doomed to continuously report record profits.


But things like Samsung's bad quarter can easily be shrugged off. Who cares? Android still grew market share. And Android as a whole is not irreverably tied to the well-being of one manufacturer.

AndThisWillBeToo

@RottenApple
You missed several points I tried to make. But many of those have been said here before so just to be short: Market share as a metric is not working if it's the only metric.
If world would suddenly change tomorrow into a world where only cheap Android phones are making profit... Apple still had $150Bn in cash. They could buy handset business of LG, Sony AND Motorola without really feeling it. BANG they're back in market share game! When did Nokia have that kind of money? When did HTC? Yet they BOTH were "bigger than Apple" not so long ago. (And their sales prices could be thrown on top of that group too.) Profits matter.

Sure, cash does not turn Apple immune. Stupid management can destroy the future of a company if they don't notice change around them and move fast enough. Burning cash is not automatic rescue from trouble (see Microsoft as an example of that).
But even smart management can't do much if the business did not turn profit before.

RottenApple

@AndThisWillBeToo:

You are correct, of course, but for anyone offering mobile services the profit metrics are close to irrelevant, unless we are dealing with a platform that depends on its owner's well-being.

That's why the amount of profit for the Android manufacturers is not that important if you want to target the smartphone market - you do not target Samsung, LG or Sony - you target Android. The platform itself will stay healthy, even if Samsung would catch a bad cold and go down.

As for Apple, I see the dangers somewhere else - and that's with the expectations of the investors. From a purely business standpoint it'd be no problem for them to lose some of theit profits, no, the problem is how the stock market would react to such an (unthinkable!) situation. Apple is supposed to be the perfect profit machine, they are not supposed to lose their profit-making abilities. And if the stock market turns sour on them for whatever inane reason, they'll be in trouble, screw all the money they have, they'll probably have to burn a large part of it just to keep their ass clean.

BB Insider

@RottenApple

Very true! Couple years back, in the year before iphone, Blackberry was considered as premium brand, that no one can't imagine BB got kick in the ball very hard that it can't stand up anymore.

The Apple situation you described, if they got kicked, is really BB situation. It got kicked, share goes down, no one want to buy the device. BB situation is so bad, that they replace the CEO that have a background in Smartphone (Thorsten Heins), and replace it with a CEO that have a background in PR* (John Chen).

*What John Chen did right now is just TALK ONLY, NO ACTION. He just talk, and talk, and talk....

Huber

@Andthiswillbeto: Nice example:

>>Imagine thay there would be just three companies in the business:
>>One selling to top 15% with highest profit margins, taking 70% of the profits.
>>Second selling to next 30%, taking 29% of the profits.
>>Third would be selling for last 55% of the market - more than others combined - and taking 1% of the industry profits.

>>What comes to survival capability of these three companies

In this scenario, the survival capabilities can be exactly reverse to their profits:

Let's say the top seller achieves his profits by milking his customers with huge margins while at the same time not innovating much

The second one sells the devicer with less profits and at the same time has higher R&D-costs

The third one is in for the long haul, he provides cheap phones with slim margins, but at the same time invests heavily to keep the product pipeline filled.

Now you have your disruption: Prices are falling rapidly, the commodization of this business occurs and the replacement cycle gets longer, so sales decrease.

The first one is in big troubles now, despite his huge cash reserves: Suddenly he does not have a competitive product anymore. Sales are shrinking rapidly, stock prices dive down and he needs an additional 2 years to release a competitive product again (because he was surprised by the market trends).

==> Suddenly it is all about survival: As stocks fall, new share holders buy stock with the intention to force the management to give the money to them, reputation is damaged etc.

The second one can handle this better, at least he has the right products to release at hand and can fight better

The third one is king now: His low-cost devices gain market share and due to his high R&D-efforts he proactively reacted to the changing market. He has the right products out at the right time.

If the first company survives the 2 years he needs to release a competitive product and manages to fight off his new greedy shareholders, his market share will already have dropped from 15% to - let's say - 5%.

Now his new device MUST be a success, otherwise it is over, no matter how much cash he has!

AppleTurfer

@Huber, you have a strange understanding of the facts. The low cost providers are NOT reaping the benefits of their "high R&D" efforts. They are mere assemblers of commodity products that others have designed and put up for sale.

Samsung and Apple are far and away the leaders in R&D spending and are kept in that place by the profits they are able to generate.

Apple's customers are not feeling gouged. Just like BMW customers are not feeling gouged. Apple garners the highest customer satisfaction and the highest loyalty it the business. That doesn't make them the right choice for everybody....but then again, they aren't trying to please everybody.

Just because I don't buy BMW cars because of their price, does not mean I don't have the ability to understand why others do. You seem missing this basic reasoning ability.

