How Apple's Market Share Will Propel Stock to $500, Part 1 107 comments
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Microsoft (MSFT) CEO Steve Ballmer gave us a glimpse into Apple’s (AAPL) future with a statement he made at the Windows 7 release. When asked by CNBC’s Jim Goldman to respond to the threat of competition from Apple, Ballmer remarked,
It's amazing: people say Apple sells 10 million PCs. There will be 300 million Windows PCs sold in the same time frame. So it is interesting to me that people spend so much time talking about the 3 percent of the market in that case...I wouldn't trade our 300 million new users a year for their 10 million. I just wouldn't do it. I kind of like what we're doing and the way we're serving the market.
The trend of the 2010 decade appears to be one of Apple gaining market share and Microsoft losing market share. There is no question that Microsoft is king of the hill but investors are never concerned with the current king, we are always trying to forecast who’s next. Broadpoint AmTech analyst Brian Marshall actually thinks the Windows 7 launch will boost Mac sales. He wrote,
We have concluded that no negative correlation exists on Apple’s hardware sales when Microsoft launches a new OS. Ironically, we believe new OS launches from Microsoft may have even acted as a ‘delayed accelerant’ to Apple’s computing sales.
When looking at Apple’s future you need to comprehend what kind of market share numbers we’re talking about. The global PC market is so large that if Apple were to control only 10% of it, the earnings could drive the stock up significantly. According to IDC, Apple now claims 9.4% of the U.S. computer market in the US, and NPD reports that Mac revenue market share of the premium price segment over $1000 is at an astonishing 91%; To give you some perspective on how quickly Apple is gaining, back in January of 2008 Mac’s revenue share was only 66%. It takes years to create a trend in the PC market because of the rigid barriers to entry and Apple has clearly done so with the Mac lineup.
On Apple's most recent quarterly conference call (see earnings call transcript here) they reported that revenue in Europe was up 45% year over year in the region, Apple Japan was up 36%, and the Asia Pacific was up 39%. It looks like they are well on their way to 10% global market share. If they were to sell 30 million Macs in 2011 (which could include the Tablet released sometime in 2010) this stock will eclipse $500 based on the fundamentals. It's about as far fetched as Bank of America (BAC) to $20 sounded back in March 2009 and oil to $30 sounded back in August 2008. Most impressive for Apple is that computers only make up one tier of their business. Hence, this article is merely part one of a series mapping out Apple's market share rise by 2011.
One of my readers, Mikesan, made the following comment: ‘I once read that at product design sessions Steve Jobs encourages people to start sentences with ‘wouldn’t it be great if...’ and they go on from there. Compare this to Microsoft which is more like ‘isn’t it great we can still do this’. Two companies headed in different directions. Ballmer might want to be careful next time he touts Windows 7 on 300 million computers. The trend is not his friend.
Disclosure: long aapl
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I respect Mr. Ballmer capacities (which in my point of view are shown in the brilliant iniciatives he support as private investor) in Microsoft he is in a wave that is difficult to reorient ...but he will.
The risk with Apple is that most of the success is around Mr. Jobs himself, he is everything in there....(let God keep him many years), $500 stock value is possible if he is around.
Regards.
What are the margins on those 300 million users and what are the margins on 10 million users? Would you rather be selling computers that cost over 1000 bucks or under 1000 bucks?
LOL, I own both platforms, mainly because of legacy software.
At some point people gravitate toward quality, even when it costs more. Apple now has the successful image of a luxury brand.
On Oct 23 10:02 AM John Galt wrote:
> > It's amazing: people say Apple sells 10 million PCs. There will
> be 300 million Windows PCs sold in the same time frame. So it is
> interesting to me that people spend so much time talking about the
> 3 percent of the market in that case...I wouldn't trade our 300 million
> new users a year for their 10 million. I just wouldn't do it. I kind
> of like what we're doing and the way we're serving the market.<br/>
>
> What are the margins on those 300 million users and what are the
> margins on 10 million users? Would you rather be selling computers
> that cost over 1000 bucks or under 1000 bucks?
Instead of knowing what it wants to do and deciding on how to get there, Microsoft sees what others do and simply copies or buys.
Apple takes something in existence (MP3, cell phones, PC) and applies innovations and hard work to make it significantly better. From personal computer operating system to pro-sumer software suites (iLife, iWork) to iPod and iPhone.
Microsoft sees what others are doing and then tries to copy and do the same. From Windows to Zune to Bing to Windows 7 to its clapping new stores. Copying or buying to do the same things are not interesting to most people. So people talk about the 3% innovator while tolerating the 97% behemoth.
Jobs and Woz worked with their fingers and created the machine and the software to start their business. Gates bought DOS from IBM and went from there. Apple founders actually built their first product and business from scratch, much like the pioneers of H-P. Gates took DOS off IBM's hands and was just doing business. Big differences in how they started and the corporate culture and strategy show this history clearly to this day.
