Just a few months ago, some analysts were projecting that Apple would soon reach $1,000 per share. Now they are saying Apple is in for big problems ahead including increased competition, lower profit margins, being forced into less expensive product introductions, and the challenges of maintaining high growth. Apples earnings report brought a traumatic price decline in the value of its stock. What a terrible quarter it was. Apple only sold 47.8 million iPhones and 22.9 million iPads. So little respect gets attached to this accomplishment. The combined sales of these two devices was approximately 786,000 per day or nearly 33,000 per hour. The way I think of that is that every hour Apple delivered 33,000 powerful computers with a sophisticated operating system so simple to operate that in a matter of minutes a new user was enjoying vast capabilities. The year was terrible also – only $160 billion in sales. That amounts to $438 million per day, $18 million per hour, or $304,000 per hour. I don’t think any company in the history of the world has had such a spectacular year.
But, what about next year and the years to follow? The challenges that analysts are talking about are real, but is it possible for Apple to continue to thrive and produce great things for consumers and for investors? Apple has a lot of competition with more to follow, but they have a very loyal and growing customer base. While there is increased competition, there is an increasing move away from PCs to tablets and smartphones. Even as Apple’s market share declines, their sales have plenty of room for growth. And, those desktop users who continue to need a desktop may increasingly select a MacBook Pro Retina or an iMac. The other factor that may not be baked into the analysts projections is the services revenue. All of the Apple devices make it very easy to purchase content and apps. The gross profit margin on one more song or app or book is 100%. The current Apple TV with the 3-button remote control, contrasted with the typical three remotes with 153 buttons shows the great potential to convert the TV business into something easy to use. There is a lot of resistance from operators and Hollywood, but Apple may figure out a way through the resistance.
The analysts will put numbers to all of these factors and reshape their forecasts. I cannot second guess them, but it seems to me that Apple may have reached the level where it is a bargain similar to what it was some years ago.