Five Apple Predictions for 2009

In the face of extremely low expectations for Apple's (AAPL) future prospects, I present to you my 2009 predictions. You didn't think that $1.1 billion spent on fiscal 2008 R&D is going to waste did you?

1) Apple TV will evolve into an actual TV. The current Apple TV box has not worked. Steve Jobs knows this and has referred to the product as a 'hobby'; allowing Apple to obtain the content that it needs before the real Apple TV is launched. In accordance with the Apple way of doing things, I am going to predict that the new version of Apple TV will in fact be an Apple brand flat screen television. People laughed when Apple announced that it was actually going to make a phone but they won't be laughing when Apple announces that it is actually going to make a television.

By so doing, Apple will continue the trend of seamless integration of its iTunes platform into our lives. This is the product that will once and for all dominate the digital living room. With built in WiFi and satellite provider connections, all digital movies, music, rentals, apps, pictures, and family videos will magically appear on your television menu as soon as you take it out of the box. No instructions. No set up issues. Seamless integration. Digital domination.

2) Independent analyst Andy Zaky foretells the future Apple earnings blowout. Non GAAP accounting will never be acceptable to the mainstream so investors must wait for Apple's GAAP numbers to catch up. It is in the midst of historic growth for such a mature company and the amazing thing is that it has accomplished it during a recession.

Interestingly enough, the very analysts who are paid to see through the accounting smoke and tell investors what is really happening are missing it. Zaky's research reports that in its recently reported fiscal fourth quarter, Apple's adjusted net income grew approximately 124.6% from $1.085 billion in Q4 2007 to $2.437 billion in Q4 2008—an extraordinary number when fully accounting for iPhone sales in both periods.

Just as impressive is Apple's 75.1% growth rate in sales. Apple's adjusted revenue grew from $6.673 billion in Q4 2007 to a whopping $11.682 billion in Q4 of 2008. Earnings per share grew 123.0% from $1.21 in Q4 2007 to $2.69 in Q4 2008. Because the iPhone accounting is spread out over a 24 month period, Apple is building an expanding moat around its earnings announcements even as all analyst estimates are shrinking. A great recipe.

3) Apple will team up with a car manufacturer and begin producing the first iCar. In 2007 we heard rumors that Apple was working with Volkswagen (VLKAY.PK) on the iCar but talks fizzled. With the automotive industry in dire straits, car companies will be looking for any competitive edge they can find. Ford (F) or GM (GM) would be smart to contact Mr. Jobs today and be the first to secure an exclusive agreement with Apple. When the iCar is released, dealers won't be able to keep them on the lots.

Just as Apple has done with all its other products, this endeavor will result in the seamless integration of iTunes. We spend a lot of time in our cars and currently it is a hassle to hook up an iPod and fully utilize the quality of music and video. That will change with the iCar. This new car will make traditional vehicles look silly. Car makers have been very slow to adopt new technologies into their designs. Televisions has been around forever and most cars still don't even have built in screens. I really believe that the current turmoil in the automotive industry is because car companies are still living in the stone age with absolutely no vision. In 2009, Steve Jobs will change that.

4) Apple will enter the Chinese market in a major way. The Chinese are craving an inexpensive Internet device to further liberate their access to information, entertainment, and communication. Perhaps an alternative to the western world's use of laptop computers will fuel a revolutionary wave of Chinese gadget obsession. They love their gadgets. Before the government intervened with the China Mobile (CHL) monopoly, the company reported 574 million mobile subscribers back in March; the number of mobile subscribers is expected to grow to 738 million by 2010. To put that number in proper perspective, consider that the entire US population is just over 300 million.

Capturing the Chinese market is the prize of all prizes. To win the Chinese prize one must cater to the Internet demand of the young Chinese but do so on a culturally accepted platform. Computer ownership is not culturally accepted. Cellphone ownership is. That's where Apple's iPhone comes in. The inexpensive iPhone caters to the hundreds of millions of people who will trade in their current cellphones for their first ever opportunity of owning a mini-computer. The iPhone launch in China represents the most significant technological product release of our generation; not only financially for Apple but culturally for China as 7 out of every 8 households goes without a computer. Will Apple bite the bullet and advertise the iPhone as a laptop alternative in China? We'll see.