You also fail to understand the necessary power of profits. Nokia and RIM are down and out because of two things....Apple turned the mobile phone into an app on a pocket computer...AND...they hadn't generated enough profits during their heyday to finance a transition to the new business reality.

It iPhone was no "flip phone"...a one trick pony idea on the same existing concept of a mobile phone. What it would take to add a flip style phone to one' existing "candy bar" product line is nothing compared to "OMG, they put a Mac into a mobile phone".

Msft is still in the mobile phone business...for one reason only. They made so much profit with Windows and Office that they can afford to flounder around for years and years. WinPhone 7, then 8 then 8.1 and soon Windows Phone 9. None of them successful in terms of what Msft used to enjoy.

RIM bought their next OS, and Nokia had been plugging away at theirs...but they didn't have the MONEY to stay in business long enough to bring them market AND ride out the low sales while they improved and hopefully find the answer to iPhone/Android.

The commoditization of the PC has been a great thing in many ways. People can buy a PC very cheap. Cheap smartphones are truly bringing computers to the masses and the value of near everyone having access to the world's knowledge for the price of a $100 smartphone is incalculable. Thank you Google Android, thank you open source upon which Android was spawned, and thank you commodity component makers like MediaTek and all the assemblers of these ultra cheap phones.

You might, however, reflect on the reality that Rolex is still in business long after Casio/Timex and the like made wrist watches dirt cheap.

Huber

@AppleTurfer:

Sorry, but spare me the car/ Rolex example. This is a completely different market where one can hardly compare with the smartphone market.

Regarding BMW, I can give you a hint, because I actually drive one: When I drive nearly 500km to a customer, with very comfortable seats which are climated (yes warm AND cold) and a sophisticated air condition in general (no sweating back and ice-cold fingers in the summer!), enough horsepowers for the Autobahn, good suspension etc. I actually arrive RELAXED.

If I would use a slow and cheap car with cheap seats, bad suspension etc., my back would hurt and I would arrive in a stressed condition, with a crumpled trouser etc. THAT's why I pay the premium and why I do not feel 'ripped off'. Driving with a cheap cars always reminds me why I bought mine in the first place.

An iPhone is nothing like a premium car, just deal with it. It's just a phone!

Rolex simply is just jewelry. Mankind has worn jewelry 100,000 years ago and most likely will in 100,000 years.

An iPhone is only jewelry for people whose €800-phone is their main status symbol, and this is not a big market - I would even say that someone who proudly showcases his iPhone is pathectic.

so please, please stop this BS. I know that some of you Apple-fanatics like to think that their beloved phone is like a €10,000 Rolex or a €100,000 luxury car, but in reality it is not - just deal with it!

And PLEASE PLEASE PLEASE spare me nonsense like "Apple turned the mobile phone into an app on a pocket computer"

No Apple did not! We can argue whether IBM's Simon was the first smartphone in 1994, or Nokia's first communicator in 1996 or Nokia's Communicator in 2000 (the first where you actually could install programs).

Apple invented nothing of this sort, the first iPhone was no smartphone after all, since you could install jack shit!

The iPhone has an artificially restricted functionality (just try to send a file via bluetooth or send an MP3-file as mail-attachment).

It has no real file browser, you cannot sideload apps, you cannot install alternative launchers/dialers/browsers/phone books etc., and even if you can you cannot set them as default app.

My phone is a computer in a pocket, because I am actually the admin of my phone. I can even install other Operation Systems!

Yes I do use a Samsung phone without any Samsung software installed on it - do this with your iPhone than we can talk about 'pocket computers'.

And PLEASE PLESAE do not post things like "The low cost providers are NOT reaping the benefits of their "high R&D" efforts. They are mere assemblers of commodity products that others have designed and put up for sale"

No, low cost providers _SOMETIMES_ use other designs, but not _ALWAYS_!

And of course what I was posting was true: In a market where commodization occurs vendors which sell commodities do have an advantage! Vendors which don't sell what customers want have a disadvantage. Doh!


AppleTurfer

@Huber - a nice diatribe about how YOU feel about the iPhone. And yet the iPhone is selling in the hundreds of millions to the very people most able to buy any phone they wish. I don't need to dissuade you from your own personal opinions...but you by yourself, and my by myself, do not a market make.

Far and away, most consumers do NOT buy an iPhone. Never have. There was one quarter where Nokia's collapse was greater than Samsung's rise and the iPhone sold the most. One quarter...that's it...and about 22% of the market.

The highest rated phone is the iPhone. The most loyal customers, accordingly, are iPhone customers. All the while there have been MUCH better options (for those who feel like you). Always. The first iPhone was 2G when 3G phones at been out for years. On and on. Till the last couple years when the remaining "big ticket" item was Apple's lack of a large screen option. Always Apple as had to sell "whatever it is about the iPhone that sells" against a competition that has had so many advantages INCLUDING being cheaper. Way cheaper.

