Why a Recession Might Be Great for Apple

After all the analysis of Apple's earnings yesterday, after jaws got hinged back into place after seeing iPhone sales numbers, after everyone heard Steve Jobs' voice and was convinced he's not about to go knocking on heaven's door -- one moment in the conference call stood out.

Jobs said Apple (AAPL) has $25 billion in cash, no debt, and is ready to innovate and steal market share from competitors struggling through tough economic times.

Recessions can be fantastic for the strongest. Jobs' comments echoed the way IBM used the Great Depression to vanquish competitors and set itself up to dominate technology for decades. Weak players disappear completely. Many companies, finding their revenue squeezed, lay off talented workers, cut R&D spending, cut back advertising, and generally try to survive more than grow. That gives the strongest player an opening. It can aggressively develop new products so it gets even farther ahead of competitors. It can hire the most talented people. It can be more visible to consumers simply by advertising as much as it had been.

The real slingshot comes when the economy turns up again. If Apple can do what Jobs suggests, when the economy emerges at the other end of the tunnel, competitors could be caught flat while Apple has aligned the products, talent and branding to take off like never before.

Comments

[wallywonka:]

Yeah! Go Apple!

2008 Oct 22 01:13 PM

[AjoyB:]

Yes, Kevin!! Sock it to those pessimists who say that people will stop buying iPhones and iPods with money getting tight. Seriously, a great company will always be great.
Disclaimer: I own a long position in AAPL stock. Go, AAPL!!!

2008 Oct 22 01:19 PM

[Ranchrfl:]

FINALLY, someone's got it.

I've been feeling my own Apple store pulse, since August. I started in the Cambridge and Birmingham stores in England and they were doing normal business, during the month of August, when most of the country go on holiday.

Back in the USA, I started visiting stores on the West Coast of Florida (Tampa, Brandon, Naples and Estero. I spoke with people and the impression I got was it was quieter than normal in late September ands early October. Since the Macbook refresh, business is back to normal on weekends and weekdays are coming back but not quite back to normal but steadily improving.

As someone said recently about lacing up track shoes and a charging bear... Apple doesn't have to outrun the bear, just outrun Rimm and Dell...

2008 Oct 22 01:37 PM

[jayz:]

"when the economy turns up again.."

Yea, right, that'll be the next time down hits 14000..in 10 years??

2008 Oct 22 01:37 PM

[20smoney:]

Couldn't agree more. great article.

2008 Oct 22 02:18 PM

[jmmx:]

You do have a very good - and important - point here, but I still disagree.

The BIG news is the non-GAAP financial results. What the financials really are, but get hidden by the need to spread iPhone revenue over 24 months.

Total Revenue = $ 11.7 B
Net Income = $ 2.4 B
EPS = $2.69

THIS is the REAL revenue and the real EPS.

2008 Oct 22 02:24 PM

[Short Apple:]

Well if the author understands basic valuation then the value of the stock should be the Present Value for all future cash flows. In a recession I don't see how the cash flows will be coming in...so bascially Apple will be burning through their cash pile. The stock has to go down...just wait a couple of days.... Plus the author's comments about competitors....well they are Google, Microsoft, HP all with loads of cash and they are not going anywhere....and by the way Steve Jobs health is an uncertainty (I wish him well but as an investor you have to consider this too)....

2008 Oct 22 05:05 PM

[Short Apple:]

In addition to the iPhone revenues that people are counting on....when people loose their jobs they are not going to keep their iPhones especially since it has the extar $30 per month data subscription charge along with it...;-)

2008 Oct 22 05:07 PM

[User 284002:]

I agree with your article. Additionally, the iphone revenue model allows for recognition of revenue over an extended period. A few years I believe. With that being said, Apple will continue to generate revenue for the next few years on the 10m+ iphones ALREADY sold even during a global economic downturn (guaranteed revenue generation). And they will continue to generate this type of revenue on future units sold.

2008 Oct 22 06:00 PM

[mollytjm:]

Apple will continue to do well. they've always grown only into demand and that will continue. there are so many markets open to them. they're very smart about $ and they're not going to start bleeding cash...that's just ridiculous. they're making $ hand over fist. and if you think Jobs is the one inventing, innovating and running everything, think again. There's a huge staff of brilliant, talented people and because of Apples' reputation, they're attracting more every second. Appl, esp. at these prices, is a great buy and hold.

2008 Oct 23 11:47 AM

[Short Apple:]

Apple stock going down now.....what do longs have to say now yeah.......

2008 Oct 24 02:17 PM