5) Apple hardware and software will continue to gain market share in the tech revolution. Most people still don't know how to make their own websites or to build up an online business. Apple products such as iWeb, Garage Band, Mobile Me, etc, allow the common man to become creative and market that creativity to the world. Just as the iPod had a halo effect on Macs, I predict that the App Store is going to have a halo effect on Apple software.

Consumers are tired of depressing local news broadcasts, predictable sitcoms, and the limited 'day old' reports found in the local paper. Modern consumers are much more interested in the unpredictable videos found on Google's YouTube or in their 'real' evening news found on Facebook or on a friend's updated blog. Many worry that the new tech revolution will make society less personal but I think the opposite is true. How much more impersonal or out of reality can you get than having the evening news or the newspaper feed you what they think is important?

Advances in Apple's iLife software will continue to improve and I think that Apple and Google (GOOG) will lead the tech revolution into the next stage, which will further empower the individual. In my own career I've used Apple's iWeb to expand my business at www.lonepeakportfolios.com. I can use E-Trade (ETFC) to make my own trades instead of going through a broker. I can use YouTube as a distribution channel for my market forecasts. I can create my own Amazon (AMZN) store and sell products to my network of bloggers and friends. I have access to the best professors at Stanford or MIT through iTunesU. The tech revolution is empowering the individual and Apple will lead the innovation with hardware and software. Mac sales will continue to grow and thrive as the company takes market share away from Microsoft (MSFT).

I would be careful who I listen to as 2008 comes to a close. Most analysts have been beaten up this year and they no longer know which way is up and which way is down. Yesterday's announcement that this is Apple's final year at Macworld is no reason to suppose that Apple innovation is finished. Even if no new products are released in January, you can be sure that there is more to come.

Disclosure: Long AAPL.

Comments

[Sachin:]

first one seems little close to truth but others seems to be taken from the fairy tale books.

2008 Dec 17 07:20 AM

[rd4sndk:]

Good predictions; however I believe the iCar prediction will unfold slightly different. I think Apple would do well with marketing the Apple brand as "Apple in side" similar to the "Intel inside" campaign. Apple could then possibly spread its hardware over more of the automotive industry.

Here are two other predictions for Apples growing cash hoard:
1. Apple becomes a producer of its own 100% owned content (Animations, movies, documentaries, digital books, digital classes, digital lectures, digital training materials etc.) Initial Cost = $1 billion; Annual Cost = $0.25 billion; Annual Revenue = $2 Billion; GM = 40%.
2. Apple to exploit joint venture to leise bandwidth for its own wireless carrier operations. Initial Cost = $10 billion; Annual Cost = $1 Billion; Annual Revenue = $5 Billion; GM = 65%.

2008 Dec 17 08:30 AM

[jimmy smith:]

the author obviously didn't see this: biz.yahoo.com/ap/08121...

2008 Dec 17 09:08 AM

[the weakono...:]

iCar, yeah. If Jobs is actually stupid he might do an apple edition VW or something, but he's not going to design a car. Especially with the POS Detroit makes. You're more likely to see Jobs using a Dell Netbook or tMobile G1 before you see Apple get into cars.

Apple will not enter China until they role out an actual network. WiFi? Nope. Not enough 3G coverage there either. When WiMax or LTE is rolled out you'll see Apple move in to China. They also won't enter a new market until the existing ones are saturated. Apple doesn't bite bullets. They make you bite.

Here are some actual predictions:
-New Mac Mini
-DRM Free iTunes
-Jobs Announces Retirement (keyword "announces")
-Macs lose some market share because of down consumer sales
-32 gig iPhone with upgraded battery, no design change
-Profits dip, but remain steady because of new revenue sources, app store
-Kill original iPod

2008 Dec 17 10:28 AM

[SJD:]

Lots of bearish sentiment out there regarding AAPL. That's a good thing.

