If You Don’t Own Apple Products, Can You Be An AAPL Investor?
One of the more interesting conversations I have had lately has been with non-Apple users about Apple stock. It is an apt subject given Apple’s blow out numbers last night. Second-quarter profit ~doubled, demand for iPhones and iPads exceed supplies. Net income in Q2 was $5.99 billion ($6.40 a share), from $3.07 billion, or $3.33, a year earlier.
While I have long been a fan of the superior Mac versus Microsoft machines, it is the iPod/iPhone,/iPad phenomena that is driving Apple towards being the most valuable company on earth.
These investors are certainly aware of the sales and profit growth, but there is a sort of blind spot as to how far it could run. I have heard from various parties that the move in Apple’s stock is “ridiculous” “overdone” “insane” “proof of madness.” Apple’s stock price, despite the reasonable P/E, is “incontrovertible proof we are now in bubble territory.”
When I asked these folks if they own any Apple products, they nearly all say no. “My kids have an iPod” was the most I got out of any of them. (That’s more than we can say for Steve Ballmer’s spawn).
Which raises the question of hands-on-use. Can you be an investor in the Tech sector and NOT own an iPad? Can you seriously trade tech/telecom, and not have hands on experience with the Apple magic?
This question goes back to the days of Peter Lynch, the Fidelity Magellan manager who advised people to invest “in what you know.”
Can investors today ignore a hot product? Do you have to own the latest and greatest in order to trade the names? How important is this concept to the average investor?
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Previously:
Popular or Best? (ATPM January 1998)
Analysts Still Underestimate Apple (Real Money, Jan 13, 2005)
Is Disney/Pixar the sequel to Apple/NeXT ? (January 30th, 2004)
Apple morphs into a Consumer Electronics Co (April 25th, 2004)
Apple to Music Industry: Monetize Your IP (April 28th, 2004)
Apple Now a Major Music Retailer (RealMoney.com 12/08/05)
Apple Now More Valuable Than Microsoft (May 26th, 2010)
A Few Thoughts on Steve Jobs/Apple (January 18th, 2011)
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April 21st, 2011 at 8:09 am
It is an interesting dilemma. I currently own an ipod shuffle, an ipod touch, an ipad and an imac, but ironically I just purchased Microsoft shares. For goods I like to buy new/exciting technology, for stocks I like to buy strong companies for cheap.
April 21st, 2011 at 8:09 am
Sure, you can invest in tech stocks and not own the product. Just being aware of the multitude of users and new adopters gets you a pretty good idea of how hot things are.
Me, I don’t own Apple products or stock–not a real fan of the iTunes etc. business model. As for their computers being “Superior”, work on them for awhile–all computers have problems, and Macs are no different.
April 21st, 2011 at 8:12 am
I got the first AT&T iPhone, but returned it after 3 weeks — it simply was inadequate to make phone calls. I got the iPod touch — which I did not need — to learn the various capabilities.
Yes, i got the iPad 1 — and the Verizon iPhone as soon as it came out.
April 21st, 2011 at 8:15 am
Apple is not even at it’s proper valuation yet. To understand where apple is going you have to understand how little of the true market share it has, and how much more there is out there to capture.
Just with any company at a certain point if you’re playing from ahead it becomes more and more difficult to continue to blowout your opponent just due to dumb luck and complacency, but it’s not like Apple desktops and laptops and Ipads are throughout corporate america yet.
Large retailers are planning to rollout their latest rounds of “technology” investment and you can guarantee after the last round of no support, crap that doesn’t work nonsense that they’ve been paying on for 5-10 years that they are going to get Applized, and your numbers are really going to go through the roof.
Large fund managers will never let go of this stock here. It would be complete idiocy.
April 21st, 2011 at 8:27 am
Apple earnings might well be in bubble territory but the stock price isn’t. I think it is broadly fair – it reflects the markets view that Apple is heading into a more competitive environment over the next 5 years than it has had over the last 5. What really matters is the extent to which Android takes hold as a standard and whether this takes Apple down the same mistaken path it took when IBM-compatible PC’s left them as an isolated fringe manufacturer. It’s a tough one – wouldn’t be short Apple stock though at these valuation levels. I wouldn’t buy it either. Simple fact is Apple has had it all its own way for a while just by virtue of creating the categories in the first place. But that doesn’t make it invulnerable to competition and there is simply no question that the competitive threat to Apple in the smartphone and tablet space is materially stronger now than 12 months ago. Looking at the Android share trends wouldn’t fill me with confidence either.
April 21st, 2011 at 8:29 am
“…Can you seriously trade tech/telecom, and not have hands on experience with the Apple magic?…”
not sure it’s, quite, “Magic”..
iPhone Keeps Secret Record of Everywhere You Go
April 20th, 2011
Via: Guardian:
Security researchers have discovered that Apple’s iPhone keeps track of where you go – and saves every detail of it to a secret file on the device which is then copied to the owner’s computer when the two are synchronised.
The file contains the latitude and longitude of the phone’s recorded coordinates along with a timestamp, meaning that anyone who stole the phone or the computer could discover details about the owner’s movements using a simple program.
For some phones, there could be almost a year’s worth of data stored, as the recording of data seems to have started with Apple’s iOS 4 update to the phone’s operating system, released in June 2010…”
…
“…Only the iPhone records the user’s location in this way, say Warden and Alasdair Allan, the data scientists who discovered the file and are presenting their findings at the Where 2.0 conference in San Francisco on Wednesday. “Alasdair has looked for similar tracking code in [Google's] Android phones and couldn’t find any,” said Warden. “We haven’t come across any instances of other phone manufacturers doing this.”…”
http://cryptogon.com/?p=21888
~~
Michigan Police Copying Smartphone Data During Routine Traffic Stops?