That you think this is coming to an end would be reasonable...if only you could account for the success that Apple has had to date. Which you can't, because every complaint you have has always been there.

Yes, you would SEEM to be right that in a commodity market, the commodization vendors have an advantage. Like today when 85% of the market has gone to Android and 80% of it to cheap Android. BUUT....that's not the only advantage that can exist at the same time.

Apple proved it's ability twice already. PC's became commodities but Apple maintains itself as the most profitable of PC makers because of OTHER advantages outside of pushing a commodity. More profitable than the top 4 PC companies combined. Just with Mac profits.

The iPod proved Apple could be successful despite commoditaztion again. This time, Apple not only survived, was not only the most profitable, but actually dominated the market. Apple's iPods in all their price points were far more expensive than the competitors. Eventually, the independent MP3 went into the history bin with the rise of mobile phones that could also play music. That -- not cheaper commoditized prices...is what has disrupted Apple's iPod business.

Some, like Tomi, think that the iPhone itself was a defensive reaction to the disruption of the iPod. Maybe so. But it was APPLE that came out way ahead with it's answer to the "music phone".

So you have Macs and you have iPods, and 7 years already of the iPhone and 3 years already with the iPad to SHOW UNEQUIVOCALLY - Apple is capable of sustaining innovation and differentiating that allows it to succeed as a premium supplier EVEN IN THE FACE of cheap commodization.

And that's ignoring the 150 billion in cash sitting in the bank as a 20 year buffer to disruption. Apple could sustain it's current spending with ZERO sales for 20 years.

AppleTurfer

About Rolex/BMW as comparisons to Apple. I agree with @Huber here as well. Rolexes and BMW's are are and away too expensive for most people and are truly in the luxury category. With more than a half a billion customers...Apple phones are on the high end of the price scale, but far from the kind of luxury pricing and exclusivity of Rolexes and the like.

Here is another dirty secret - Apple's phones are not the most expensive phones. Nokia's top end smart phones used to be far more expensive. The iPhone LOWERED the cost of the premium smartphone and made it easy to use to BROADEN the base of those who could and would buy a "premium" phone.

Even now, the top Samsung, HTC, Sony and LG phone cost on par or MORE than the equivalent iPhone. Your Galaxy S and you Galaxy Note...are not cheap phones. They are premium phones with the same premium pricing. The difference is that Apple ONLY makes the premium phones.

Some where surprised when I mentioned that Apple was getting 50% or so of the China 4G/LTE business. It shouldn't have come as a surprise. Apple has been the number one supplier until just this past quarter when Samsung for the FIRST time, out sold Apple in the 4G market (well, since Apple entered with a 4G/LTE phone). http://bgr.com/2014/08/25/galaxy-s5-vs-iphone-5s-sales-q2/

"The report states that Samsung took 32.2% of the market share with 28.6 million LTE-capable smartphone sales between April and June while Apple’s share fell from 40.5% to 31.9% over the same period."

Of course, we all know what's about to happen. A new iPhone will put Apple back on top next quarter.

This is only surprising to those stuck on viewing the total smartphone market numbers which include MOSTLY cheap, low end phones. That's where all the growth has been the last year or so.

40% of the 4G/LTE market has belonged to Apple and just fell, in the annual worst quarter for Apple, to 30%. That's the fact. Apple has a very healthy business going on. Apple is a premium supplier but nothing so exclusive like Roles or BMW. More common even than Bose.

Huber

@Apple Turfer:

You are beyond reasing; It is widely known - and I have already posted here - that this exact strategy almost bankrupted Apple in 1995.

So if Apple repeats this error, the same thing will happen again. Get this into your head!

And yes, Apple removing features artificially, forcing iTunes usage, locked bootloaders and all this crap made me stay away from its devices.

Nevertheless Apple was and is successful, but still such a castrated device is not what I call a "pocket computer". Even though I can understand (halfways) why people are using and liking it.

But they have to act - soon!

AppleTurfer

It is widely known that Apple almost went bankrupt 20 YEARS ago. But not at all for the "same thing". Jobs had been fired, and Apple was led by a marketing guy and they tried to do everything the other companies were doing. Wide and complicated product line. Licensed out their OS to clone makers. Put out boring "nothing special" beige boxed computers.

That was then, this is now. Jobs came back an older wiser leader after flopping again with NeXT (great software, overpriced hardware) and succeeding wildly with Pixar. Jobs cut and cut and cut the Apple product line and began to focus on delivering few but very revolutionary products along with Jonny Ive. Thus begat the iMac and the resurrection of Apple. Then the iPod, then iTunes, then the iPhone and the App Store, and the iPad and Apple Tv and Macs that are now based on Intel and such a complete soup to nuts vertically integrated company that's even designing their own chips.

Never has Apple had such a complete product line. Never has Apple been as in control of all the technologies it relies on. Never has Apple generated that kind of profits. Never has Apple had the amount of cash.

