Apple’s enterprise value

Many investors are puzzled about Apple’s stock price growth. In effect, Apple’s stock price seems to be greatly lagging its earnings growth.  Horace Dediu, writing on his blog asymco.com, offers a possible explanation that makes sense to me. He believes that the market does not understand how Apple has produce and sold its blockbuster products, iPod, iPhone, iPad, over the past few years. Each of these products seemingly came out of nowhere.

A disruptive company is inherently unpredictable. Success and growth are unrewarded because there no understanding of the underlying causes of these phenomena and therefore there is no expectation of repetition.

The entire article is worth a careful read if you are an Apple investor.

Disclosure: I am long AAPL.

Apple: number 1 worldwide computer vendor

According to this report from Canalys, Apple is the number one vendor of personal computers in the world. It reaches that conclusion by including tablets as personal computers, which they most certainly are. PCs are PCs based on what they do, not on what they look like.

Canalys today announced that Apple, after reporting stellar results, became the leading worldwide client PC vendor in Q4 2011. Apple shipped over 15 million iPads and five million Macs, representing 17% of the total 120 million client PCs shipped globally in Q4. Overall, the total client PC market, including desktops, netbooks, notebooks, and pads grew 16% year-on-year. Excluding pads, the client PC market declined 0.4%. The floods in Thailand, that impacted hard drive assembly plants, caused mild disruption to shipments during the quarter, but the side effects are likely to be felt in the first half of 2012.

Among the other top five PC vendors, only Lenovo managed to increase its market share, by a relatively modest two points, compared to Apple’s six-point gain over the same quarter a year ago. Acer, Dell and HP – the hardest hit – all lost market share.  Now the second largest client PC vendor worldwide, HP will struggle to compete with Apple following the end of its Touchpad.

Welcome to the post-PC era.

Disclosure: I am long AAPL.

Apple’s 2011 Q4 success

Apple led the smartphone market in the fourth quarter after unveiling the iPhone 4S in October. Of the 9.4 million devices activated by AT&T Inc., the second-largest U.S. wireless carrier, 7.6 million were iPhones. Verizon Wireless, the largest provider, said 56 percent of its 7.7 million smartphones were iPhones. Samsung was No. 2 in shipments.

Apple sold a record 37 million iPhones globally in the three months ended Dec. 31, dispelling speculation that demand might be eroded by the dozens of devices using Google’s Android operating system. Instead, Apple’s dominance may serve as a signal that rivals such as HTC (2498) Corp. would do better to act like Hollywood studios, which hold back movies to avoid competing against the debut of a sure-bet blockbuster.

From Bloomberg.

Disclosure: I am long AAPL.

BSR claims inaccuracies in NYT reporting

Business for Social Responsibility, a non-profit group, has formally challenged certain portions of the New York Times articles focused on working conditions at factories in China producing products for Apple (and other firms).

BSR does not believe that Apple has consistently disregarded its advice.

  1. It is untrue that Apple has consistently disregarded advice that BSR has provided about problems related to working conditions in its supply chain.
  2. The account of the pilot project in south China omits and obscures key facts. Despite the publication of a report that has been in the public domain for several years, there are errors in how you present the project conducted under the auspices of the World Bank, BSR, and three other sponsors.
  3. Your attribution of several opinions about Apple to BSR misstates the views of the organization. In several places, you attribute certain opinions about Apple to an unnamed “BSR consultant,” despite the fact that this consultant is unnamed, and are not affiliated with BSR. Associating these views with BSR is a serious misrepresentation, and should be changed.

The narrative you present is an inaccurate picture of the work we have done with Apple, of the role Apple played in the worker hotline project, and of BSR’s views of Apple.

More detail is available in this letter from BSR to the NYT on January 17. (via AppleInsider)

Two years ago yesterday

Yesterday the second anniversary of the official Apple announcement of the iPad.

English: Apple iPad Event

Image via Wikipedia.

