Posted on 09/13/2010 5:16:04 PM PDT by Swordmaker
Apple (Nasdaq: AAPL) will become the most valuable company in the world. Bet on it. In fact, go out and sell all your personal belongings, liquidate your 401(k), and buy Apple stock with every last dollar you own.
OK … on second thought, I wouldn't advise that -- it's a bit rash. But there are ample reasons to believe that the company's rise is just starting and that Apple will continue blowing past expectations.
Big Oil, meet Big Phone
You've heard the standard "bullish" reasons before: Apple has $45 billion in cash and trades at only 12 times forward earnings when netting out cash.
Yet investors are rightfully nervous about the stock. It went from the brink of irrelevance to the top of the tech world in less than a decade. It built its $236 billion market cap by selling to consumers, a notoriously fickle crowd. Investors have been burned in this area before; they watched Motorola (NYSE: MOT) rise to prominence only to be cut down to size as its designs lost favor. People are afraid to hear that "it's different this time." For many, avoiding Apple is the safer play.
This changes everything … again
Well, it truly is different this time. I'll give you four reasons that the iPhone, and smartphones in general, are a whole new ballgame.
1. Software is the new kingmaker
Apple went into one of the most hypercompetitive markets in the world and created a product that was technologically years ahead of all its competitors. It entered a market that everyone knew would have vast potential -- hence the reason telecoms such as Verizon (NYSE: VZ) and AT&T (NYSE: T) built out massive data networks to support smartphones -- and Apple still managed to destroy a powerful group of competitors.
How? By virtue of a sea change within the mobile industry. The only difference between older "feature phones" -- you know, like that old flip phone sitting in your closet -- was hardware. The mobile companies loaded their own software onto the phones and pretty much controlled the software experience.
In spite of the iPhone's phenomenal hardware designs, software created the difference and the lasting competitive advantage. The user experience, the apps, and the iTunes integration were the factors that created Apple's long-term success. Other handset makers can easily replicate the touchscreens and the slim design, but the App Store, the clean operating system, and the iTunes integration? Well, everyone else is still catching up on those fronts.
2. iOS scales
Apple's mobile operating system, known as iOS, is optimized for a mobile experience. However, it scales extremely well for other high-growth markets and creates both a uniform experience and an app market for users. Although many were hesitant about the iPad's potential (me included), Apple is now reportedly cranking out 2 million of the iOS-based tablets a month to meet demand. Furthermore, even though the current Apple TV is underwhelming, it manages to keep Apple involved in the battle for the lucrative home-entertainment market, and future models of Apple TV could easily incorporate iOS to provide better media, gaming, and other apps right into consumers' televisions. The point is that even though iOS started on smartphones, it's now a dominant platform on tablets, and it could make further inroads into the home.
3. Consumer behavior on its side
Smartphones are growing by leaps and bounds, but few take the time to examine the dynamics. How many people would pay the full, non-subsidized $600 average selling price Apple receives from AT&T and other carriers? Obviously, the number of users would be far lower. Smartphones take advantage of consumer behavioral traits; as consumers, we're far more willing to pay a low upfront cost if future payments are obscured. In many markets (the U.S. included), carriers subsidize the cost of smartphones, and doing so artificially boosts sales figures.
Not only that, but smartphones also encourage people to do things like collect a series of apps that work on only one system. And since people like keeping what they've already collected, most who have a proprietary system will stick with the same proprietary system for their next upgrade. Thus, 89% of iPhone users want their next phone to be another iPhone. That figure falls to a mere 42% for users of Research In Motion's (Nasdaq: RIMM) smartphones.
4. Underrated smartphone growth
While consumer-electronics sales are expected to be flat this year, smartphone sales are expected to boom. Last quarter, the smartphone market grew by nearly 50% over the previous year. Researcher Gartner believes that over the next four years, smartphones will see 28% annual revenue growth.
Smartphones clearly present an enormous opportunity, yet there's plenty of evidence that the opportunity is actually underrated. Companies that can profit immensely from the spread of smartphones -- Cirrus Logic, Marvell, and even Qualcomm (Nasdaq: QCOM), to name three -- still trade at pretty low valuations for a field with such tremendous growth rates.
What's more, Apple has growth opportunities in mature markets where it already succeeds. The company sells through just one carrier in such major markets as the United States, Japan, and Germany, but it's expected to pursue a multi-carrier strategy in the coming years. That strategy should assure that Apple secures an even larger slice of the pie in growing markets.
