Why Apple Stock Is Poised To Go Flat - At Best 81 comments
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Apple (AAPL) has been one of the best performing stocks of the last two years. The stock has gone from $45 to $180 in about a year and a half, which is impressive especially given the size of the company. The nature of the rise was momentum trading at its core; however I must admit that the ascent was also supported by very solid fundamentals. The company has continuously beaten both its top and bottom line by a large margin, while Steve Jobs and his team has brought about some of the most revolutionary products of the last decade to the market.
As an equity investment, however, 
I think that Apple has found itself struggling with multiple headwinds lately and therefore I think the stock will perform poorly, at least relative to the overall market, in the mid-term. I detailed these headwinds below and I am curious to hear back from all of you Apple fans out there. I don’t trade the Apple stock but as a trading story the stock has really struck me as a case study and I continue to follow the news about Apple.
Headwinds
Market Cap Has Gotten Too Large To Expect a Similar Move like the Last Two Years: As of this writing Apple’s market cap is approximately 153 billion. As those of you familiar with the economics know, growth is a marginally decreasing phenomenon, especially percentage growth. In other words it is entirely a different story to go from 35 to 180 billion and 180 to 500 billion in terms of market cap. Think about it this way - Would it make sense that a company which has 5% market share in a sector which is tied to our discretionary spending with less than 10% of our total spending surpasses a company which services some of our largest needs and has much more market share. I mean Apple being a larger company than GE with only 5% market share in the electronics department, I doubt it.
Despite the Innovation in the Products, Product Range Is Not Very Diversified: In the past Apple has made some very good decisions in following the trend and sometimes creating the next big thing. However there still remains a risk tied to the product portfolio. For example, so much of the company’s fate seems to be tied to mobile devices and services. What if mobile is not the next big thing? What if people prefer a much smaller mobile device with only voice capabilities to a large one with a screen and a lot of data tools? Also, recent projections tie a significant amount of projected revenues to the App Store. I doubt that some of the largest gaming software developers like EA (ERTS) would allow non-professional developers to steal market share from them. If consumers really embrace this gaming on the mobile device phenomenon, I think major game developers would be quick to establish their own devices and own App Stores, through a joint venture with another prominent mobile firm.
So Much of Company’s Success Seems to Be Tied to A Single Person – Steve Jobs: I admire Steve Jobs very much for his talent. His marketing, innovation and product design skills are extraordinary to say the least. On the other hand as an investment his sole leadership of the Company, at least as the media and general public perceives it, constitutes great risk for the Company. We all saw how big of an event it was when rumors about Jobs’ health surfaced recently. To make the matters worse, he does have a history of a life-threatening disease which has a high rate of recurrence. If a public announcement about a serious threat to Jobs’ life were to be made I am pretty sure the stock would take at least a 30% hit in a single day, if not more. I am not sure that is the kind of risk you want to carry in your portfolio.
Apple’s Profit Margins are Decreasing As It Aims To Go Mainstream: Back in the day, I don’t know if you remember, Apple used to sell desktops at $2.999 while a comparable PC would cost you somewhere around $1.699 (a 75% premium). Then the iPod became popular and Apple would sell its devices for $399 while comparable device would have cost you $299 (a 50% premium). Now Apple is selling iPhones for $199 while a comparable device will cost you… well $199 (no premium at all). As you can see, as Apple aims its products more and more towards the mainstream its profit margins are falling. It is no fault of Apple that this happens, there are only so much people around who are willing to pay a 50% premium over a similar device just because it looks cooler and is a little more fun to use. Apple is trying to make up for its decreasing margins in the devices department through making use of the greater volume in its iTunes and App Store. However, if a serious attempt is made by Apple’s rivals in targeting its online stores Apple’s profit margins can be under serious trouble. In turn, an earnings miss could make a huge dent in Apple’s stock.
Economic Environment Will Most Likely Decrease Demand For Premium Products: This is mostly connected with the previous headwind. As people get more financially strained, discretionary premium products are the first thing to go. This is not a long time risk as the economic prosperity will return in a couple of years, however for the near future Apple might find it a little hard to achieve its top and bottom line estimates.
Of the five I have highlighted above the market cap argument, I believe, is the most likely headwind to present itself. The reason is, other headwinds might somehow be alleviated by good management and a little luck. However, I can’t think of anyway the stock can find its way around the market cap argument.
Another huge risk is, as I said for many traders the stock is a momentum trade at its core. So far although the stock has started to lag the market people are reluctant to short Apple, because people who have done so in the past got burned real badly. However, if the current market heads higher but Apple stock stays behind momentum traders will be quick to pull out of Apple in search of other trades like financials. Such a move by the momentum traders or an unlucky earnings miss might hit this stock really bad.
As I said I don’t trade Apple stock, however I am fascinated by its story, in the last two years especially, and would like to hear your comments on it. My perspective seems to be that Apple was a great company but it had its day and is in the past. Let’s move on.