April 20th, 2011
Via: Popular Mechanics:
In Michigan, the American Civil Liberties Union (ACLU) has filed a complaint alleging that Michigan State Police officers used forensic cellphone analyzers to snoop in drivers’ cellphones during routine traffic stops. PM talked to a Fourth Amendment expert to sort through whether that amendment’s protections against illegal search and seizure should stop an officer from scanning your phone.
http://cryptogon.com/?p=21886
~~
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=EFF+iPhone+Surveillance
Jobs, the ‘anti-Gates’, riight..
April 21st, 2011 at 8:45 am
Trying not to be too preachy, but I don’t think it’s a good thing when the “most valuable company on earth” sells telephones and computers. It does say something about us though.
April 21st, 2011 at 8:48 am
The cellphone market is almost saturated and there is very little difference between Android and iPhones. I think it will be a wash going forward for Apple in this market (I think HTC is best positioned to make the big move in the hardware area here). iPods are also pretty much at the end of the line which really leaves the iPad for growth. What distinguishes the iPad from a laptop computer is that it was designed to be a digital media center and not a computer in the classical sense. Apple was able to reduce the size and weight and give it the needed features (remember there have been touch screen computers for some time). The central question for investors is when does this market become saturated? I would be a little more positive on Apple if they would start giving some of the revenue stream back to shareholders. What in heavens name can they do with all the cash they are sitting on?
As a retiree, I’m interested in dividend income more than possible capital gains from equities which is why I’ve not taken a bit out of this Apple.
April 21st, 2011 at 8:50 am
The “spin” seems to be universal: a huge iPad “sales miss” was due to short supply, inability to make enough of them. Well, i didn’t see any “shortage” iPad2 in my average, mid-american BestBuy.
What if The World has had enough of this ipod-touch in XXXL size? Everyone who wants this toy, already has one?
April 21st, 2011 at 9:09 am
b_thunder:
Personal observation only, based on no research, but — I’m not an early adopter; having waited a year I have now bought an iPad (first ever Apple product for me). My wife has seen it and wants one; friends are getting intrigued.
It’s possible that the second wave is just starting.
April 21st, 2011 at 9:09 am
Tablet computing is taking off and will continue to rise. I plan to buy one in a month or four for R&D use. To me, like all computers, they are and will be a commodity purchase. If I get an iPad, it will probably be a 1.0 model from eBay for experimental purposes. Ditto with Android 3 tablets, which appear preferable at this time because they’re not locked down and run the same programs. Plus they have usable ports. Several will probably be released by summer. I won’t pay early adopter prices, though because I’m still not sure what I want to do with it.
But investors need cults to follow and Apple is an excellent one to buy into. The iPad is an excellent remote computing machine for consultants and accountants who need lightweight travel gear but mainframe access. A copy of TeamViewer will provide cheap and uncomplicated secure remote computing. Android can probably also support TeamViewer or a similar product such as LogMeIn, however.
But I love Apple today. Their results should bring in the wave 3 stock investor .. the ones who but at the top. This is the start of the topping at this time. With luck, we might get another 8% or 10% before 6-30. I also love the sentiment from professional financial bloggers. There seems to be an undercurrent of a disconnect between inflation and QE2. These precious souls imply that inflation will continue after QE2 and thus everything will continue to follow the straight line into infinity. The price of oil is no longer a headline issue. Perhaps this is how the pros set up the schlubs into buying at the top?
April 21st, 2011 at 9:13 am
People — mostly non-users — have been writing Apple’s obituary for the past 20 years. They’ll probably be writing it for the next 20.
“As for their computers being “Superior”, work on them for awhile–all computers have problems, and Macs are no different.”
I’ve worked extensively on both platforms (and on the PC side, on several OSs). Mac and PC are no different in the same sense that a Ferrari and a Ford Pinto are no different — both will get you where you’re going.
April 21st, 2011 at 9:17 am
A domain experience is good to add to your investor capabilities. When you see that iPhone capabilities are ahead than competition, and competition took years to catch up (Android), and other companies were sleepy (Nokia, Microsoft, Motorola, Blackberry), then you can conclude that Apple has a clear advantage.
When you look at iPad (good) “clones” being more expensive that the iPad itself then Apple has a clear advantage.
Now, what does the future deserve? Microsoft can be very patience and fault tolerant, so may be in two years they will catch up, and Android will be surely better and is currently strategic for Google, and may be we’ll have good chinese clones with multitouch and running some open source operating system.
So, If Apple can’t add teleportation in a few years or some other cool technology it will loose some of its advantages.
April 21st, 2011 at 9:20 am
@Mark E Hoffer, on the bright side this could be very useful if you need an alibi.
April 21st, 2011 at 9:33 am
I would never buy a product that required the killing of unicorns for its production.
April 21st, 2011 at 9:34 am
greg: I think the problem could be the opposite, e.g. discoverability by the spouse’s attorneys
April 21st, 2011 at 9:34 am
It could also be dangerous to use and invest in the same thing. If you get into a fad, would it be possible for you to realize that it wasn’t going to last for that long?
April 21st, 2011 at 9:35 am
“Firm’s market cap climbing to $1 trillion
One trillion dollars.
That’s how much at least one analyst believes Cisco Systems Inc. will be worth in a few years–and you’d be hard pressed to find anyone to disagree.
The San Jose-based networking behemoth’s stock closed March 14 at $131.75 a share, slightly down from its March 10 one-year high of $141.88 (The entire Nasdaq slid 4 percent on March 14.)”
