Many companies electrify their markets by developing great products. However, over time, their merchandise loses the ability to command high prices. Competitors move in, bringing new and often better devices into the market place. As a result, average selling prices (ASP) and operating margins drop.Once great companies are humbled as their products become commoditized, their stock prices fall.
Apple (OTC:APPL) is still in the electrifying stage. It has innovated into new markets: the iPod, iPhone, iPad. Its products have been able to achieve pricing power. MacBooks get better ASPs than comparable notebooks, for instance.
In a recent article, I presented a new metric to assess Apple and some other device makers: revenue per device (RPD) and operating income per device (OPD). The ratios capture something truly remarkable about Apple: the company can increase its RPD and OPD in good times (2006 and 2007) and bad times (2008, 2009, 2010). Contrast that to RIMM and Garmin (GRMN), two companies that have not been able to innovate their way out of a downward trend in RPD and OPD. Let's compare Apple and RIMM.
Apple moved into products that could command higher prices and generate greater income per device. RIMM was unable to do so. Apple's OPD rose from $56 to $164 in 4 years, a breathless 192% climb. RIMM's OPD dropped 25% over the same period. RIMM's stock price peaked in June 2008, the same time its OPD started to drop. Look at Apple and Garmin in terms of their RPD and OPD.
Apple and Garmin's RPD and OPD performance diverge dramatically. Garmin's RPD and OPD plummet 47% and 54% respectively. Garmin's stock price peaked December 2007, coinciding with the fall off in OPD.
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Apple has been growing its OPD and shows no sign of slowing.
Apple's OPD crystallizes why the company has been able to increase its market cap from $11 to $315 over the last 6 years. The company keeps moving into new and profitable markets, differentiating its products from competitors, and delivering high quality devices that are not discounted. It's a feat few companies can perform.
Disclosure: Author is long Apple, and holds no positions in RIMM or GRMN