Disclosure: None
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This article has 81 comments:
You're an idiot! There's a little thing called the iphone 3G that was just released, have you heard of it? It sold one million units in its first weekend of sales in one of the 70 countries it is available.
1- market cap - who says apple needs another 300% gain in the next 1.5 years? 200% or 150% would be fine with me.
2-product range- in the last 1.5 years alone apple has added 5 new businesses (ultraportable, cell phone, wireless storage, app store, and movie rentals). what makes you think that they are done?
3- steve jobs- yep he is remarkable. and he is alive and well. the stock would certainly take a hit if he left, but people would not stop buying apple products.
4-profit margins- they are still way way higher than the competition. how much above the competition do you want them to be. your example of the iphone is very misleading. apple gets paid way more than $199 per iphone (the carriers around the world choose the consumer price , but apple gets paid big time either way).
5-economic conditions- you, like many others, have U.S. blinders on. it is a huge world and apple is expanding at a tremendous pace globally. how can you not know this? also, the U.S. economy has been suffering for quite some time now and apple keeps reporting record quarter after record quarter. imagine how apple will do as the U.S. and global economies pick up!
your article just seems to be a summary of all the negative rumours and speculation that surrounds apple without any real thought to the truth. the truth, for the last several years, has disproved every negative "report" about apple. what does that tell you?
good luck on your search for the truth.
Very rarely do I argue with someone as clueless as the author of this article but I'd like you do to do two things, Google "iphone component cost" and "iphone subsidized price". Now, tell me how profit margins are falling.
Here are some counterpoints: 1) To not being diversified - In the quarter ending June, Apple made about 50% of their money from their Mac business line, 23% from the iPod, and 6.7% from the iPhone (this % should increase steadily each month to the 20-25% range). The balance (~20% is from software, services, peripherals, etc.). While they are not as diversified as GE, they are no less diversified than most companies that are NOT conglomerates. As a comparison, the most diversified computer company that comes to my mind is HPQ - they make 36% of their revenue from "Storage, servers, and services", 35% to personal computers, and the blance in printers. Clearly, Apple is just as diversified across "different business segments", but the clear difference is Apple is levered to the consumer. Your diversification point is most applicable to the fact that their consumer base is nearly wholly the retail consumer with some education, without many small businesses or corporations (relative).
I think you know better than to compare margins across time between different products. You compared the margins betwee the Mac, iPod, and iPhone all in one paragraph - which is in no way indicative of a trend. While Apple is reducing margins to gain market share (at just the right time when their competitors continue to have difficulty - Dell just missed numbers), their margins to this point, have not changed substantially. a 15" top of the line MacBook Pro is $2,500. You can get a similarly equiped Dell for half that. (100% premium today). iPods continue to sell at a premium to their peers. Also, remember, Apple doesn't care what the consumer pays - they care how much moeny they get from the likes of AT&T and others. When they first sold, Apple made $600 plus lets call it $400 of revenue share - so $1000. Today, they are speculated to be selling them for anywhere from $500 to $800. This is a decrease, but no different from any other mobile company. Most importantly, mobiles are not priced as on what their competition is priced at - it's often times how new and "hip" the product is (Razr anyone?)
Clearly, the company needs a published succession plan for Steve Jobs. They won't do that, but instead, the public face of the company will change over time. Remember that keynote at the Dev conference - how much did Steve actually talk? yes, it was different because there were developers there, but, Steve didn't even introduce Mobile Me. As new products come out, and the company gets bigger, we will get more familiar with other parts of the organization, and hopefully, the combination fo 3 or 5 of them will give us confidence in the sustainability of the company ex-Jobs.
Also, check your math, the last time Apple was anywhere near $45 was in July of '06 (over two years ago), and it bottomed out at $50, not $45.
The most interesting thing about Apple is it has a chance to be 'Attila the Hun' in several huge markets at once: Mobile, Notebooks, Music and Video sales, rentals, subscriptions (coming), and finally, Tablets (wait on this).
So, all this begs the questions: How quickly will free cash flow per share grow and will it be as grand as the past 5 years?
I won't resort to calling names, but boy, I must admit to agreeing with the prior posters... you seem to have drawn tenuous conclusions from your dubious premises.
Market cap? Sure, I'll buy the disconnect between Apple and some other folks. This outfit is generating some serious cash, though. Billions and billions of it. The company projects this to continue, and regardless of its current overall market share, and/or the state of the PC market at home, there is abundant room for growth in sales from just capturing additional market share. The products are highly desirable. They are day and night better than PC/Microsoft combos, and the company has figured out how to service its customers so well it occupies the TOP SLOT in customer satisfaction.
Have you used one of these things? Good god, man! Eveything they touch gets better. Hell, the even reinvented the concept of backup, with their simple, obvious, and bulletproof Time Capsule/Time Machine combo. They finally fixed one of the biggest headaches in all ConsumerCOmputerLand..... the need for reliable and simple and transparent and fast and useable (and wireless!) backup of data and program. Cheap. With decent margins. Equivalent windows hardware has to be cobbled together with the disparate products of companies that don't talk to each other.