In honor of the event, I thought I would catalog a few of the tech critics’ initial reactions to the device:

Is that it then? A bloody great iPhone? If any newspaper publishers out hoped the iWhatsit would be the missing link between digital investment and reward, the sight of Steve Jobs lazily stroking his big touchscreen while muttering “awesome” and “incredible” and “wonderful” will have come as a blow.

Matt Kelly, digital content director, Mirror Group

I haven’t been this let down since Snooki hooked up with The Situation

Daniel Lyons

…, it’s hard to see how the iPad is really the no-brainer upgrade over everything else in the world the way that the iPhone was when it was announced. Yes, I’d rather own an iPad than, say, either the HP slate or the 10-inch Tegra 2- and Android-based tablet prototype that MSI showed at CES. But, at least in the case of the MSI tablet, I’d have to do a little more homework first before making a final decision.

It’s certainly true that with many of the items above, Apple’s implementation will be superior to the competition, and in some cases dramatically so. But there are also places where Apple’s iPad will be inferior, so the end result is that buyers will end up making a tradeoff based on the same kind of “what matters to me” feature grid that I’ve given above. I honestly wasn’t expecting to have to do that.

Jon Stokes, Deputy Editor, Ars Technica

I have a rather controversial opinion about the iPad itself. Simply put: I think it is the wrong device, at the wrong price, in the right space. At the end of the day, based on early reports I’ve seen/heard (which is limited, I must admit), the device is a big iTouch and a Kindle, all in one. But hold on a second! I already have an iTouch (it happens to be an iPhone), and I can buy a phenomenal eReader from Amazon (and soon, many others) for less than $300. And you still need a phone. So why would I pay $500+ for a device that is primarily different from my phone in that it’s an eReader?

The iPad looks to be a cool personal device that Apple is targeting at a very interesting space: the home. But the home doesn’t need another personal device. The home needs a device for the WHOLE FAMILY to use. The iPad as Apple appears to have positioned it, is not the right device for the whole family to use. It isn’t the device that I think will float around the home, being used by everyone. The home needs a family device that everyone can use. That device is not a big iTouch. It’s something else.

Apple took what I think was the easy road here, and I am betting their results will show it. They took their existing iPhone experience and dropped it on top of what appears to be just a big iTouch. And they built a new eReader application with a new eBook ecosystem. The are reacting to the Kindle phenomenon. But I don’t see this device as revolutionizing how people consume digital applications and content in the home.

Robbie Cape, CEO and founder, Cozi, Seattle

It’s a big iPod. That much is clear — it’s not really a tablet computer. Of course, the benefits of a giant iPod are manifest: you can check email easily, movies and shows will look nice (though not full HD), and the e-books looked great. But the fact is you’re limited by Apple in every way they can limit you. It’s got all the same fetters as an iPhone and has no expandable storage or USB port. Until you hack it to run Chrome OS, you’re going to be using this thing exactly the way Apple tells you to. It’ll be nice if that’s what you want, but it’s not the universal tablet I was hoping for. Nevertheless, I see every secretary and PA carrying one of these in a month.

Devin Coldeway, TechCruch

Apple CEO Steve Jobs trotted out on stage in San Francisco today, promising ‘a truly magical and revolutionary’ new product. He didn’t deliver. The Apple iPad, unveiled today, met base-level expectations — it’s a big iPhone. And to Apple’s credit, it’s cheaper than we thought, which will drive adoption. But Steve didn’t show off any must-have features or applications. And after seeing the iPad, we’re not nearly as impressed as we were after Jobs unveiled the iPhone three years ago.

Dan Frommer, Silicon Alley Insider

A lot of people are psyched about the iPad. Not me! My god, am I underwhelmed by it. It has some absolutely backbreaking failures that will make buying one the last thing I would want to do.

Adam Frucci, Gizmodo

On the other hand, nothing succeeds like success. Apple sold more than 14.7 million iPads in 2011.

