Apple's Market Value to Surpass IBM, Intel

 |  Includes: AAPL, IBM, INTC
by: Georges Yared

Apple, Inc. (NASDAQ:AAPL) has had an incredible string of successful years and product launches. The iPod has an installed base of over 100 million units sold and the iTunes store has sold over 2.5 billion downloads. Apple has surpassed both technology bellwether names of Dell Computer (NASDAQ:DELL) and Oracle (NASDAQ:ORCL) in terms of the ultimate measuring stick: market capitalization.

Apple's market cap is a robust $114 billion, up from $45 billion one year ago. Apple passed Dell, with a current market cap of $64 billion and Oracle, whose market cap is $100 billion. Next in sight for Apple is Intel (NASDAQ:INTC) and IBM (NYSE:IBM), whose market caps are $145 billion and $161 billion respectively. I believe Apple will pass up both companies within the next 18 months. Why, you ask?

Intel and IBM are both superb technology firms holding leadership positions within their respective sectors, but have nominal growth prospects. Both have high operating margins and world wide presence, but sustainable, long term double digit growth is questionable. Apple's revenue and earnings growth for the next three years I expect at a solid 25-30%, and that is a conservative estimate.

Apple has multiple legs for growth that are currently still early in their cycle. The iPod's market share is above 70%,and that market is still growing. The re-vamped Mac computer is gaining valuable market share positioning and with the addition of the Windows version of the Internet browser Safari, the sustainable share gain is now in place. With the new Mac comes huge add-on software sales that carry high margins. The Apple retail store system, almost 180 strong, is the highest-revenue-per-square foot retailer in the United States, period.

Then comes the advent of the iPhone. Apple has a modest corporate goal of 10 million iPhone units sold by the end of 2008. The early numbers are impressive and the most important point investors should keep in mind is the iPhone is not just a new phone, but a technology revolution. Several reports are now circulating that Apple will launch a less-expensive version of the iPhone by the end of this year, thus dramatically expanding its addressable market.

I estimate Apple to earn $3.60 per share this year ending September 30th. For September 30, 2008, I estimate Apple will earn $4.25 followed by $5.50-5.25 for fiscal year 2009. With the momentum of new products, high margins, retail store excellence and consumer satisfaction, Apple will indeed pass up Intel and IBM in market capitalization.

AAPL 1-yr chart


Disclosure: none