2008 Dec 17 10:47 AM

[winindthedust:]

@ Jimmy Smith,

Just read the article... it pertains only to desktops. Lap top sales and over all computer sales are up for Apple.

The article implies, also, that it's the sub $500 desktop sales that are up, as it said, "Mac's are more expensive". This category produces little profit for the companies that sell them.

If sales are "flat" for the quality & premium- & highly profitable Mac desk tops, this is a bad thing in a down economy? I think not. Apple will see steady profits, and overall, beat expectations. Other computer companies are having trouble selling profitable equipment. Their sales are not flat, but declining.

People that want to by cheap sub $500 go to HP & Dell. People that want to buy quality, are now going to Apple. The distinction is quite clear.

2008 Dec 17 11:00 AM

[brewer:]

You mean the part about Apple laptop sales being up 22% while PC laptops are in decline?


On Dec 17 09:08 AM jimmysmith wrote:

> the author obviously didn't see this: biz.yahoo.com/ap/08121...

2008 Dec 17 11:48 AM

[brewer:]

Agreed, the iCar would not be a good idea, but I like the 'Apple Inside' idea that could be sold to any car company.

I hope the Apple TV (not a computer box but an actual TV) becomes a reality. Most TVs are pretty ugly, Apple could make a very nice one. A TV with a computer interface similar to iPod touch, controlled by a device like an iPod touch, and the iPod/iPhone games would work on it.

Today is an opportunity to buy.

2008 Dec 17 11:56 AM

[jenny:]

Wow, well this is an optimistic article! The iCar strikes me as the biggest fairytale although I can see a sort of "apple inside" collaboration. While I believe Apple does indeed have a bright future the problem right now is that there are too many rumors swirling around for investors to see straight. Sentiment is becoming more bearish and more and more investors are predicting down for AAPL (www.predictwallstreet....). While I remain optimistic for the company, it's mostly in the long run.

2008 Dec 17 01:59 PM

[Tom B:]

I own both GOOG and AAPL, and you are dreaming. Google does exactly 1 thing really well: search. They don't even make hardware.

On Dec 17 02:35 PM Simon Leoung wrote:

> Google is taking dead aim at Apple right where it lives. Google has
> a
tremendous
> advantage in that they are bundling SaaS (cloud computing)
for
> use in mobile devices.
> This
is
> happening worldwide. Take a look at what at the huge news from
yesterday
> in China that went virtually unnoticed. Google using a China
proxy
> to flood the country with SaaS.
>
> www1.investorvillage.c...;pt=qn&xid=778...

2008 Dec 17 03:27 PM

[BurkPhoto:]

I've followed this company closely, since using my first Apple (a //e), in 1984. I've never had any money to put in stocks, but I sure wish I had! I would have bought Apple in 1998 and would never have sold it.

Apple is like an iceberg... They're responsible for more innovation, more creative design and engineering, and more market shifts in the tech and entertainment sectors than most people even begin to realize:

If it hadn't been for the Apple ][, //e, and //c, there would have been little urgent incentive to develop the IBM PC.
If it hadn't been for Apple's Macintosh, Microslop Windoze wouldn't have "happened" as early as it did. (Not that that would have been a bad thing!)
If it hadn't been for Apple's LaserWriter printer, the desktop publishing revolution would have taken a lot longer to occur.
If it hadn't been for Apple's iPods, we would still be listening to CDs instead of plugging iPods into cars and clock radios.
If it hadn't been for Apple's iPhone, your phone would still be (too) hard to use. (Oh, but wait, they haven't quite caught on yet, have they?)

These are just the obvious achievements this company in Cupertino, CA, has to its credit. I agree with Jason. They're going to surprise most of you again. Start scratching your heads...