Tim Cook on Apple’s China operations

Tim Cook sent an internal email yesterday to all Apple employees with a strong pushback against the series of articles recently published by the New York Times.

As a company and as individuals, we are defined by our values. Unfortunately some people are questioning Apple’s values today, and I’d like to address this with you directly. We care about every worker in our worldwide supply chain. Any accident is deeply troubling, and any issue with working conditions is cause for concern. Any suggestion that we don’t care is patently false and offensive to us. As you know better than anyone, accusations like these are contrary to our values. It’s not who we are.

You can read the entire email here.

iPhone beats Android

Apparently, Apple sold more iPhones in the final quarter of 2011 that the number of all Android phones sole in that period. Mainly, it was the popularity of the iPhone 4S that pushed the volume up.

Disclosure: I am long AAPL.

Apple’s performance

If ever there was a company operating at the edge of perfection it would be called Apple, based on its Q1 2012 performance reported by the company yesterday. To put the quarter in perspective, consider the following:

  • Apple’s sales for the quarter were 73% higher year-over-year, and profit more than doubled from $6.43 per share in the year ago quarter to $13.87 in the quarter just ended.
  • Apple’s profit for the quarter ($13.1 Billion) is higher than Google’s most recent quarterly revenue ($10.5 Billion).
  • Apple’s profit for the quarter was three times the profit earned by General Electric in the quarter ($4.1 Billion).
  • Apple’s cash and bond balances now total $97.6 Billion (of which $38 Billion was added in 2011). This amount is more than the market caps of all but 52 publicly traded corporations.  The cash/bond  hoard is worth $103 per Apple share.
  • Apple’s gross margin rose to 44.7% from 38.5% in the year ago quarter.
  • Apple’s quarterly performance was the fourth highest of any corporation ever. The other big quarters were primarily oil companies reporting during quarters of high oil costs.

The core of Apple’s stunning performance was the huge, blow-out sale numbers for the iPhone. This despite the fact that many tech “pundits” called the iPhone 4S a major disappointment.  The market results certainly belie that characterization.

Disclosure: I am long AAPL.

Nielsen: iPhone 4S generates “enormous impact”

According to a recent report from Nielsen, Apple’s launch of the iPhone 4S last fall has had an “enormous impact” on the smartphone market. Among other things, Apple’s share of recent smartphone purchases has increased tremendously each month in the fourth quarter of 2011, putting it within range of all the Android phones combined.

So, what about the “pundits” who claimed dissatisfaction with the iPhone 4S at launch? What about all the cries that it was “only” a 4S and not the much-rumored iPhone 5? The fact of the matter is that the iPhone 4S is the iPhone 5. The 4S is most certainly not a fall-back product created to disguise the lack of the iPhone 5. It is in fact the single best smartphone on the market and it is the largest selling smartphone model in the world.

By the way, the second largest selling smartphone in the world is the iPhone 4 and the third largest selling smartphone in the world is the iPhone 3GS.

And it may, or may not, be a coincidence, but Apple stock hit an all-time high today and is up further in after-hours trading.

Disclosure: I am long AAPL.

A history of computing platforms

Take a look at this video from Horace Deidu. It shows the number of units of various platforms shipped over time. It clearly shows the disruption caused by Apple and in particular its iOS devices.

The video is accompanied by a detailed article with charts that you can view here.

Disclosure: I am long AAPL.

Apple makes computers too

There is no doubt that iOS devices currently generate the bulk of Apple’s revenues and profits. As recently as one year ago, iOS-based products generated over 70% of Apple’s profits, and that share is almost certainly greatly increased by now.

But the overwhelming profits generated by iOS often seem to give rise to an impression that Apple’s computer sales are not significant.  This is not true.

According to Gartner, for the fourth quarter of calendar year 2011, while PC sales in the US fell 5.9%, Apple’s US personal computer sales were up 20% and making Apple the third largest seller of computers in the US, behind HP and Dell.

Here are Gartner’s numbers for the fourth quarter 2011:

Disclosure: I am long AAPL.