Some figures to toss around
In the following table, I've created a set of iPhone growth assumptions, all of which point to a company with significant upside. In the past 12 months, Apple has generated nearly $21 billion in revenue from iPhone sales and products related to the iPhone. If the company can merely match anticipated industry growth rates, its iPhone line should generate more than $56 billion in revenue by 2014. In the past 12 months, Apple's revenue as an entire company was $57 billion.
So let's make some assumptions about the future profitability of the iPhone. Gross margins are estimated using industry estimates, and I'll shrink them in part to reflect a declining average selling price. Operating costs and the effective tax rate come from companywide figures.
Source: Capital IQ, a division of Standard & Poor's, and company filings. Gross-margin estimates from researcher iSuppli and industry analysts. R&D=research and development. SG&A=selling, general, and administrative expenses. If Apple matches industry growth rates, the iPhone alone would produce $23.8 billion in pre-tax profit by 2014. On a post-tax basis, that's still more than $15 billion in profits. However, that's still not all! The phone also drives a "virtuous cycle" for Apple. As more users buy iPhones, they upgrade to Apple's other products. Even though Apple controls up to 90% of the market for computers costing more than $1,000, the company keeps growing Mac sales at industry-thumping rates. What does that mean? It means Apple is creating a new class of users willing to spend more on its computers. The more iPhones it sells, the more crossover sales it gets to other products. For investors, the ka-ching of cash registers at Apple Stores is music to their ears. Bottom line For instance, it's almost impossible to do an Apple write-up without mentioning Google (Nasdaq: GOOG). If we see a reduction in the relevance and use of apps over the next few years, Apple could get burned while Google's model of free distribution continues growing like wildfire. In addition, as smartphones gain increasing penetration rates in developed countries, much of the continued growth will come from emerging markets. Even if the smartphone market grows at the stunning 28% rate I mentioned earlier, Apple might not be able to keep pace as consumers reach for lower-end offerings. The natural beneficiary? Again, Google. Since Android can scale down to extremely inexpensive phones, it should do well in emerging markets. But hey, every investment has its risks. Apple may not be the king forever, but the next few years should just keep getting better for Jobs & Company. |
I can always back up my statements with sources... and do. You seldom do. Just like this last one about BP spending more on the oil spill cleanup than Apple's revenue... a total lie.
You thought you could get away with it... you got caught. So you revert to your "unicorn" canard... a form of ad hominem implying I am the one believing in myths and untruths... but you are the one spouting them. I post links to my proofs... and can prove what I post. You can't.
You’ve done nothing but make personal attacks for post after post.
Get over it
I saw the reports of the vulnerability in Adobe Reader and Adobe Flash that had ZERO day EXPLOITS in Windows and apparently in Android OS devices... but none in Apple OSX... and certainly none in the iOS devices.
Neither of the vulnerabilities of the buffer overflows can do a thing in the NON-EXECUTABLE data stacks of OSX where the malicious files of Flash or PDFs would be placed by the OS that could possibly result in an Arbitrary Code Execution EXPLOIT. That was not the case for Windows. Some Windows computers were similarly protected, but others were not.
In the case of OSX and iOS, PDFs are usually read by native, non-Adobe, routines built into the OS... so they are not at risk either. IF someone has, for some reason, jail broken an iOS device—which do not have non-executable data stacks—and installed an Adobe reader or Flash player (I am not even sure either one is available—no, I just did a search and there aren't) then, they too, like the Android OS devices, might be susceptible to the exploits that have been seen for the Android devices. But, so far, for both non-jail broken and jail broken devices, nope,not happening.
For OSX, as I said, the PDFs and Flash files will be loaded into the non-Executable data stacks... and again the problem will be handled by the fact that any malicious executable code stuffed into the maliciously crafted PDF or Flash files simply cannot execute in those memory locations. The OS will not permit it to do so. Unless you can show me how Non-Executable memory can be suddenly changed to executable, I am not at all concerned.
So, yes, driftdiver, I saw the vulnerability reported last week created by the incompetent programming done by Adobe, again, and said "Ho Hum." Apple's multi-faceted security approach has pretty much made the possibility of that vulnerability doing much more than crashing Adobe Reader or Adobe Flash creating a temporary Denial of Service an impossibility.
And, no, driftdiver, it did not "Impact(ed) the Mac." Not one.
I’ve met the man, been to Foxconn several times. He’s a very mild mannered, very soft-spoken man, even when dealing with multi-million dollar decisions. He’s a real leader and innovator in the market!
