Apple Should Increasingly Dominate Key CE Markets

Apple (AAPL) will release its 4th quarter report soon. It will probably be another great quarter for Apple, the company that introduced the IPhone in 2007. The main goal of this article is to try to predict what is expected of Apple in the long run, and to check if the company internal value is attractive.

Apple has 3 major advantages:

1. Excellent Management – Steve jobs is one of the best managers out there. He is a natural leader and the years he was not working in the company proved how important he is for the future of apple. As long as he is there, I see only great thinks happening in Apple.

2. Dominant position in the various markets – Apple is participating in 4 major markets at the moment:

a. MP3 market - Apple is the leader provider of MP3 players for a long time with IPOD with over 70% market share. This product is a major anchor for the company in terms of revenues, market positioning and brand image. This is the product that re shaped Apple from a computer manufactures to the yet to come the world leading consumer electronics manufacturer.

b. Mobile phone market - Apple just launched the IPhone one year ago and they already sell 4M handsets per quarter, and this with a price of 600$. My partner in Meijob.com bought the IPhone few months ago, and he is so enthusiastic about it that I am sure that when it will reach a normal price range and release a smaller version (IPhone Nano) it will probably become the world leading mobile phone of 2008 or 2009, Nokia watch out…

c. PDA market – another friend of mine just bought the IPod touch in Beijing. He likes PDA, and I asked him why did you buy it for 500$, when you can buy IPhone instead in 600$, and he said because he likes PDA and he does not need a phone in it. If he buys apple as a PDA it means that Palm and HP, you need to watch out…

d. Laptops – When epidemics starts (IPOD, IPhone, I Touch) and something becomes ubiquitous, it also influence perception of other segments. Apple will also increase gradually their market share in the lap top market (New Mac book AIR is just a start). IBM (IBM), Lenovo (LNVGY.PK), Dell (DELL) and Compaq watch out.

3. Great viral marketing based on excellent products and PR – Apple just like Google is an excellent PR player. I don't remember a single movie or a hot TV series that I have watched in past few months that I didn't see an Apple product. It is becoming wide spread and a desired product for everyone. With such a dominant position and excellent product, I see Apple shifting from a company that produces great designs that appeal to a small segment to a company that becomes main stream in our daily life, just like Google (GOOG) and Microsoft (MSFT). Ubiquitous will become part of Apple, unlike the past.

To summarize, it is nevertheless highly recommended for value investors to check Apple for the long run. It looks like the upside is big. The company is destined to be the world leader in several huge markets that seem destined to converge.

Disclosure: None

Comments

[Tom B:]

They also have an excellent chance at owning the downloaded movie market; no one else does, at this time.

2008 Jan 22 06:49 AM

[Etoile Bril...:]

".....and release a smaller version (IPhone Nano) it will probably become the world leading mobile phone of 2008 or 2009, Nokia watch out… "

What are drinking that brings out glib statements like this? IPhone sales have been fantastic in the US due to the primitive cellular networks that exists (2.5G) there. In the UK, iPhone sales have been disappointing (Apple have a gagging order on the Carphone Warehouse but they were short of expectations according to the FT) because the competition is too tough. The Nokia N95 (3G, transfer rates of 7Mbit/s, GPS) wipes the floor with the IPhone and it can be had for free - under contract. Nokia has a 30% market share for mobile phones, Apple isn't even on the radar screen.

Apple may be a great buy - but not for the reasons you set out. Please, less hyperbole and more fact, Seeking Alpha readers deserve better.

2008 Jan 22 07:10 AM

[Tom B:]

"The Nokia N95 (3G, transfer rates of 7Mbit/s, GPS) wipes the floor with the IPhone and it can be had for free "

It won't help Nokia. The reason it is free is that it is junk.

2008 Jan 22 08:23 AM

[digivision:]

fan boy to fan boy this is more like a fan boy blog than an analysis
but I liked it anyway :-)
but your points are valid except for an iphone mini, I really don't see a market for a lesser iphone , most likely a price cut on the 8 and 16 gb ones and new larger capacity ones coming in spring or whenever they announce officially 3G support

2008 Jan 22 09:00 AM

[digivision:]

the N95 is $739.99
web.nseries.com/produc...

it's free only when the phone carrier carries the cost
I have used one in europe for a few weeks and it's no iphone
sure it's got features but the iphone is much more fun to use and you can do just about anything the N95 does just faster and better

2008 Jan 22 09:07 AM

[bryanyc:]

$600 for an iphone? So last year. Did you hear about the price cut?
The 4 legs of Apples business plan would more likely be:
1. MP3 2. Macs 3. Iphone 4. Media delivery / iTV
To EtoileBrilliant: the Nokia N95 wipes the floor with the iphone??? Do you have one?? Its not how much you cram in its how elegant and usable the device is. By the way, how thick is that n95?