The examples of greatness in this outfit are legion. I think you'd be well served to consider how much of a game changer they are, then revisit your arguments.
And no doubt enter the PC (currently <<10% share) and video market (just starting) much further and I can finally kick out all this set-top-boxes and simply stream TV through iTunes, play music, foto's, look videos, browse internet, play games, etc. etc. and I'll I need is my apple-TV and touchscreen interface (iphone, ipod touch, touchbook or any other apple device that has touchscreen).
Look further into the potential and you'll see they are miles ahead and a huge territory in front of them still. And look who's buying into their products, I have no doubt this company will become one of the most important companies in the world in 5 years time.
Exxon Mobil and BP had approximately $40 in annual profit. A few decades ago, $40 billion was the entire ANNUAL REVENUE for a top S&P 100 company.
The world in this time went from 2.5 billion people to over 6.5 billion people. Populations are expanding, world prosperity is expanding, and world markets are expanding.
Apple has the potential to be one of the first TRILLION dollar revenue companies.
Information, together with processing of it, accessing it, and transmitting it, is the OIL of this age. And, the world is in the very early stages of it.
=====================
RE: "Would it make sense that a company which has 5% market share in a sector which is tied to our discretionary spending"
This is a STATIC viewpoint. Apple itself is growing many times that its markets are growing. You comment is like viewing yourself at a red stop-light and saying that you are not going anywhere because the light is red. ALL reports show that Apple is dramatically increasing market share and unit sales of its primary product lines.
=====================
RE: "Despite the Innovation in the Products, Product Range Is Not Very Diversified"
Apple is in computers, software, communications, mobility, graphics, video, publishing, information storage, networking, etc.
All of these are modern day categories. No buggy whips are in these areas.
=====================
RE: "What if mobile is not the next big thing? What if people prefer a much smaller mobile device with only voice capabilities to a large one with a screen and a lot of data tools?"
Mobile IS the next big thing. And, it will continue to spread around the world for MANY years.
People HAVE had a much smaller mobile device with only voice capabilities. They are called CELL PHONES. People now realize that they need MORE than just voice when they are moving around. That is why MOBILE is the current big thing and will continue for many years to be the BIG THING.
=====================
RE: "So Much of Company’s Success Seems to Be Tied to A Single Person – Steve Jobs:"
Apple has approximately 20,000 employees. Do you really think Jobs does EVERYTHING at Apple. Jobs is a visionary and a great leader, however Apple has succeeded because it continually hires the best people and motivates them to do their best.
Countries and companies have had a visionary leader at some time, and these countries and companies have continues success. After George Washington died, the U.S. continued to be successful for the next 200 YEARS.
Founder Watson of IBM died and IBM continues to be one of the consistently successful companies in the world.
Giving all credit to the conductor of a musical performance is not only unfair, it is very wrong. Jobs is the orchestrator of Apple, and will always be recognized for that. However, he cannot do the work of 20,000 employees. OTHERS do make a big contribution.
Recently, in a interview, Jobs said part of his responsibility was to fire someone who was not performing. Jobs recognizes that have the right person in the right job is essential to top performance. This is one of Jobs contributions to the success of Apple.
=====================
RE: "It is no fault of Apple that this happens, there are only so much people around who are willing to pay a 50% premium over a similar device just because it looks cooler and is a little more fun to use"
Apple computers in price comparison to Dell have recently been shown to be CHEAPER than Dell in some cases. There are over 6 BILLION people in the world and not all of them want the cheapest crap on the market.
Dell's financial report last night showed a big revenue gain and a big drop in profit margins. Despite a common belief, computers are not really a commodity. When you spend a large part of your life on a computer or a mobile phone, you tend to want something that is easy, pleasurable, and productive to use. Apple excels at these qualities.
=====================
RE: "As people get more financially strained, discretionary premium products are the first thing to go."
Tiffany's reported excellent financial results two days ago, and RAISED its forecast for 2008 and 2009. I have yet to read that jewelry is an absolute necessary component of life, yet Tiffany's is growing in a global downturn.
Today, mobile SMARTPHONES and NOTEBOOK computers are an ESSENTIAL part of life. Everything we do involves use of or need of these two products.
If Tiffany can grow in this economy, Apple has an even more essential contribution to make in one's personal and business life.
Let's continue to poke holes in his arguments:
1. "I mean Apple being a larger company than GE with only 5% market share in the electronics department, I doubt it."
When Apple is still doubling it's earnings (counting deferred revenue up front), not that difficult. You see, there comes a firm belief from many of us that Apple will be the computer of choice in five years. It will overtake Microsoft. Apple will overtake GE in marketcap. Apple will become the biggest company in the world by owning our entire digital life.