Because you are a liar. You just confirmed I didn't say that specifically about Apple. Yet you insist I definitely implied it at the very least.
Thanks for confirming you are a liar.
Sorry, I thought it would be obvious - Microsoft owns about 90% of the desktop market, in terms of OS share, and that’s been quite stable over the last 5 years, and shows no sign of changing. Thus if the PC market increases by 24% annually, Microsoft’s own sales will increase by an equivalent amount.
Is that more clear for you?
Yet who's the one who's been slapped down several times by the mods for crying wolf, seeing attacks behind any statement, when in fact it didn't exist?
The fact is, you read into our words what you want to read, attack us for what you wanted us to say (rather than what we did say), and then feign offense when called on it.
Sorry Sword, you are, in fact, a liar.
Hey, driftdiver, you admitted it:
"Hey if Sword and Stripe can make up numbers so can I."
Truth is the absolute defense to a charge of slander. You admitted you made up the statement. Antirepublicrat also linked to the authoritative proof you were untruthful in a debate with the intent to win the point. Bad form, old boy... which goes to the quality of your character, showing a lack of integrity and dishonesty. Proof of both points. I am truly sorry, you lose. I had hoped for better from you. But cheating to win a debate is not a fair way to win respect and influence people... especially on a conservative forum. I'd expect it on a Liberal forum like Democrat Underground... but not here.
You have been impeached. As a result, all further claims to truth from you are suspect and will be given the weight they deserve... very little.
In a court of law, the judge would instruct the jury to weigh your testimony in light of your impeachment.
This is the exact thing that was being referred to earlier when it was commented about the tone of the discourse being lowered when trying to have a civil conversation with you. Civil people do not make up "facts" to try to win a discussion. They do not cry "foul" when their opponents call them on their egregious conduct, trying to deflect THEIR misconduct onto others. You do.
That, I think, is the nail on the head. Much like Google. Microsoft's MSR group (Microsoft Research) is fascinating. I've worked on a few of their projects, and everyone knew they were going to be stillborn, but they still did the project, because 2-5 years later something will grow out of it.
Additionally, it's amazing how much design Microsoft does for other companies! Most of the telecom work I've done for Microsoft was either sold only under a completely different brand, or shuffled from MS branded to someone else in a year (such as the RoundTable). Microsoft eats this R&D because it ultimately sells more OSes for the backend, and further tightens the coupling between hardware/ancillary products and their core products.
Just like Google gives away products left and right simply because it sells more ads.
I think, actually, if you look at the bottom lines it's a MORE successful strategy than Apple's "make money on everything" approach. Not only does it leverage 3rd party/other people selling your product, but it keeps you actually focused on what is your core business - OS/Office for Microsoft and ads for Google!
And the proof is in the pudding, as they say: Microsoft and Google both have higher net margins than Apple. Microsoft does about $62 billion in revenue, with $19 billion in net profit - a monstrous 30% margin!
Google does $24 billion in revenue, and $6.5 billion in profit - a very large 27% net profit margin.
Apple does $43 billion in revenue, with $8 billion in profit - a respectable 19% margin.
Looking at those numbers above, in terms of profitability, it seems the approach of lots of R&D with most "going away" or being given away actually pays off! The margins are higher, and THAT gets investors interested.
That's one of the reasons I think the original Motley Fool analysis is wrong; it does not consider that the margin of Apple is less than its two main competitors, is rapidly being approached by the smaller of the two, and really isn't gaining much ground in the market of the larger.
Profit margin is often the rally-cry of the pro-Apple-everything camp here, yet Apple has a lower margin than Microsoft and Google. Interesting, indeed!
Keep trying and crying. You have proven that you do not want to discuss the threads you post, you only want unadulterated worship of the apple brand.
Propaganda Minster is and always shall be your title. You have as much integrity as the green helmet guy from Iraq.
You have about 20 posts of nothing but personal attacks.
Sorry Sword, remember "jailbreakme.com"? That was an ACE exploit used to JAILBREAK the iPhone. Meaning that malformed PDF actually ROOTED the phone, just by trying to open it. Bone-stock iOS install completely compromised by an ACE.
You're wrong here. That was PROOF POSITIVE that an ACE exploit could completely root iOS without anything more than just visiting a website. It was bone-stock Apple code on bone-stock iOS that was compromised.
Sorry, you're wrong. Now the question is: will you admit it?
Interesting numbers there. I don’t like Google but they are doing a good job of expanding their company into new markets. Whats Apples new market? Video rental????