———————————————————-
But sure it is different this time with Apple LOL
April 21st, 2011 at 9:42 am
Robes: Now you’re just being too negative. Will make the fanbois cry, even if it’s all the way to the bank for now.
April 21st, 2011 at 9:57 am
@Mike in Nola Says:
“even if it’s all the way to the bank for now.”
Don’t know about that. fan-boys almost never sell at the top. They tend to ride their “love” down because theur company can do no wrong and it will turn…
April 21st, 2011 at 10:13 am
Should you buy stock in a restaurant chain that you’ve never been a customer of? Or a car company whose products you have never ridden in?
You can, but I think (and clearly, Peter Lynch thinks so as well) that having a good understanding of why the customers are motivated to lay down their money for the products can help with the investment decision, provided you don’t get too swept up in the products, and don’t pay proper attention to the investing side of things.
Sure, you can do it all simply by the numbers, weighing PEs and free cash flows and the like. But that tells you NOTHING about WHY people buy the products, and puts you in direct competition with the legions of computers that are out there doing the same kind of analysis, only a gazillion times faster and better than a puny human could ever hope to do.
Would you buy stock in a crappy company making crappy products simply because their metrics say they are cheap? Here’s a clue: They are “cheap” for a reason. If you don’t understand the reason, your expectations are likely to miss the achieved reality.
I think this is why the amateurs (or semi-pros, at best) out in the blogosphere do a much better job of forecasting AAPL earnings than the “professional” analysts, despite their disparities in resources and budgets. In the quarter just ended, the consensus earnings estimates from the pros ran between $5.34 and $5.37, while the top blogger AAPL fanboy analysts were generally in the just-above $6 range, and thus much closer to Apple’s (still higher) $6.40 number. THAT’s an investing advantage from an appreciation of the company, the products, and the customers. No amount of mere number-crunching or charting would have produced a similar result.
April 21st, 2011 at 10:16 am
Let’s compare this to investing in tobacco stocks.
You can certainly invest without smoking, but do you want to be earning from people’s misfortune?
Apple seems to me the noncritical investment, you don’t have to believe in it to invest in it.
That said, Apple makes the best computers and the best phones.
This is not to be confused with Apple the company.
The company like any other corporate entity is not an entirely lovable thing!
How about investing in Food Stamps?
April 21st, 2011 at 10:20 am
“If You Don’t Own Apple Products, Can You Be An AAPL Investor?”
Of course! In fact, you’ll be wealthier if you don’t. They cost too much.
April 21st, 2011 at 10:23 am
I feel very strongly about it both ways. Data on anything investment related can be useful. But as an Apple owner and Tivo owner, I love both of the product I own. But….. one of the stocks has cost me money and broken my heart. Don’t confuse a superior product with a superior stock. Everything in perspective.
April 21st, 2011 at 10:25 am
Barry these people still don’t understand that technologies often lend themselves to a winner take all situation, especially when the leading technology provides barriers to entry ( eg patents egVCR vs BETAMAX) and some level of network effect (VCR, facebook, DVD).
Apple is a way more vulnerable as their barriers are more subtle, and I think that is where you’re seeing the disconnect its hard to see the network effect and barriers, but they are as real as ever. Apple’s user base and developer community provide network effect. More importantly they have the very best of product driven CEOs on hand, vs other CEOs who are very much disinterested in their products and more interested in management theory. That product leadership allows them to continually advance their user base and technological advantage. Coupled with brilliant marketing, A1 UI design, and the cornering of key supplies they continue to dominate.
I don’t own an iPad or Iphone, I do have a IPod which I use as a phone, browser, radio, calendar, exchange email, etc, I don’t even use it for my music collection, that’s how good of a device it is in other categories.
This is no comment on Apple’s stock, I would never invest in such things just not my ball of wax.
April 21st, 2011 at 10:26 am
Apple has a head start they DON’T have a lock on gadetry.
Microsoft, SONY, Dell, etc. seriously dropped the ball in the last decade. Understanding why that occurrred explains why Apple should be worried.
Microsoft was stodgy and incapable of moving out of a 90′s mentality. That’s not the case at Google. If you look at all of Apple’s current product there’s nothing ground-breaking about them. For the most part they buy off the shelf Chinese parts and pair them with great software. Google can do this and with less sandbox rules because of an MORE open system and none of these bans of flash video. And even if Apple come up with some new processors and displays the Google camp will get a piece of that a few quarters later, save themselves the R&D and offer the same product for less by Christmas shopping season.
Apple pushed the limit and should be commended for that. But don’t confuse the inability of the gang that couldn’t shoot straight (Gates and Ballmer) with a much more innovative crew that have used manufacturing economies of scale to steal massive smartphone market from Apple. I see no reason why this won’t happen with other gadets and PC’s as well.
April 21st, 2011 at 10:26 am
Being a tech guy here for a long time, I’m with Mr. Buffet with the “buy what you know” attitude. Full disclosure: I own an iPhone (3GS NEVER buy the first iteration of anything Barry! :) and an original iPod that I still use because I like the ergonomics for the gym and biking. I go MS for all my work equipment and development equipment (except where I use Linux ONLY for development purposes).
Apple is built on iPhone and iPad sales, to look over their reports. Mac sales have been pretty consistent over time, with perhaps a point or so of upside. But the more people use tablets, the less Macs will sell, as most people don’t really need laptops for entertainment purposes. A tablet is NOT the same as a laptop and will NOT appeal to the same market. People don’t seem to get this. I have no use for an iPad since I need a laptop for 90% of what I do. Sometimes I think it would be nice to have one on a plane or train because it’s smaller, but then I remember that I won’t be able to do any actual work on it, so I pass it by. Also remember if you’re a tech guy or a student you can’t really program on a Mac without running bootcamp, which is why my students never have a Macbook.