2008 Jan 22 09:22 AM

[samij:]

and these are the reasons apple is down to $150 from heights of $200? -9% today alone. would you please move on from 2007 and join the rest of us living 2008.

you should really do some reality checks, do you seriously believe that apple will sell over 100m cell phones a quarter within a year instead of the 2 some million they sell now? or are you just ignorant of reality?

2008 Jan 22 09:54 AM

[peter02l:]

Please be more specific and careful with numbers. If Apple has Been selling iPhones for a year, and they sell 4 million per quarter, that makes 12 million sold so far. And at $600 each! Where have you been? I thought your intentions was to inform us, not the other way around.

2008 Jan 22 10:29 AM

[turbowv:]

And don't forget folks that Apple is believed to be getting as much as ten percent of the value of the 2 yr contract with ATT. This income will be added in each upcoming quarter. So, income benefits immediately with each sale, then again each quarter for two years forward for each phone. This income is virtually pure profit and is incrementally multiplied in overlapping quarters, & becomes a huge upside to profits over time.

2008 Jan 22 02:35 PM

[calvyn:]

Every thing about AAPL's products is fine.. no doubt they are amazing...
But couple it with the current market situation, when every one is talking about the R word..
When do you think would people start to buy these HIGH END, HIGH PRICED products again.. Not alteast for another year I guess.

2008 Jan 22 03:12 PM

[Etoile Bril...:]

AAPL down 14% after hours. Don't they know that this is going to be the #1 phonemaker in 2008????

2008 Jan 22 04:45 PM

[Tom B:]

"Don't they know that this is going to be the #1 phonemaker in 2008????"

Apparently, Wall Street hasn't figured this out. If they are still down tomorrow, I'll buy more.

2008 Jan 22 04:47 PM

[rajsekar:]

What's wrong with these analysts when crunching numbers from Apple? Look at mobile phone predictions that Apple will become #1 player in 2008 or 2009. Is Barak living in Neverland? Look at technology innovations from all mobile handset vendors - Nokia, Samsung, LG and Motorola. Even if iPhone is sold for $ 50 for the next 2 years, Apple cannot become #1 in the world. The global numbers simply don't match. Also MP3 players market is cooling off as seen from actual Apple results and days of iPod+iTunes attachment will start decling very quickly in 2008. Take a look at collections of non-DRAM stuff at Amazon, Napster, Zune and other European portals. Who needs iTunes catalog for 99 cents? Also iTunes songs cannot be played in other music players. iTunes movie streaming to AppleTV will also fail since consumers don't need another stupid $200 box in their living room. Also Macbook Air for $1800 in a period of recession - dream on... I will revisit Barak prediction list in Jan 2008 when Apple stock will be below $100 for sure.

2008 Jan 23 09:00 AM

[KenC:]

Wow, SeekingAlpha must be scraping the bottom of the barrel to let someone write on a topic, they know so little about. He gets the iPhone's price wrong, his knowledge of the cellphone market must be nil if he thinks an iPhone Nano is going to topple Nokia. He doesn't know the PDA market is dying. And then, the gist of his commentary is the "internal value" of Apple, and yet, never discusses the "internal value"!?! What is that all about?

2008 Jan 23 08:54 PM

[humble inve...:]

You left out possibly the biggest category killer of all, which has just begun to be speculated about elsewhere: the iTV. It's a flatscreen that has all the features of appleTV (and perhaps a satellite/cable receiver?) built in, so you don't need all the extra boxes and receivers. The internet and the t.v., finally married simply and elegantly by the company best able to do so. Offered in several sizes to fit a range of budgets. LCD panel technology is so advanced that it's becoming less and less distinguishable brand to brand, so it's the extra features that will make the difference. If Apple isn't working on this, they should be.

2008 Jan 24 08:07 PM