Yep. It's one of the reasons I think a good chunk of Apple's stock is a bubble - their margin is actually lower than their competition, and they're starting to lose marketshare (even though the entire market is growing fast enough their gross sales are still increasing).
Company A has more revenue, more profit, a higher margin, a greater percentage (absolutely dominant, actually) share of its core markets, and a growing market.
Company B has less revenue, less profit, lower margins, a shrinking percentage (rapidly, no less) share of one of its markets, it doesn't dominate any of its core markets, but all of them are growing.
How company B is valued greater than company A, well, it just doesn't make any technical sense. It must be hope and change for the future, which means a bit of a bubble valuation - hope that the future will show "good things".
It used to be Apple cannot be hacked, now its Apple doesn;t use Adobe. There have been multiple notifications of high risk vulnerabilities from Apple over the last few months.
Many have included the warning of arbitrary code execution. To be fair though it took Microsoft a long time to accept their responsibility and handle security vulnerabilities properly.
It takes more than hype to build and sustain a company. Sooner or later the shine wears off and people move to the next fad.
IMO it is a bubble. Apples schtick is to build the next new phone or expand that technology to a new version of an old gadget. Microsoft and Google are building new product lines in new markets. For long term sustained growth Apple will need to find something new as you can only sell so many iPhones to the same people.
Puget, First of all, as I stated in the previous post, iOS devices do not have Non-Execute stacks and ARE vulnerable to data buffer overflow exploits. And yes, the iPhone was being ROOTED by a visit to a website and the downloading of a PDF file.
However, that vulnerability was closed with iOS 4.0.2 and iOS 3.2.2 four weeks ago... so talk about something up-to-date... and relevant to today. And even more so with the release of iOS 4.1
So, no, Puget, I am not wrong. This particular Adobe PDF vulnerability and FLASH flaw is NOT impacting iOS devices and no exploits are being reported. This flaw is in the Adobe READER and the Adobe Flash Player... not in the Apple written reader built into the iPhone, iPod, and iPad that was exploited in the Jailbreakme.com exploit... that vulnerability is gone. This is a totally different vulnerability and it simply DOES NOT EXIST on these devices because, Puget, these applications DO NOT EXIST for iOS. Can I make it any easier for you to understand than that? Whether there might be more buffer overflow vulnerabilities is not in question here... there may be. What is in question is DOES THIS VULNERABILITY, discovered last week, impact these devices. The answer is NO, it does not.
So you are wrong. Now the question is: Will you admit it?
There you go again...comparing the wrong numbers. Using NINE months of Apple's figures compared to a whole year of the other companies'! You've also understated Apple's profits by 1.7 Billion dollars. That's ridiculous. And dishonest.
Apple, using their usually conservative guidance, will most likely produce $62 billion in revenues for the fiscal year, not $43 billion, and weigh in with approximately $14.25 Billion in profits... or ~23% margin... for 2010 which ends in just 10 days of so.
Yet you stated, unequivocally and without restriction:
In the case of OSX and iOS, PDFs are usually read by native, non-Adobe, routines built into the OS... so they are not at risk either...
Sorry, the jailbreakme.com (and in fact, the new jailbreaking of the iPhone 4) site relied on on ACEs. They exist and are exploited every day by the thousands.
That you continue to deny this is simply amazing...
So you are wrong. Now the question is: Will you admit it?
iOS has been - and is being - cracked by simple ACE exploits daily. Bone-stock iOS loads are cracked - jailbroken - by using arbitrary code execution exploits. Your constant lies to the contrary notwithstanding! ACEs are how you jailbreak a phone, but that goes against your "all-things-Apple-are-invulnerable" approach, so of course you cannot admit it.
Continue in your lying ways, Sword!
Latest complete year information. YOU sir, are a liar, a shill, a fraud, and shyster. The information I showed is accurate as published, and even your cooked results STILL show my claim to be true - Apple has a LOWER margin than Microsoft or Google.
Yes or no: Apple has a lower profit margin than Microsoft and Google.
That's ridiculous. And dishonest.
Says the lying shyster who makes up his own statements and words for other's mouths and ignores anything that shines the light on his lies...
Answer Sword, let's see if you can swallow the crap you've been spewing: does Apple have a lower margin than Microsoft and Google? Simple question, if you cannot answer it we KNOW you're a shill of the first order...
Not any more... the vulnerability used by Jailbreakme.com was closed four weeks ago. It no longer works. Admit it. Your claim that they are being "exploited every day by the thousands" is not true.
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