So as we move forward, iPhone share will be under pressure from cheaper Android alternatives. Tablets may grow, but I sense that the number wasn’t influenced by “backlog” on the iPad2 and I’ll wait to see if that is true. If it is….watch out below. So my feeling is there is no place to go but down, honestly, as Apple comes under pricing pressure from alternatives. In other words it’s 1990 all over again in my opinion. But hey, it’s my opinion not fact.
April 21st, 2011 at 10:34 am
As you wrote, I thought “Sounds like Peter Lynch,” so I was happy when you finally mentioned him.
I think part of the issue boils down to understanding “value creation” from the point of view of the consumer. “Value creation” sounds kind of buzzwordy, but my hypothesis would be that people who haven’t bought an Apple product either haven’t seen or have seen and don’t understand what makes something valuable to a consumer.
Ultimately, profits in the economy come from producing something that meets people’s needs, effectively, at as low a cost as possible. The more effectively you meet their material, social, and emotional needs, the more space there is to maintain a profit margin.
April 21st, 2011 at 10:36 am
@econimonium
“But the more people use tablets, the less Macs will sell, as most people don’t really need laptops for entertainment purposes. ”
When I read this I think of Howard Stern’s daily rant about how he tries to look at baby-sitter porn on his Ipad but “muliti-tasking” just doesn’t work with a tablet. Now if you consider that the adult internet sector, albeit changing, commands billions in revenues and potentially billions more in eyeballs (particular in the bible belt and Muslim states) that’s one giant sector of entertainment use that may never warm to the tablet….unless of course people get pretty good at being ambidextrous.
April 21st, 2011 at 10:40 am
I forgot to add… the real question is whether Apple can keep innovating ahead of the competition. And here, all one can really say is that they have a track record on this that would be the envy of virtually any industry: iMac, AirPort, iPod, iTunes Store, iPhone, iPad… there are few companies in the world who have invented new categories and changed industries the way Apple has (remember when virtually all computer products started coming out in iMac colors too).
So a big part of a stock’s price is the estimate of future franchise value (Present value of future earnings). The premium valuation is presumably based on their ability to continue to deliver these kinds of innovations. Even bumps in performance iPad -> iPad 2 seems to be an enormous growth potential.
So I think one really does have to put Apple in a category of it’s own. The interesting question is whether we can think of any other company on the planet that has Apple’s record of market changing product innovations. I can’t think of one off the top of my head… but if one can, then that’s another one likely to retain its premium.
April 21st, 2011 at 10:44 am
Apple is undoubtedly undervalued. There are still people, even in America, that commit the blaspheme of not owning Apple products. That’s like not believing in anthropomorphic global warming. The settlement of this great land won’t be finished until everyone is completely Appled-up, all the time. It is Apple’s manifest destiny.
April 21st, 2011 at 10:49 am
Anyone got any porn stocks to recommend? Gonna try to apply this investing principle in that sector.
April 21st, 2011 at 10:49 am
http://www.appleinsider.com/articles/11/04/20/researchers_raise_privacy_concerns_over_location_tracking_in_apples_ios_4.html
Researchers raise privacy concerns over location tracking in Apple’s iOS 4
By Slash Lane
Published: 12:05 PM EST
Security researchers have discovered that Apple’s iOS 4 mobile operating system, found on both the iPhone and iPad, keeps a log of user’s locations and saves the data to a hidden file on the device.
Peter Warden and Alasdair Allan revealed their findings on Wednesday, in which they discovered that both the iPhone and 3G iPad are “regularly recording the position” of the device and saving them in a hidden file. The data is restored through iTunes with backups, and even across device migrations.
The researchers have concluded that Apple’s collection of the data is “intentional,” and contacted the company’s product security team in an effort to find out the company’s reasoning. They did not receive a response.
“What makes this issue worse is that the file is unencrypted and unprotected, and it’s on any machine you’ve synched with your iOS device,” Allan wrote. “It can also be easily accessed on the device itself if it falls into the wrong hands. Anybody with access to this file knows where you’ve been over the last year, since iOS 4 was released.”
Location data is stored to a file called “consolidated.db,” which includes latitude and longitude coordinates and a timestamp. The researchers said that while the coordinates are not “always exact,” they are “Pretty detailed.”
“There can be tens of thousands of data points in this file, and it appears the collection started with iOS 4, so there’s typically about a year’s worth of information at this point,” Allan wrote. “Our best guess is that the location is determined by cell-tower triangulation, and the timing of the recording is erratic, with a widely varying frequency of updates that may be triggered by traveling between cells or activity on the phone itself.”
The researchers have also made it clear there is no evidence to suggest that the data is being sent to anyone. They have provided a public tool that allows users to look at their own stored location data.
http://petewarden.github.com/iPhoneTracker/
For now, users can encrypt their backups through iTunes. This can be accomplished by connecting an iPhone or 3G iPad to a Mac or PC, clicking on the device within iTunes, and then checking the “Encrypt iPhone Backup” setting in the “Options” area.
April 21st, 2011 at 10:52 am
p.s.
I do think Apple fanboism gets in the way of objective evaluations of the company’s future. This is a new phenomena, or maybe it isn’t (ie I’m a Chevy vs Ford guy way back when) but people getting emotional about discardable electronics is something I don’t recall seeing on this scale. It’s almost being political like Republican vs. Democrat. People are deluded into thinking that they have the better way and the others just haven’t seen the light yet. Is an analyst or a tech expert on Engadet capable of turning this off or imune to it in the first place? Hmm….