2. "What if people prefer a much smaller mobile device with only voice capabilities to a large one with a screen and a lot of data tools?"
Not gonna happen. It's about convergence in the future. But even if so, then Apple will make one that's easier to use than any other competitors device. It's the beauty of Apple. They don't necessarily start trends. They see where they are going, and do it better than anyone else.
3. "Recent projections tie a significant amount of projected revenues to the App Store."
A few. But not enough revenue to significantly affect earnings.
4. "I think major game developers would be quick to establish their own devices and own App Stores."
[sarcasm]Right...becau... EA made their own Nintendo DS.[/sarcasm]
It's all about convergence. No one wants to carry around 3 or 4 different devices in their pocket. That's why a "smaller mobile device with only voice capabilities" is not the future.
Game developers will embrace the iPhone. Period. They aren't going to make their own device, especially given the costs and since the App store isn't a profit maker anyways.
Apple's whole business model has been to use iTunes, to use the App Store to sell hardware...iPhones, iPods, Macs. That's why so many other online music services have failed, because the service in itself isn't that profitable.
5. "Apple is trying to make up for its decreasing margins in the devices department through making use of the greater volume in its iTunes and App Store. However, if a serious attempt is made by Apple’s rivals in targeting its online stores Apple’s profit margins can be under serious trouble. In turn, an earnings miss could make a huge dent in Apple’s stock."
Remember that the iPhone isn't just $199, but that it's getting at least $200+ per device from the carriers. So technically, it's margins are not decreasing on that product at all.
Second, Apple's rivals have seriously tried to make a dent against iTunes. Microsoft, Dell, Napster and they have all failed!
6. "As people get more financially strained, discretionary premium products are the first thing to go."
Possibly. But cell phones are no longer a discretionary product. I think as things get tighter, consumers will get smarter.
What will get canceled is satellite radio services as you can now access programs and radio on the iPhone itself. Satellite TV and Cable will get canceled because you can now access just the shows you want through AppleTV and the iPhone.
Convergence!
Heck, even a MacBook or iMac will save you money because of all the software that comes with it.
This guy has a "Chicken Little" mentality.
1) Big numbers - If Apple overtakes PCs as the dominant computers worldwide, this is not a concern.
2) Jobs' health - In my view, this is only a short-term concern and only a serious concern for the next two years or so. If something happens to Jobs within the next two years (I pray that nothing does), I and every idiot out there will short Apple for one month or so. Then there will be others in Apple who will take over. There ARE others, who are very prominent within the company. Within the next two years these others will become more and more prominent without.
There were however some excellent counter arguements and I commend the authors of those posts, but who am I to pass judgement?
I have heard however that recently many customers have complained of connectivity issues with the 3G phone which see it default to the lower bandwidth signals (please excuse my tech ignorance if anything in the previous sentence is technically incorrect).
Anyway, if you have something interesting or at least semi-intelligent to say we'd all love to hear it, otherwise keep the elementary school insults to the schoolyard or other sites where such low class verbiage is acceptable.
If you really believed any of these talking points you wouldn't have bothered to even write the article....
It doesn't mean Apple will crash. But it could. It could also triple its market cap. But what is sure is that it is a risky investment.
Who can be sure that Apple will always produce the best / most attractive products ? Nobody, even Steve Jobs. Of course Apple will do its best, but they are not gods, other companies could do better.
Note to Apple fans : when Steve Jobs left Apple and founded NeXT Computer, he created the best existing computer. Far more advanced than all Windows and Mac computers. Without success... the company crashed. He then came back to Apple and a few years later launched Mac Os X, which was largely inspired by NeXT Os. It has been a success. I am sure Steve Jobs is one of the best placed person to talk about the uncertainties of success.
This is speculation not fact.
"Market Cap Has Gotten Too Large"
Totally agree, but there is still a lot of growing to do... Stock will go up, but not as much.
But....you're forgetting one thing. The Living Room.
More than any other consumer electronics company, Apple is positioning itself to make mountains and mountains of money off of devices that connect to the tv. The very thing that you say is a weakness in the end will be Apple's strength, lack of diversification. Eventually one company is going to have a superdevice that allows you to watch and record live TV, download music, download movies, surf the Internet, a God knows what else easily. Apple is the only company that can do this and not lose money.
It has a Unix-based OS that has been universally acknowledged to be the best around, by a country mile.
Its computers can, and do, run Windows as well as OSX - thats a difficult combo to beat.
Its iPhone is so much better than everything else, its not funny.
People need computers - Apple takes 66% of all computer purchases over $1000 - and thats why they make huge profits.
They have around $25 billion in cash, no debt. Same as Microsoft.
They are the USA's biggest retailer of music, on or offline.
Most movies are made with Mac computers and Apple's 'Final Cut Pro' professional editing suite.
Almost all students are now buying Apple laptops.
They are eating Dell and HP's lunch.