Yes, we look to Apple for innovation now because Microsoft has spent years jamming whatever it wishes down our throats. We still cater to and must support Windows because it still has the 97% market share and thus the purchasing power that feeds our company's sales. We are also now developing products for the 3% Apple and begin to focus our innovative energy on the Apple version. Who won't?
In the past, they were reticent to compete. They were cute and did what they did. (I bought my 1st Apple computer in the early/mid 1980's.)
Now, they are competing.
I love it, but....What happened?
> a ‘delayed accelerant’ to Apple’s computing sales.
I saw that chart -- I think the numbers are kind of skewed based on some Microsoft fiascoes (Windows ME, Vista).
Windows 95 was strong, for its day.
Windows 2000 was an excellent release.
Windows XP was an incremental improvement that was received well over time.
Windows 7 is a true next-gen OS for Windows users -- what Vista should have been.
If nothing else, only a small fraction of businesses ever migrated to Vista over the past few years -- almost all of them will migrate to Windows 7 in the next 1-2 years.
Low margins or not, the sales volume will be enormous.
Don't you think that an extremely large increase in their user base wouldn't require a drop in prices? I really like Apple Macs and despite the fact that I view the premium paid as totally worth it, some people cannot and never will get beyond the higher price tag.
at a market share of <10% the room for growth is enormous.
Windows 7 and all previous windows for that matter is just aping the mac OS
On Oct 23 11:07 AM mrxg4 wrote:
> This is getting ridiculous. As much of an Apple fan I am, I cannot
> envision Apple expanding their market share enough to justify a $500
> price tag on the stock and a market valuation of over half a trillion
> dollars (let's assume for a second that we mean $500 in today's dollars)
>
>
> Don't you think that an extremely large increase in their user base
> wouldn't require a drop in prices? I really like Apple Macs and despite
> the fact that I view the premium paid as totally worth it, some people
> cannot and never will get beyond the higher price tag.
Also can't blame Microsoft for opening retail stores that clone Apple. It's what they do, with the success Apple has had they should have done it years ago. But still, Ballmer should at least have a little pride and come up with something on his own, shouldn't he?
A poster asks a good question regarding Apple's focus on high-end market. How can Apple possibly grow beyond 10% or 20% of the market? I do not believe that market share numbers are more important than sustainable profitable growth. There is a difference. I also do not believe Apple is focusing on the "high end" because it already sells machines costing $999 a piece.
Apple's strategy is not about focusing on high-end. Apple's strategy is to avoid competing on price alone. It wants to add significant value to its offering. That is the key difference. Apple trickles its technologies and innovation through its product line over time but one pays for such technologies, it is not for free.
Other corporations use whatever Microsoft offers and slaps together a box to sell based on price. They do not focus enough on value-added offering. PC's are now a dime a dozen and it is a noisy field. Hard to differentiate and garner attention.
On Oct 23 10:11 AM tripleblack wrote:
> In one case you have a generic, disposable commodity market, driven
> by price, and on the other side you have an affordable product in
> a brand market driven by innovation and ease-of-use.
>
> LOL, I own both platforms, mainly because of legacy software.
>
> At some point people gravitate toward quality, even when it costs
> more. Apple now has the successful image of a luxury brand.
On Oct 23 11:28 AM BladRnr wrote:
> I agree, but it's happening none the less. Apple's latest quarterly
> earnings defied logic. Defied logic! Three million Macs in a severe
> recession. Maybe, just maybe, people would rather spend more on something
> that works, doesn't have viruses, is design-oriented and is seen
> as a complement to their iPhone or iPod. I can't explain it any other
> way. In this recession Apple should be doing poorly. All the pundits
> thought so last spring. But Apple just had their best quarter ever.
> I don't think it will take much to get them to 10% market share here
> in the States. It's not out of the question.
I've been extremely bullish on AAPL and still am. However, $500 a share would put AAPL's market cap at $451 billion, eclipsing even XOM which is the leader in cap at $357 billion. Still quite a stretch regardless of gaining 10% market share.
THe MSFT fans could really see no reason it would not double again.
They ran the numbers they talked the talk about world markets , profits
Dont make the mistake of not locking in some profits along the ride.
Forget about 3% share or 97% share, it is going to get harder and harder for apple to move the dial any econ 101 student could figure it out.
But Jason has every reason to pump AAPL, With each and every cheerleadering story Jason discloses that he is in fact long AAPL.
I sure hope he discloses when he goes short,
You talk about a 9.4% market share as immense room for growth... and then comlietely contradict yourself and say they already have 91% of the luxury market as if that's a good thing!
Clearly the luxury market is theirs. And you have to remember that 9% represents high powered PCs that Mac can't really compete with on a performance basis and isn't their market anyways.
If I told you Porsche's accounted for 90% of cars sold over $60,000 but only 10% of all cars sold, would you really be interpreting that as room for growth?