Personally I buy Apple gadgetry fro my 65 year old mum to enjoy at Starbucks or buy the bath and tennis. They’re easy to use producets so I don’t get inundated with “how do I move my gmail over to my inbox, how do I email more than one photo at a time, etc.”. And I learn just what differentiates Apple from Android from BB. You need to keep both hands on both camps. Otherwise you start waxing about how innovative Apple is when in reality they aren’t. They were just really good at undoing the retardation from Miscrosoft on the sector. I have a Droid X. Not as good as an Iphone in most ways (a list that is shrinking by the week) but I doubt I will have a need for another Apple entertainment product.
April 21st, 2011 at 10:56 am
Barry, the world is made up of those who “get Apple”, and those “who don’t”. Those who don’t, are those who use words like open source, and walled garden and constantly call for Apple to license their operating system. They also tend to like to buy technology that they can tweak and modify, not unlike the people that buy a truck and put those big monster tires on. The more sophisticated of these also would like Apple to give back the $60 billion by way of dividend because they feel it’s actually theirs somehow. These people will also use the term “market share” in any argument they make, while avoiding the term “profit”.
The people who get Apple, or in other words, “the enlightened ones”, have a strong belief that products should just work, out of the box, without tweaking or modification, and the experience should be one free of any frustration or anxiety. They tend to think Apple should stay their current course as it has seemed to work for them thus far, and they will often use the word “profit” while avoiding the term “market share” as they believe the former trumps the latter.
April 21st, 2011 at 11:16 am
@livermore, I think you had a great point on Stern! I never thought of that :) I think you also have another point and you just said exactly what my students said when I’ve asked each semester if they had any plans to buy an iPad…the general response was “I got one for my girlfriend” which I read as “she’s not very computer literate”. You brought up your mum. I bought one for my mum too for exactly the same reason :)
When assessing a company, I have to look at market potential, pressures, etc. So that’s where I place my “I just don’t see rich valuation upside” to the stock. The issue is, is there generous upside here, and with pressures coming from all quarters, I’d say there is. Also where is the pressure to upgrade unless you’re a fanboy? I have an iPhone 3GS. I’m going to use it until it is no longer supported or it dies. What else do I need for a phone? Perhaps I’ll get a 5 when it comes out, but there would have to be some sort of real useful reason. How many people will feel like this about an iPad? Apple’s play seems to be stuffing new devices down fanboy throats and hey, if you’re stupid enough to pay they should take your money. But how big is this base? How many will really use tablets? (most people that I know that bought one are now using them for paperweights). So if you think there is a lot of upside in the market, then Apple revenue will continue and there is upside. If you’re skeptical now, then you shouldn’t touch the stock.
April 21st, 2011 at 11:17 am
Greg — I agree with everything you’ve said, but there’s a third term, in addition to “market share”, and “profit” — that’s “growth/vision/whatever-you-want-call-it”.
Microsoft, back in the day, had all three, and grew to a monopoly in the PC business, not by innovating or producing excellent products, but by getting in there early with products that undercut the rest in price, and then starved out the competition, leaving pretty much them alone to collect the profit.
But all markets have a finite life, and Microsoft was never able to figure out how to create new viable growth opportunities (don’t point to the Xbox, the investment to get where they are today makes that a lost cause, finally achieving profitability just as the console game market is overrun by hand-held games and stoopid web/flash games (e.g., Farmville)), so they have stopped where they are, still enormously profitable, and still having a huge (but declining) market share in a marketplace that has a shelf life that is approaching its end … precisely the reason I am not interested in investing there.
OTOH, Apple managed to pull itself (or rather Steve Jobs pulled it) back from Death’s Doorstep, and made the shards of its dying PC business first profitable (killing off almost their entire product line overnight), then popular, and instead of sticking to nibbling away at Microsoft’s ginormous market share, they decided to invade other markets, while not giving up on the one they were doing well in. THAT’s the “growth/vision/whatever-you-want-call-it” thing I am referring to.
Not every attempted invasion/expansion has been a success, but so many have been that they are now a quite formidable business giant, when only a dozen years ago they were, for all practical purposes, kaput. If they had not taken the expansionist route, they would still be profitable, but only a pale sliver of their present size and profitability. And profitability is, or should be, the reason why companies are in business.
Eventually, the stockholders will put Steve Balmer out to pasture, and then perhaps Microsoft can remake itself into a growing concern once more.
April 21st, 2011 at 11:36 am
I have held AAPL since they were $8 (split adjusted) and sold them all at $70 to claim the capital gains, then repurchased half at $50 and still hold them. I have never used any of their products.
Back in 1999, I used a Blackberry and I could not bring myself to buy their stock! Still can’t. I play music on my Motorola cell phone but would not touch their stock. I use Windows but do not want any MS stock.
When Apple had introduced iTunes, I was fairly confident that their success would drag along a lot of Mac use, and since Mac is expensive with high margins, I feel that it is still a good company to hold.
I also hold XOM so I view the inevitable Apple takeover of their position with mixed emotions.
April 21st, 2011 at 11:46 am
It struck me that Barry’s post was just a way to justify making all his Apple product purchases tax deductible as research for his investments.
BTW, disruption often comes from where no one is looking. Keep an eye on Amazon. It knows how to market. It has a good ecosystem. It has had a great cloud infrastructure for years, e.g. S3 on which many web sites are run. It just opened a curated Android App Store that is not the cesspool Google’s is. And its Cloud player for Android and browsers stole a march on everyone: very simple and ties into web storage of your media. Of course, Apple will have invented that in a few months :)
Word is Amazon is soon going to release an inexpensively priced tablet with ties into all of the above.