Growth may slow, but then how can it continue at over 50% per year?
Expect solid growth for the next five, and then look at the picture.
B that time, they may have 40% of the market, which will be huge because they sell both hardware and software - making them almosts impossible to beat.
The development of Apple since they built their new OS almost 10 years ago underpins all this - they have built an Operating System for the next 25 years.
Now they are reaping the harvest.
I had to laugh when I read that.
I guess the author hasn't posted here before and had no idea what an article that's not super positive will draw in terms of comments for the moronic fanatics that haunt this site.
Just ask yourself this simple question: Do you really think Dell wouldn't trade places with Apple in a heartbeat?!
And these people call themselves 'analysts'! Who pays these clowns?
John Verke (an alias) is a senior analyst working at 3 Seas Capital Partners in Istanbul, Turkey. He has been managing a portfolio of $100.000 of his own money for the last 5 years in the U.S. markets.
John has started a website at johnverke.com, which will feature a $1.000.000 fictional portfolio with all his transactions and daily portfolio value online. He plans to include his short market commentaries on this site.
NEED I SAY MORE?
All us Apple fanboys that are stockholders must really be a lot smarter than that! Based on his record, would you trust him with any of your money?
On Aug 29 09:49 AM fauxscot wrote:
> Mr. Verke,
>
> I won't resort to calling names, but boy, I must admit to agreeing
> with the prior posters... you seem to have drawn tenuous conclusions
> from your dubious premises.
>
> Market cap? Sure, I'll buy the disconnect between Apple and some
> other folks. This outfit is generating some serious cash, though.
> Billions and billions of it. The company projects this to continue,
> and regardless of its current overall market share, and/or the state
> of the PC market at home, there is abundant room for growth in sales
> from just capturing additional market share. The products are highly
> desirable. They are day and night better than PC/Microsoft combos,
> and the company has figured out how to service its customers so well
> it occupies the TOP SLOT in customer satisfaction.
>
> Have you used one of these things? Good god, man! Eveything they
> touch gets better. Hell, the even reinvented the concept of backup,
> with their simple, obvious, and bulletproof Time Capsule/Time Machine
> combo. They finally fixed one of the biggest headaches in all ConsumerCOmputerLand.....
> the need for reliable and simple and transparent and fast and useable
> (and wireless!) backup of data and program. Cheap. With decent
> margins. Equivalent windows hardware has to be cobbled together
> with the disparate products of companies that don't talk to each
> other.
>
> The examples of greatness in this outfit are legion. I think you'd
> be well served to consider how much of a game changer they are, then
> revisit your arguments.
>
>
On market cap: An old measure that is not an inhibitor but a simple score. If Apple was broken down to four markets- each as a separate company: Computers, Music delivery, Communication devices and Visual, and each had its own cap would that make it easier to visualize or imagine? Perhaps. If you don't think that smart executives in Apple are planning for the long term - after Steve you aren't clear about the level of management. What bothers you and many is that Apple won't tell you in advance.
The key to Apple's success is the principle of lifetime customers- people who root for the company, its products and its success in a way that is unheard of. Can you think of many other firms who have such loyalty and trust? Is that a payoff for good publicity or hype? No, sorry, it is because of only one thing- they feel well served by the business and its products pure and simple.
2) What if the sky is falling? Honestly, mobile IS the next big thing. Also, recent projections DO NOT tie a significant amount of revenues to the App Store. Even if it were generating $1B in sales, Apple only gets 30%. No one is baking a large amount of sales in to the share price, due to the App Store. As for game developers, the fact that there are probably 10 million iPhones now, and probably 50 million iPhones by the end of next year, in the marketplace, with easy access to the App Store makes any other mobile game device dead in the water. Game developers, the TOP game developers are flocking to the iPhone, because of its installed base, and secure sales. No pirating of software. Your contention of another device is fantasy.
3) Are you an investor or a trader? If you are an investor then Steve's health is not an issue, it's the product that matters and Apple's roadmap. Also, Steve is nearly at the 5-year benchmark for being "cured" of cancer.
4) The price premium is a myth. iPods are not premium priced. Apple's margins have fluctuated from 27% to 35% over the last 5 years. They are not dropping margins on hardware to gain App Store sales. The App Store is breakeven, and brings down margins. Also, Apple's rivals have been targeting the iTunes store for ages, and have had zero success. That's Amazon, Walmart, Microsoft and others. What makes you think they will do any better in the future?
5) The macroeconomic environment has been bad for a while now, and there has been no bump in Apple's sales or earnings. They've been hitting record after record.
Every one of your 5 points has no factual basis, they are all conjecture. If you are going to do some analysis of Apple, you need to study the subject a little harder. You cursory glance is very superficial.
What I want to add is Apple's near-unlimited potential.
In phones, it can take apart Nokia and others with ease because it has better software and better hardware design, with the latter being the single most important sales factor for mobile phones. U.S. analysts generally have no clue about this though because of the retarded - or, let's say, very different - nature of the U.S. mobile phone market.
