Apple's (AAPL) momentum and future growth opportunities in the enterprise market should keep investors bullish despite the recent decline in share price. Over the past year, uncertainty of BlackBerry's (BBRY) future and the delayed launch of the BlackBerry 10 operating system has diminished confidence in the BlackBerry Enterprise Server. While existing BES users have been excited and hopeful for the new operating system, many enterprises and agencies have explored new options, allowing Apple's iOS to gain traction in the enterprise market for both smartphones and tablets.
Apple is evidently becoming a trusted enterprise solution, and recent deals were announced of major agencies switching from the BlackBerry platform to Apple's iOS platform. This list includes Home Depot (HD) replacing 10,000 of their BlackBerry devices with iOS devices, and other agencies such as U.S. Immigrations and Customs Enforcement Agency, the National Transportation Safety Board, Australia's Treasury Department, and the New Zealand police force.
As businesses switch to the bring-your-own-device model, security is the top concern in the enterprise market. Apple is being chosen for enterprise solutions over Google (GOOG) Android, and reports have indicated that there has been an increase in various malware specifically targeting Android devices, and a security warning for Android devices was issued by the IC3 and FBI in October 2012. Although iOS still offers less security than the BlackBerry platform, the recent deals with government agencies show that solutions exist to allow the iPhone to meet government agency level security requirements that was once believed only BlackBerry could provide. Apple is also making provisions to increase the security of their products in the future, such as the inclusion of a security chip in the Lightning connector.
Smartphones and tablets are becoming more intertwined in the enterprise market, as devices become better integrated. Data from Citrix Zenprise 2012 Q3 results show that the iPad is driving the growth of the iOS platform, comprising 57% of iOS enterprise devices, as compared to the 42% of iPhones. Apple is recognizing the growth potential of the iPad for enterprise purposes, and is positioned well to grow this segment, evidenced by the announcement of increased storage capability of 128 GB for the fourth generation iPad.
Data from Zenprise enrolment also shows that iOS enrolment dominated at 56%, and Android at 37% of devices. Apple's competitive edge for the enterprise market comes from providing a full service system of tablets, mobile phones, and computers, running on the same operating platform. Google and Samsung (SSNLF.PK), do not offer a fully integrated software and hardware system to strongly compete in the enterprise market for smartphones and tablets. For Microsoft (MSFT), the new Surface tablet may bring competition, but the market penetration of Windows 8 smartphones is small. The iPad exists as a known and proven solution that has been tested and used by many.
Apple also has significant growth opportunity in the enterprise market as mobile payment gains popularity. Apple has already transformed the point of sale experience, as iPads and iPhones are integrated with apps and hardware, such as Pay with Square, to facilitate m-commerce transactions. Additionally, Apple iTunes accounts and the Passbook mobile wallet will gain momentum as m-commerce grows.
What This Means to Investors
Apple's shares have dropped 35% in the last 5 months, closing at $460.16 on Feb. 15, 2013. This was caused by reasons such as:
- New products considered evolutionary rather than revolutionary
- High investor and consumer expectation for new products
- Google Android and Samsung gaining market share in the smartphone segment
- Product cannibalization as devices become more multi-purposeful
- Lower profit margins of lower-end models (iPad mini and anticipated lower-end iPhones)
- Q1 2013 sales and revenue targets missed
Given that approximately 50% of Apple's revenues are generated from the iPhone segment, it is natural for investors to be worried about competition of the Google Android operating system and Samsung devices. However, Apple's momentum in the enterprise market should overcome worry of Apple's dominance. It is evident that they are securing a strong foothold as businesses and government bodies are switching their devices from BlackBerry to iOS.
Moving in the enterprise direction allows Apple to have more stability in their revenue stream. With larger and longer-term enterprise contracts, the company will be less susceptible to market fads and consumer perception. As Apple enters emerging markets such as India and China, their profit margins will erode with lower-end products, but strength in the enterprise market will allow Apple to maintain higher profit margins. The existing penetration and growth opportunity in the enterprise market should keep investors confident and bullish on Apple.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.