Oh...forgot to mention the mastery of the supply chain brought in by Tim Cook. Oh...let's not forget the power of Apple's retail stores.

I'm sure I'm forgetting even more important things. Today's Apple has nothing in common with the Gil Amelio led Apple that bought NeXT gaining both a great OS technology and the return of Steve Jobs.

Yes, Apple has had it's share of failures: The Lisa, the Apple IV, the Newton, Antenna Gate, Map Gate. Apple will have stumbles in the future as well. But no company is better prepared with weather such things than Apple.

Hating Apple today is like hating Msft in the 90's. Who knows what kind of bumbling will happen at Apple 20 years from now. But right now - Apple is stronger than they have ever been. Stronger than any other company currently is.

RottenApple

Let's see. They still live on a product that's turning 6 years old. In a market that's bound to undergo a radical change rather soon.

I only repeat myself: You are not judging Apple's future. You are judging its present state. Trying to preserve the Status Quo is the number one reason why big corporations failed, because it makes them ignore the trends that are going to define the future.

But obviously you also drank too much of Apple-Kool-aid, that makes you oblivious to the real world, or is it the money you get paid to post these annoyingly long posts that ignore all common sense?

AppleTurfer

What common sense. Who has a fresher idea than the iPhone? Who has come out with a phone others are clamoring for to imitate rather than the iPhone? I'm not saying Apple can't be disrupted....but none of us can point to the next big thing. You can only say "a big thing could come and catch Apple by surprise". Yeah...and everybody else too. Just like Apple disrupted everybody, not just Nokia.

What common sense reasoning are any of you nay-sayers putting forth that hasn't been true since the beginning about the iPhone and Apple's competitors? Why hasn't that "common sense" resulted ALREADY in what you are predicting?

Let's say that Xiaomi releases a new phone IDEA (funny, I know, to imagine Xiaomi doing anything but copying, but let's pretend). A phone SO RADICAL that it obsoletes the iPhone and every other phone. Bang. There it is. An major idea that sets the smartphone world on it's end, and now everybody wants one of THOSE instead of an iPhone.

You think Xiaomi can instantly make and distribute 2 billion phones a year across the world? No. Just like the iPhone, it would take time for Xiaomi to gear up manufacturing, distribution, over come language barriers, cultural barriers, forge carrier relationships...just like Apple had to do.

Meanwhile - Google, Samsung, LG, HTC, Sony....and APPLE would all rush to revamp their products to compete. How many years do you think it would take for these companies, including Apple to reply?

And who, more than Apple, would have the money and thus the time, to reply?

We live in a dynamic world, not a static one. Apple says no small iPad...and then changes their mind and comes out with the iPad mini. Apple says no video on the iPod, and then comes out with one. Apple would never support another operating system...but then they did with iTunes for Windows. We are about to see Apple release big screen phones after years of "the iPhone is the perfect size for one handed operation".

Apple has changed before and can change again -- when necessary. Sometimes people THINK it's NECESSARY to make a change and Apple doesn't. Like with netbooks. Oh...Apple has GOT to come out with a netbook. Only they never did. They came out with the iPad instead.

I don't get paid, I chose the name because it was obvious that the Can'tThinkTards on this forum call EVERYONE an astroturfer for presenting a pov different than their own fanboi fanstasies

AppleTurfer

http://recode.net/2014/08/25/codered-huawei-on-tizen-do-not-want/

Huawei On Tizen: Richard Yu, head of Huawei’s consumer business group, told the Wall Street Journal. “In the past we had a team to do research on Tizen, but I canceled it. We feel Tizen has no chance to be successful.”

chithanh

@AndThisWillBeToo
Others have already pointed out why your profit remarks are nonsense.

Firstly, Android handsets are usually sold at a profit, even if it is sometimes a small profit. Or would you believe that Chinese white-box smartphone makers operate at a loss?

Secondly, because the Android ecosystem does not depend on the well-being of any single manufacturer (Android development is headed by Google), it doesn't matter if one of them fails to make a profit or goes out of business tomorrow.

@AppleTurfer
Regarding your Xiaomi remark: Thanks for providing one more point why Android is so strong. If you innovate, then others will quickly learn to adapt and commoditize this. So manufacturers have to constantly innovate to stay ahead of the competition, or else live with slim margins. This in turn provides Android customers the greatest choice of innovative handsets at competitive prices.

Nobody else can keep up with the rate of innovation in Android. Not even Microsoft and Apple, who themselves started to copy innovations like the notification center from Android to their devices.

(Well actually, Symbian had a rather primitive form of notification center first.)

About the Richard Yu interview, the best quote was about Windows Phone: "it has been difficult to persuade customers to buy a Windows phone."
In other words, nobody wants a... hehe, I'll stop I promise.

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