In international PC sales, Apple is several percentage points behind its US market share - in many countries, they're not even trying. Huge potential.
Halo continues to have amazing effects, again growing from 5% means the potential is 95%. Its a fact that in a net-centric world Windows compatibility is unimportant for many people. In this sense Apple could out-Microsoft Microsoft by selling both hardware and software. 20% is realistic.
The only worry I have is how Apple can manage to scale like this, and I think that's the big challenge ahead of them.
If I had said publicly that Apple sells an iphone for $199, the same as other phones, so there must not be a price premium associated with it. I would expect to be called an idiot. This is completely false and shows not even the most basic understanding of the sales model of the iphone.
If my boss didn't call me an idiot I'd quit the company due to my new found lack of respect for him.
and that last point brings me into another sometimes unnoticed fact in that apple know what NOT TO DO. they know when to ignore the many times raucous calls of their fans to build every conceivable product and have waited until good and ready. this is likely due to their failures with some widely touted product introductions in the first steve jobs kingdom and the stasis before his second coming.
i also understand the importance of the market cap argument but feel that part of it can be countered if (sometimes a big if) they can continue to have amazing margins. who is the best example of this? Microsoft of course. they were at the top of the market cap tables on a global basis for years (decades?) and still are simply because they could maintain high monopolistic margins. the difference here lies in that apple does not seem to have as clear a monopoly going forward.
finally, and as one of the posters commented above, their products truly change the tech lives of many people that make use of their products for their simplicity, robustness and beauty.
steve jobs deserves to bask in the glow of what he has enabled and created. i wish him well with his health and hope he can take a break since i would guess much of it is due to his stress at apple.
and a final word: insults instantly diminish the value of an argument since it means the writer does not think rationally and is prone to outbursts. its the difference between a clear and convincing statement and rubbish. please think before you speak.
Truth is apple gets little respect regarding stock price in my opinion...the stock should be over $200.00 but it is a favorite for hedge funds and other short sellers to play with...just because they can.
The only reason it is a momentum stock is because of its fabulous earnings and inovations....thus the moves up have been fully justified, whereas, the moves down have been totally unjustified for the most part except that "traders" just want to take profits and short sellers want to put false stories out about jobs or the companies profits so they can profit...then they are "happy" to cover at the lower price and hold until the next earnings report.
Regarding the market head winds you speak about....FACT IS...the economy is far better than is stated on the main stream media outlets, and all the negativity has been amplified by short sellers to scare the "investors" out of the market....i doubt there are many real investors in the market over the past 9 months.
The public loves apple products and will continue to buy, especially the iphone which is now subsidized by the carriers...this hurts the carrier profit short term, but not apples and any loss of up front profit is made up in volume sales and features like the iphone and mobile me, and itunes etc.
I dont know if you are an iphone or apple user but "make believe you were" and take your fake iphone purchase and log on to apple to activate it or download music to it and then you will see all the compelling "add ons" that you just "must have" including the $100.00 plus per year mobile me so you can sync all your computers and contacts etc to use anywhere, download the average 100 songs @ .99 each, then in a few months when you are thinking about getting a new computer, you will consider apple running the intel chip so you dont have to give up your windows enviorment....yes its a bit more expensive but by now you realize how happy you are with your iphone and mobile me and itunes experience and say....i got to have a computer that operates as good as theses devices
WAIT THERES MORE...
Lets not forget the enterprise market....apple did not make the iphone compatiable with the enterprise market for nothing....once the iphone is intergrated into corporate networks....bye bye RIMM and say hello to more apple computer sales for the reasons already stated above.
Thats my story about AAPL and as a windows convert and long time apple investor and trader i can tell you that as the above mentioned things happen....i can confidently say that apple has not peaked by a long shot.
"If you don't think that smart executives in Apple are planning for the long term - after Steve you aren't clear about the level of management. What bothers you and many is that Apple won't tell you in advance."
This is the truth and this is what unnerves the naysayers. And while the perception of him not being able to lead the company in case of some health issue would affect the stock price, in the April issue of Fortune, Steve Jobs did say this:
"When you hire really good people, you have to give them a piece of the business and let them run with it... The reason you're hiring them is because you're going to give them the reins. I want [them] as making good or better decisions than I would. So the way to do that is to have them know everything, not just in their part of the business but in every part of the business. So what we do every Monday is we review the whole business... All the stuff in development, we review. And we do it every single week."
Does that sound like a company that can't mount a succession plan? I don't think so. Time to change perceptions.
Jobs has not had a type of cancer that returns. it's completely curable and he is cancer free. the surgery bothered his digestive system and that made him skinny-er(..he's a pretty skinny guy anyway).
Dell wishes they were Apple! and they're not alone!
we all know manufacturing costs of products and the wholesale purchase of those products and the final cost to consumers usually drops as the number of sales increases.
