neutrino23

Apple: Like Starbucks and Whole Foods, A Trend That's Past Its Prime

Todd's error is common among tech pundits. They have a superficial understanding of Apple and their market and they have a simplistic view of consumers.

Apple can certainly be criticized. Not everything they do is right and some products have not succeeded in the market (Cube, flower iMacs, OpenDoc). But if you are going to publish a critique in this area you really ought to do your homework and hopefully come up with something that adds to our understanding before hitting the send button.

Apple has incredibly great technology, they execute well, they have no debt, a huge cash pile (now $28B), and great designers. They have a fantastic future.

You should listen to the rebroadcast of the earnings announcement. The numbers are quite impressive. Sales up in all categories (US iPod sales down slightly, WW iPod sales up a lot). There are lots of units of cheap laptops being sold but Apple captures over 30% of laptop revenue in the US. Margins continue to be in the mid thirties. Competitors all have margins below 20%.

Think about that last number for a minute. Apple is building in enough value into their products that customers willingly pay enough money that Apple has margins far higher than the competition does. That means that Apple piles up profits that allow them to continue to invest in product design and engineering. It lets them buy companies to acquire needed technologies (like P. A. Semi). It lets them pioneer new manufacturing techniques (8 hour batteries and the new unibody for laptops).

During this downturn Apple is not pulling in their horns. They stated that they are continuing with their plan to open ~25 new stores this year in addition to maintaining their R&D budget.

If Apple discounted, as so many 'pundits' have called for, margins would be cut resulting in lower budgets resulting in fewer products in the pipeline resulting in lower sales a couple of years out.

As an investor I'm happy with the Apple is being run. I found it really interesting that they are confident that sales will hold up in the near term. No one has a perfect crystal ball but Apple has a lot of sharp people and they do their homework. As they are not planning on cutting back drastically then I'm encouraged to think that they see a way to keep the business flourishing. Very interesting.