The danger to AAPl (the stock, not the products) is multple compression if it gets margin pressure. As is apparent here, Apple will always have fans who will buy its products, so its not going to be a Borders or B&N, but that doesn’t mean it can keep its lofty multiples.
~~~
BR: They are not deductible, they are purchased by the company!
April 21st, 2011 at 11:53 am
econominium says …
“Also remember if you’re a tech guy or a student you can’t really program on a Mac without running bootcamp, which is why my students never have a Macbook.”
Wow! I write code on all kinds of Macs without using boot camp. Both in the Xcode developer environment and just invoking the gcc compilers through the command line, although there are many other development environments available as well, with most of the linux tools having been ported to the Mac world. Could it be that you meant to write:
“Also remember if you’re a tech guy or a student you can’t really code Windows programs on a Mac without running bootcamp, which is why my students never have a Macbook.”
hmmmm?
And what’s with this? “…the more people use tablets, the less Macs will sell …”
Didn’t you read the earnings announcement? They had they best spring quarter EVER in Mac sales, at the same time that the iPad was putting some serious pressure on Windoze notebooks. The part of the Apple product universe that the iPad is cannibalizing is the iPod, by the looks of the sales numbers.
http://www.apple.com/pr/library/2011/04/20results.html
But you are correct — tablets will not replace notebooks — except for the huge majority of consumers who do not need or want the capabilities of a notebook. You’d be surprised how many “ordinary folks” look upon the lack of a multi-tasking windowed interface as a benefit, not a deficit. And for their usage profiles, it is.
April 21st, 2011 at 11:56 am
The thing about Apple is, the so called fanbois, many times are also often the most demanding critics. The Windows/Android is good enough crowd never get that. They call Apple users “Fanbois” or whatever but they don’t read the message boards where those same fans gripe and moan about the smallest of details.
Most Apple users are neither the fans hanging on every drop shadow or menu change they just want their email. They want easy to use browsing and not having a virus or a host of indecipherable pop-up menus.
Relatively speaking, Apple delivers.
Trading Apple is always a trial,.. but one worth the effort over the long haul.
Certainly, there are large concerns right now,… but they’re far more about the larger economy and the banks than Apple management. Apple gets the highest return on R&D that one could ask for.
How can I ask Apple to return the money when they can invest far better than I?
If you want income from Apple,.. write calls and hope they’re far enough out of the money. Be prepared for them not to be.
April 21st, 2011 at 12:04 pm
Mike in Nola says:
“… The danger to AAPL … is multple compression …”
Yessir, yessir! I’m expecting that when the stock market finally does return to reality-based pricing, the PE of AAPL will drop into the high ‘teens …
… but we could be waiting quite a while, perhaps until after the 2012 elections, for Reality to reassert itself.
Bernanke and the pols will move Heaven and Earth to keep the market floating along above our split-level society …
While we could see Apple gross margins decline into the 30s (perhaps even the low 30s, in the event of severe component price inflation), I think the real risk is from a general market collapse … of course, both events (a gross margin shrinkage and a stock market collapse) might be brought on by a sharp rise in commodity prices, due to weather, wars, money-printers around the globe, who knows?
But that is certainly the risk that all stocks face.
April 21st, 2011 at 12:10 pm
As far as the location data,.. if you are carrying a cell phone,.. you are being tracked,.. period.
April 21st, 2011 at 12:14 pm
@constantnormal, students don’t write code on a Mac. I don’t write code on a Mac because I don’t write for Mac environments. Some people do. They are the minority. Everyone, and I do mean that literally, I know uses bootcamp that chooses to use a Macbook (no one I know has an actual desktop Mac) and writes code using DevStudio (C++, C#, ASPX, and even php) because, well because DevStudio rocks. Period. Eclipse sucks as does Java unless you have to use it.
Comp Sci students are not taught to write in Mac environments or for a Mac. In fact we use Java for teaching, and C++ for harder classes. So anyone that has a Mac installs bootcamp and then also uses DevStudio that the Univerity gives them for practically nothing.
So you’re in the minority, sorry there. I’m also a CTO, and there is nary a Mac in over 100 software developers, and we use a combination of environments for a SaaS-based product. Corporately we do not support Macs. But if we go to write an App, we’ll certainly contract out :) Oh and my creative folks are now mostly PC also since most of the programs are just as good, if not better, on a Windows machine now and the machines are cheaper. So there’s my East Coast mileage :)
April 21st, 2011 at 12:33 pm
The question is whether smarttech is all going the way of commoditization and whether people are more willing to pay for function or fashion. The kids want fashion but can afford function. The adults can afford fashion but usually want function
I just had to replace my last laptop and went for one of the lowest end ones I could find as a bit of an experiment. I am trying to determine how close the average computer is to high function commoditization. How close are we to picking up any old computer like we picked up any old telephone at the store just a few decades ago? I’m pretty sure we’re closer than AAPL investors are willing to admit
April 21st, 2011 at 12:34 pm
Mark Hoffer Re police probing of cell phones
Courts require warrants for cell records but what if a cop pulls you over for whatever reason (maybe to smell your breath) sees the cell phone and says he saw you talking on the cell and if you don’t let him verify you weren’t on the phone he’ll ticket you for using the cell while driving or impound the car and contents including the cell. You allow him to do that and give up your rights to demand a warrant to prevent unjust search (& seizure), He dumps all your data and they find a text message about pot, or Cuban cigars and…
“The MSP only uses the DEDs if a search warrant is obtained OR if the person possessing the mobile device gives consent,” it said in a statement. “The DEDs are not being used to extract citizens’ personal information during routine traffic stops.”
As for secret collection of data, the police said, “The MSP does not possess DEDs that can extract data without the officer actually POSSESSING the owner’s mobile device.