Apple is selling so many more iPhones than it's own estimates, that it could easily drop the price. and it's making profits hand over fist with it's macs, apps, itunes, etc...
but let's not forget that Apple has the highest profit making retail space in the country.
am i a fan of Apple. yes. for intelligent reasons not out of misguided fervor. they make the best OS, their products are innovative and easy to use and their tech support is superior to anyone else's.
am i an Apple stock holder. yes. long term. and it's because Apple has a huge moat: no debt, enormous cash reserves, amazing talent (Jobs doesn't invent anything), a great reputation around the world (that Apple logo is becoming as well known as the golden arches but a lot more respected) and multiple streams of income.
i'm not a day trader. i do buy when the stock dips. but this company has made a lot of $ for it's investors and that will continue even through a very messy climate, over time. and it will have that time..it's here for the long term.
This is already happening in the student market, where this year it is outselling Dell and HP by wide margins. 25% is 5 times Apple's current marketshare. The iPhone has 1% market share. Could it go to 5%?
Unlike 5 years ago, most enterprises now support Macintosh alongside Windows. As baby-boomers retire they will be replaced by new graduates who overwhelmingly prefer Macintosh.
Pick a market share number and invest accordingly.
Of course all this doesn't take into account what else Apple might have in store for us.
In case you have not figured it out, anything critical of Apple/Jobs or other Apple things is actually worse than being critical of Nobama in a discussion with Oprah. Those neat little IPhones automatically contact each other and their owners when a negative appears in print so they can immediately attack the author. Good luck with your next point(s)
Overall, your arguments are at best weak. Impression I got as I read what you had to say, was that you recently liquidated your holdings in AAPL, & hence felt a need to express your rationalization for doing so. Do you feel a bit better now?
The argument I find most hollow is the one about decreasing margins. Margins are not decreasing because of increasing costs, nor an inability to maintain existing price points. Rather, the decrease in margins is core to an intentional strategy to expand AAPL's market share, where in the past, many consumers have shied away from AAPL computer products because their relatively high price compared to competing Windows-based PC products.
I've never owned an AAPL iMac, but have continually purchased PC after PC . . . because of the business-accepted Windows-based OS. That is changing. I first considered an iMac when I deciding upon my last purchase. I went for a PC again . . . because I felt the iMac was too high priced . . . about 3X the cost of my Dell PC. Today, with AAPL's increasingly influence among consumers . . . & small business customers, the iMac et al become increasingly attractive. Lowering the price point of these products will only lead to increasing demand for AAPL products. The executives at AAPL clearly know this. Apparently, you do not.
Additionally... One should not be so centric in their world view that one discounts completely the possibility that somewhere, sometime, somehow... Someone is going to come up with an iPod killer. The fact is... That even something as simple as if a nation like China should decide to say the heck with patents and copyrights and decide to market exact clones of ALL the Apple products and flood world markets with them.
The fact that exactly NONE of these products is manufactured in the US makes it entirely possible in the face of potential conflict over energy and resources.... And speaking of which... It's nice that so many people can find the time to rant and rave about whether or no Apple is "invulnerable" ... When Apple is in the same boat as any other American tech giant in that it maintains absolutely no manufacturing capability on it's home shores. Simple minds see simple things.
This has nothing to do with Apple failing in strategy or missing opportunities. It's all about the general economy. Apple is part of it and is lumped in with every other tech company. Even if Apple does marginally better than the Three Horsemen of Tech, WS won't even notice it and Apple will get downgraded even further. It's just Apple and investors unlucky fortune that global expansion and the iPhone came about at the wrong time.
I suppose WS is more interested in oil and solar power. Apple will be ignored and considered no better than Dell or HP or any other computer company. Apple fans see the company as something special, but WS barely notices Apple at all. Just another company that can only sell a few underwhelming number of computers in a slumping economy. Indicators look bright for Apple to sell many products this quarter and they will do better than other computer companies, but being better isn't going to matter enough for WS to move the stock up.
My comments have nothing to do with me hating Apple or wishing for it to fail. I'm only looking at how it is right now. I think that if the company was that much better than it's peers, it would have broken out of it's funk some time ago. So although I disagree with the author that Apple will do worse than it's peers, I believe Apple will do slightly better, but that about it.
Click "portfolio" to see his masterpiece of a diversified portfolio:
it's made up of only the most beat up financials and homebuilders - with a few 2x leveraged ETFs - the Dow and, again, Homebuilders....
obviously ZERO, none, nada requirements to post an article.
Dell is contracting/flat in revenue/profits and while AAPL went from $327mil in profits to $3.5bil in 3yrs... AAPL is gaining PC marketshare by a few % a year, 2 businesses that didn't exist a few years ago are now pulling in billions in revenue...
have you looked at the balance sheet? the income statement? ever?
What does this mean? What "sea of red"...?
Second, I think Mr. Verke asked for comments, not vitriolic attacks.