2008 Dec 17 05:02 PM

[who:]

iCar sounds good, but it will be more then filling cars with TV screens and iTunes. Using the latest non-carbon fuel technology would be crucial to its success. Apple could even buy its own small car plant from the detroit fallout if it could overcome the unions.

The venture into China is overblown as average monthly income in the cities is less then the cost of an iphone. The monthly costs for phone plus mobile internet is very expensive compared to home based internet and cheap phone package. Forget the rural area as the they just can't afford it!

2008 Dec 17 09:22 PM

[Homer II:]

On Dec 17 11:00 AM winindthedust wrote:

> People that want to buy quality, are now going to Apple. The distinction
> is quite clear.

"now going" is obviously a very short term trend, as more consumers are reining in their frivolous expenses... which inexorably means fewer sales for AAPL.

2008 Dec 17 10:36 PM

[Homer II:]

On Dec 17 05:02 PM BurkPhoto wrote:

> Apple is like an iceberg...

I would prefer to think like, "Apple USERS are like the TIP of an iceberg" ..sitting in the nice warm sunshine enjoying their toys, while the other 6/7ths are all under water literally.. and the berg is entering the warmer waters of the sea, melting away.

2008 Dec 17 10:43 PM

[neutrino23:]

Apple predictions. My favorite hobby.

1. Rather than their own TV I think Apple would simply beef up the Apple TV. It would be too hard to fight against the in-place distribution systems and mind share of current brands.

2. I'd like to see Apple design software for cars but I think it's unlikely.

3. I think we'll see a dramatically upgraded iPhone next June. Possibilities are faster processors, better battery life, larger screen, and a built in micro projector. Wouldn't it be cool if your iPhone could project an image the size of a 20 inch monitor with HD resolution?

4. Snow Leopard will be a big hit. It will be accompanied by healthy improvements to Aperture, iLife and iWork.

5. The laptops and desktops will see evolutionary, not revolutionary, improvements. Toward the fall the computers will incorporate Intel's new Nehalem series CPUs which will significantly improve performance.

6. I think Apple sales will do fine. There may be some loss of business due to pricing. On the other hand, when money is tighter it may be important to spend that money wisely. Should you spend some money on a low quality machine running windows or a more reliable machine running OS X? Corporations run by accountants would probably opt for windows. Consumers may opt for Macs. I was just at a trade show today at Moscone center and noted that about half the laptops in the booths used by the sales people or used to drive presentations were Macs. The reliability of Apple computers is becoming conventional wisdom.

7. ?... I'm still hoping for a phaser or a tricorder.

2008 Dec 18 03:59 AM

[Hedged In:]

"Prediction 4: Apple will enter the Chinese market in a major way. The Chinese are craving an inexpensive Internet device to further liberate their access to information, entertainment, and communication."

It's not just the Chinese -- here are comments on trends in the laptop market: seekingalpha.com/user/...

2008 Dec 18 09:07 AM

[tantric:]

Just 1 thing,Mr Schwarz.I've learnt in over 28 years that when it comes to the Market,we tend to grab hold of any'positive'(sometime... those 'positives' just SEEM like positives and ,in any case,even when true are ALREADY factored into the Stock price.We ALSO tend to brush aside and IGNORE the 'negatives'-some of wheich MAY already have been factored into the price but they may be just revving up to get much worse.Apple's a good company but then it went from under 10 or so(right?)to 200.Who's to say it will not touch 40 to 45 possibly(that's still 500% of the LOW price of apple for this decade)??

2008 Dec 18 06:24 PM

[Arnold Rein...:]

I'd like to see Apple deploy a secure, IPv6, Snow Leopard only, version of the Internet, maybe using its Apple Stores as points of presence. It would be the only thing likely to work after a major cyberattack.

2008 Dec 22 07:48 AM

[dominic sel...:]

Apple's creativity is indeed a well known feature from the early days and i
am sure they will innovate their marketing startegy, for the products.I am
positve to the successful investers.

2008 Dec 23 03:41 AM