Read more: http://news.cnet.com/8301-1009_3-20055961-83.html#ixzz1KATHIbEj
April 21st, 2011 at 1:00 pm
[...] you trade Apple stock without using the products? (Big Picture, Globe [...]
April 21st, 2011 at 1:35 pm
Haven’t posted for a long time…. Hi Barry!
I’ve never owned one of those new-fangled Aaple products. My stepkids had those ipods when they were little and my wife had one too for working out at the club. Then my older brother received one of those ipad tablets for Xmas 2009 from his son and i thought it was pretty neat! This is what I liked… you could subscribe to the NT Times and have it fill the pad and read it just like an electronic newpaper! (Meaning… make it display vertically by hitting a button. Cool.)
So I started buying Aaple in early 2010 and got up to a thousand shares by Q2 2010.
Now I can buy a truckload of them ipads with the profits.
I’ve taken half my position off though in the past two months… but i still think this stock is a winner.
Majority of people arrive late to any party.
April 21st, 2011 at 2:10 pm
I’m a non Apple user and investor. I was valuing the company between 400 and 450 BEFORE the results yesterday. I’m a strong believer in a two year run ahead. (I wish I sold those naked 300 puts last week.)
Facts,
1) Macs cost more, do the same. I owned a iMac G4 and laptop about 5 years ago. It was more elegant the windows, but no more productive and almost 40% more total cost if you factor in warranties (which are essential with all the Apple hardware failures) and accessories (battery replacement, camera connectors for iPad, etc.) Bottom line, windows is a more useful product and much cheaper.
2) iOS less functional then android, costs more. Mom just bought me an iPad2. I also own a high end Android phone (v2.2). Android is an order of magnitude more functional than iOS. iOS has no widgets (like sooo 2009), no universal back button (once you use it, not having it is like not having a mouse), long press to menus, long press to switch apps. And it goes on and on. I can’t wait for a gingerbread or chrome tablet!!!
Apples magic is product design, branding and marketing, not better mousetraps.
April 21st, 2011 at 4:26 pm
Interesting question. I own a MacBook, an iphone4, a first gen ipod and an ipod touch, and have a non-US perspective to add here from having lived in India most of my life and now in Thailand. The willingness for consumers to upgrade to the latest version ( happy iphone3 owners trading up, or ipad 1st gen to ipad2 ) and pay very high prices for the privilege is something i began to appreciate only after having personal experience with the products in question. And in these geographies, Apple has barely even begun to scratch the surface.
As others have pointed out, whether you believe it’s ”magic” or not, actually using Apple products has to be a plus. Browsing the AppStore and installing apps has to be the only way to judge the network effect of the entire app ecosystem that’s growing daily.
And, while the media likes playing up ‘negative’ stories, consumers don’t seem to care one bit. I can’t think of any other product that had such a high-profile quality issue as the iphone 4′s ‘Antennagate’ and yet have waiting lists in Thailand, Hong Kong and Vietnam. It really is more nuanced than just a tech thing with Apple – it has an added sex-appeal like designer wear. All its competitors can be viewed through the tech prism, but there is an added element when it comes to Apple that can only be understood by sucking it and seeing.
How do you spell fanboi ?
April 21st, 2011 at 6:01 pm
Disposable tech for a disposable society….
April 21st, 2011 at 6:29 pm
@kcowan Says:
“I have held AAPL since they were $8 (split adjusted) and sold them all at $70 to claim the capital gains, then repurchased half at $50 and still hold them. I have never used any of their products.
Back in 1999, I used a Blackberry and I could not bring myself to buy their stock! Still can’t. I play music on my Motorola cell phone but would not touch their stock. I use Windows but do not want any MS stock.
When Apple had introduced iTunes, I was fairly confident that their success would drag along a lot of Mac use, and since Mac is expensive with high margins, I feel that it is still a good company to hold.”
An un-emotionaly invested speculator! Excellent.
So you’re sitting on a 7-bagger with $50 Mapple shares. (btw, don’t you ever trail out some of that gain..EVER? You’re name isn’t Jack Boggle is it?) If you sold at $70 when you hopped aboard at $8 are you now waiting for our fiddy’s to go to $437?
April 21st, 2011 at 7:00 pm
@econimonium Says:
> Comp Sci students are not taught to write in Mac environments or for a
> Mac. In fact we use Java for teaching, and C++ for harder classes. So
> anyone that has a Mac installs bootcamp and then also uses DevStudio
> that the Univerity gives them for practically nothing.
Or they could use Xcode, which is free from Apple and a darned good IDE. It’s not like ComSci students are working with OS frameworks much, so it doesn’t really mater what they are compiling in.
Not sure why if they wanted a different environment they wouldn’t use a virtual machine via VMware/Parallels/VirtualBox, but to each his own.
What you seem to be completely unaware of though is the huge popularity of OSX for development in the webdev community. Of course that internet thingy is probably just a fad.
April 21st, 2011 at 9:39 pm
rockedbottom makes an excellent point. Apple’s global market is mostly untapped. The growth will continue for a good while still.
And even tho Apples product leads will shorten considerably (think 3 years from iPhone to Android, now less then 1 year from iPad to Android Gingerbread tablet), and their margins will shrink, the top line growth should easily make up for it all.
The contrarian view – iPhone to Android took three years. In less then 1 year iPads competition will include good tablets from Motorola, Blackberry, Acer, Hewlett Packard and many others. Some will be cheap crap, but already the Xoom and Blackberry reviews say they are as good as iOS minus the apps, and like I said above Android 2.2 is already superior to iOS, so 2.3 designed for a tablet will surely be good (Google writes good software). And don’t forget the rumored Chrome tablet by Google.