This guy deserve no comment, and should not even appear here whatsoever.
You have several good points.....
But I think if you comb your hair differently, they might all be covered,
Yours
Unlike Mr Verke.
Yours
Apple has been polishing OS X for about ten years, more if you count the years at NEXT. Now they have come to market with the iPhone. Do you seriously think that companies like Nokia or EA are suddenly going to develop an operating system with layers of solid technology supporting audio, video and graphics? Just how is this going to happen? And during those five years or so of development do you expect Apple to sit around doing nothing while the others catch up to them.
When I say you don't understand Apple I'm not saying you should be a fan, I'm saying you should understand the technology that makes them work. iPhones are not Beanie Babies. These are extremely sophisticated tools for transmitting and viewing information as voice, images and text.
Regarding Apple's future, they already have about an 8 or 10% share in the US, and as was pointed out above, they have a much larger share of the more expensive machines. Exactly where you want to be.
If they only kept growing the current businesses they'd have quite a bit of room for growth. In the last 18 months they introduced the iPhone, the MacBook Air, the Apps Store and Movie Rentals and Sales. How about the next year or two? At the last analyst call in (did you listen?) after they announced the quarterly results they uncharacteristically leaked news of a an upcoming new product. I'm curious what that will be.
One last thing. Apple tends to support other products rather than make them itself. They don't make digital cameras (anymore), but they support photography with iPhoto and Aperture. They don't make video cameras but support movie making with a number of software products. They don't make projectors but support presentations with a fantastic product called Keynote. This may give us some hint about Apple's future business plans.
Apple has some serious risk associated with it, and it doesn't have the moat to protect it like other tech giants like Microsoft and Intel.
When it comes down to it, Apple's products have replacements. While the company has stayed ahead of its competition in recent years, there it no guarantee that it can stay ahead. If Apple's next products flop, there are a number of hungry consumer electronic companies will take over as the leader.
Apple could still remain on top over in the future, but there is also a good chance that the stock will lose a significant amount of money too. There is no margin of safety.
What I don't understand is how anyone could actually think that there are real competitors to Mac OS X, iPod or iPhone. There is no comparison, not even close. At this point, it's mostly the Mac fans, technical users, and students everywhere who see the trend and are not stuck in their mindset that everything must continue to be windows based forever, etc...
Finally, the real fan boys, real true believers are in the Windows camp. Notice several comments above--with no facts to back them up in any case--who are just beside themselves that people defend Apple from a constant barrage of mudslinging. We do it because it's the truth.
I am amazed folks don't gat so worked up about the lies Fox broadcasts on a daily basis.
There are a number of gramatical and word choice errors in your article. You should have someone who has better language skills edit your writing before you post your brilliant thinking or else people will think you're not so smart.
Jeff
I think Apple has lots of room to grow, and a solid foundation to do so. In ten years I think it could be worth $1000 without breaking a sweat--i.e., just on what it's got now and in the pipeline, plus momentum. That's the kind of stock one likes to own--at least in some amount.
I do think there are some substantial risks on the way there, such as the impact if Jobs resigned or (more likely) semi-resigned. But I think half of that potential downside is already priced into the stock (at today's $152). At anything below $130 it would be such a Buy that it wouldn't go much lower for long. The other major downside is a big bear market, which I think is in the cards. That, combined with a resignation by Jobs, might bring the price down to $100. But no lower for long, if it could still grow at a relatively healthy pace, as I'm petty sure it would.
What I think most people are missing is the potential for a "positive catastrophe," to coin a phrase. I.e., an unanticipated stroke of good fortune arising from a Big Deal with a major company like IBM. If Jobs could agree to leave enough money on the table for his partner, and allow them to have a lot of input in software design (both unlikely, unfortunately), IBM might adopt the Mac as its PC replacement, and encourage its customers to do likewise. It would be good for itself and its customers to offer a superior alternative--and one with higher margins than Linux. And IBM would like to repay MS for its actions back in the day, I presume.
What impact would the news of a solid, long-term commitment by IBM have on Apple's stock, do you think? I think it would double within a month, and triple by year's end. An agreement with HP would have a similar effect.
If IBM and HP aren't interested, there are others that would be. If MS were smart, statesmanlike, and not too ego-istic, and if Apple were too, they'd make a deal with each other. (Columnist Dvorak suggested over a year ago that this might be in the cards.) I fear that price and pride would prevent this, but it might well occur.
The possibility of a deal such as one of these hasn't been priced into the stock. If it were, it would outweigh the discounting due to concerns about Steve's health, and make the stock a buy for long-term investors. (Short-term traders should buy big on any rumors of a deal like this.)
(PPS: Anyone can quote this freely.)
"I am very aggressive when I can get exposure to positive Black Swans."
It would have made sense for IBM to have started reselling Apple products a year ago. The main obstacle to such an arrangement may be Jobs. I hope he can be "big enough to be small."