Four Predictions for Apple

 |  About: Apple Inc. (AAPL)
by: Stephen Rosenman

Time for four Apple (NASDAQ:AAPL) themes and four predictions.
#1. Apple Cash continues its steep parabolic rise.

Two years ago, I predicted that Apple's cash (cash + short/long term investments) would follow an exponential curve. This quarter, Apple's $51 billion actually exceeded that expectation. Apple banks most of its gargantuan earnings -- no dividends, buybacks, and only relatively small acquisitions (so far). I continue my prediction that Apple follows "Rosenman's Law": Cash piles up exponentially along a parabolic curve. Thus, in 2011, the Bank of Apple holds over $62 billion. In 2012, $90 billion fill Apple's coffers. Message: obey the "Law".

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#2. Apple increases its revenue per device sold.

Since "Rosenman's Law" did so well, time for another one: "The Golden Rule of Apple". Let's break down Apple's revenues per device. No one follows this metric, but it's an important one because it chronicles how each device brings in money beyond its ASP [average selling price].

The aggregate numbers for revenue per device have been steadily climbing. This quarter, Apple sold 31 million devices. That comes to $651 a device sold. Last quarter, Apple made $640 a device. In Q4 2009, revenue/device came to $593. In Q4 2008, the number came in at $513. Some of the move is because Apple has been selling more expensive items lately: iPhones and now iPads. However, more significantly, the rising quotient tells us that each device is generating larger cash inputs from an assortment of music, ads, apps, software, Ebooks, etc. Buy an iPad and you'll download a book, buy music, click on some ads.

(Clearly, the metric only makes sense if Apple continues to increase the number of devices sold. For instance, if Apple sold only one device for a quarter, the ratio would absurdly skyrocket from all the software, music, and apps sold from older devices.)

I predict next year Apple will generate over $700 of revenue per device sold. Hence, "The Golden Rule of Apple": every device sold will generate an increasing revenue stream. It goes to the heart of the Apple ecosystem.

#3. The IPad Becomes Apple's Second Biggest Revenue Driver

The iPad has only been in existence 2 quarters. Apple sold 4.2 million of them. To put that in perspective, the company sold 3.9 million desktops and notebooks combined. It took Apple 30 years to reach 3.9 million computers, only 6 months to get to 4.2 million iPads. That's despite supply problems for the iPad. IPad revenues came in at $2.8 billion for the quarter compared to $4.9 billion for their desktop/notebooks.

Prediction: the iPad quickly displaces their computer division for the distinction of second best revenue generator, likely within one to two quarters. (Who would have ever have thought desktops and notebooks could become a third line of business for a Apple?)

#4. Asia-Pacific and Japan will together make up the majority of Apple sales in 2 years.

The Eastern World it is exploding in Apple sales. Revenues coming out of Asia-Pacific grew 157% y/o/y while Japan produced 121% y/o/y growth. Even more incredible, Asia-Pacific expanded sales 50% and Japan 54% sequentially. And China is only just getting started. I predict Asia-Pacific/Japan growth accelerates over the next year 140% or better. Crazy, you say. Not really. Last year, Apple didn't even break out Asia in its revenues, listing them under "Other Segments", a category that grew 39%. Prediction: In 2 years, Asia-Pacific and Japan sales comprise over half of Apple's revenue.

Disclosure: Long AAPL