But I’m staying long Apple, the top line driven by new global markets will hold off serious competition for at least two years (I hope), and keep EPS growth way above it’s p/e.
April 21st, 2011 at 11:21 pm
@econimonium Says:
> Comp Sci students are not taught to write in Mac environments or for a
> Mac. In fact we use Java for teaching, and C++ for harder classes. So
> anyone that has a Mac installs bootcamp and then also uses DevStudio
> that the Univerity gives them for practically nothing.
That’s just because in that environment the path of least resistance is to use whatever the instructor uses. Otherwise you end up with configuration differences, you can’t use IDE project skeletons the instructor provides, etc. It’s a hassle. It’s just easier for all concerned to use the same configuration.
You might well find that any computer science students who bother owning a Mac are doing Mac or iPhone development on their own time, in OS X, even if they use Windows in a VM or Boot Camp for classwork.
I work in a neuroscience lab at Harvard Medical School. We’re all Mac, apart from some PCs that come with specialized hardware like $100,000 128-channel direct neural interfaces. Our programming is in Objective-C, C++, Python, and Matlab. Our lab’s PI produced a Mac-only toolkit for doing similar research in visual attention, which is used by some other labs around the world. There’s another, newer, Mac-only toolkit coming out from a lab at MIT. That one has a C++ core, so eventually parts might move to other platforms, but as a practical matter it’s still running on OS X.
Aside from our lab, it seems that I see more Mac laptops on campus than Windows laptops.
April 22nd, 2011 at 5:46 am
I would say that to understand AAPL, or any other company, you MUST understand its target market, whether or not that is you. Then you can understand why it is successful, and where it is vulnerable. I was and am still excessively frugal, and bought the stock before I could see myself owning a Mac. However, I saw them catching on among others, and the advertising push to go mainstream with the iPod/iTunes halo. 6 months later the iPhone was announced, and since it came out I have been blown away. At the time I had a POS Windows phone that I liked as a phone and mp3 player but hated for everything else, but it was the best small pocketable device I saw. The iPhone was lightyears ahead, and I ponied up after watching my girlfriend use hers for a couple months. I bought the 3G and 4 too, and they’ve been worth every penny. I also have bought a lot more AAPL. I know my judgement is affected because my multiple AAPL purchases will more than pay for a lifetime of Apple stuff, but I seriously love my iPhone and MacBook Pro, both functionally and aesthetically. I also am excited about the iPad 2 because I live on my iPhone (as I write this) and my eyes could use a break, so I will get one soon. Not sure I would spring for the 17″ MBP myself, but I am a software consultant and my company bought them for all of us. But again I am frugal.
In addition, to get a better understanding of their business, I read blogs, track trends, and watch the numbers. Apple has so much momentum (95% YoY profit growth!), plenty of room for growth globally, developer interest (all those apps in an ecosystem with paying customers), a growing base of very satisfied customers, and a low P/E (especially excluding their growing mound of cash). In this unstable global climate, it could be a rocky ride for AAPL. However, I think P/E can only compress so far before it has to spring back. At 95% growth, if it goes down from here, it’s going back up again.
Also, can someone comment on whether AAPL has a built-in dollar devaluation hedge? With 60% of its revenue from exports, a dollar devaluation would mean larger profits in dollars from exports to offset potentially higher cost of commodities and imports and loss of dollar value. Would it be reasonable to think this might break even approximately in terms of a basket of world currencies? I hope so, for obvious reasons.
April 22nd, 2011 at 6:54 am
I think the best critique of fanboyism culture in general was this article:
http://youarenotsosmart.com/2010/05/19/fanboyism-and-brand-loyalty/
The best gadgets I have used personally are from none of the big-name brands, but have filled the niche they were designed for, but I accept investmentwise aren’t going to attract that global audience.
April 22nd, 2011 at 10:42 am
There are still millions of people who do not use Apple products. Some just haven’t tried them. Others viscerally despise all things Apple. This varied population constitutes a steady supply of “shorts” to potentially fuel higher stock prices should Apple continue to expand the iUniverse.
Here’s a searing take on Steve Jobs’ monumental incompetence from a BusinessWeek article in 2001 (as highlighted by EE Times):
http://www.businessweek.com/magazine/content/01_21/b3733059.htm
The split-adjusted price of AAPL on the byline date was $11.78.
April 22nd, 2011 at 1:13 pm
@DC
Man I think you found a great addition to the wall of shame.
“Apple’s market share is a measly 2.8%. “Apple’s problem is it still believes the way to grow is serving caviar in a world that seems pretty content with cheese and crackers,” gripes former Chief Financial Officer Joseph Graziano.
Rather than unveil a Velveeta Mac, Jobs thinks he can do a better job than experienced retailers at moving the beluga. Problem is, the numbers don’t add up. Given the decision to set up shop in high-rent districts in Manhattan, Boston, Chicago, and Jobs’s hometown of Palo Alto, Calif., the leases for Apple’s stores could cost $1.2 million a year each, says David A. Goldstein, president of researcher Channel Marketing Corp. Since PC retailing gross margins are normally 10% or less, Apple would have to sell $12 million a year per store to pay for the space. Gateway does about $8 million annually at each of its Country Stores. Then there’s the cost of construction, hiring experienced staff. “I give them two years before they’re turning out the lights on a very painful and expensive mistake,” says Goldstein.”
April 23rd, 2011 at 10:10 am
I didn’t read ever single post so there could be some repeat material here:
1) Can you invest in AAPL without being aware of the population that will never buy an AAPL product because they can’t stand the crowd that goes gaga over their product’s “magic”
2) Isn’t the buy what you know phrase cited as one of the most misleading pieces of investment advice from that era