The Motley Fool asks if investors should really be so bullish on Apple Computer?

“This year has been very good for Apple. The stock jumped to a four-year high in November after a Wall Street firm doubled its price target from $52 to $100. Absent any sales update from the company since the last earnings report, this Fool wondered about the substance behind such a bullish price forecast,” Kelvin Taylor writes for The Motley Fool.

“However, that success has yet to cause a surge in sales of Apple computers. In fact the company is selling more music players than its signature Macintosh computers, for which demand has been slowing. According to a report out by Merrill Lynch, PC unit growth will likely peak in 2004, with yearly revenue growth expected to slow from 6% to only 2% over the next two years. Compared to other computer makers, Apple had a 4% decline in unit sales worldwide from the previous quarter while its competitors gained an average 14%,” Taylor writes. “No other home computer vendor in the top 10 posted a decline in year-over-year unit growth worldwide except Apple. The one bright spot was the 74% rise in unit sales of the iBook… So is Apple really worth more? Let’s take a look and see.”

Taylor then looks at selected Apple technicals and concludes, “There is no question Apple has a strong product line with the iPod and is poised for solid growth. Yet Foolish investors need to consider entire product line and not just one or two hot-selling items. The continued exponential growth of the wildly popular music player is questionable in my book. With competing players being introduced at a rapid pace, the iPod’s market share could fall, and with it Apple’s stock price.”

Full article here.

17 Comments

  1. Why a dumbass ?

    Who’s going to buy iPods when everyone has one ?

    I don’t believe that Apple can hold the market long term. Maybe another two or three years. There will be viable competitors in that time.

    Long term, Apple need to start shifting macs in quantity. That might not happen because people will probably continue to be stupid and buy windows machines.

    Macs have had an edge for a long time. With OS-X, and with windows security issues, it’s not just an edge at the moment, it should translate to a bloody machete with which to butcher M$. But people are still buying Dells and will probably continue to buy Dells.

    I agree it makes little sense, but it’s this sort of nonsense that you have to consider when investing, not how good Apple’s products are.

  2. How much of the decrease in computer sales were due to the speculation of 3g G5s? Apple consumers are a fickle bunch, who else would wait for months for the release of a new product.

  3. one thing to keep in mind with iPod is that it’s the mp3 player of choice – regardless of its ubiquity. unlike the cachet of designer brands, items, etc., its slightly higher cost, better quality, and ease of use – as well as iconic status, has made it long immune to the usual deflation of popularity. think of the Sony Walkman – it was ubiquitous, but that did not keep Sony from moving millions upon millions of them. the success of the iPod is precisely the kind that self-perpetuates, a boot-strap effect. again, don’t apply age old models to the iPod. for many first time buyers, the iPod is synonomous with portable digital players. the more there are, the more people want them, and the more there are. sure, you are thinking in terms of “early adopters” who sought out the iPod for specific reasons. but the millions of people buying the iPod now are obviously a different segment of the market. they are the followers, not the leaders, and most people are followers. think of the PC and Windoze. why buy something risky that costs so much and can break, etc…. because that’s what everyone has!

    new models, people. new models. Apple is doing precisely everything it should to keep its lead. anyone can say that “apple can’t keep its lead forever.” well, someone said that of Microsoft at some point, of Sony, of …. forever can still be 20 years. I don’t think Steve Jobs would complain about that.

    Buy stocks now!

  4. “Compared to other computer makers, Apple had a 4% decline in unit sales worldwide from the previous quarter while its competitors gained an average 14%”

    First, as was also reported, Apple’s supplies of G5 chips was constrained during the fourth quarter and they were essentially not selling the iMac G4. So a drop of 4% in Macintosh sales is sort of to be expected. Also, if you look at the year ago quarter, you’ll see Mac sales are up about 6%.

    If you look at the sales over the last few years, Mac sales are trending upwards. They got a huge boost in ’99 with the original iMac, then a precipitous drop in 2000. Since 2000, it’s been up, then down a little, then up, then down a little. Sort of a two steps forward, half a step back.

    Personally, I think lots of speculation of Apple is about the iPod “Halo Effect”. Since some research has shown that 6% of iPod buyers switch within the first year, that helps give a reading of how much you may see Mac sales increase.

  5. Basically they’re saying they don’t think Apple are going to do as well as the analysts suddenly think they will.

    Seeing as the analysts have been thinking that it’s been all over for Apple for the last 15 years, I think the Motley Fool have a point !

    They’re not attacking Apple, they’re attacking the analysts.

  6. Unfortunately, I agree with The Motley Fool. Apple needs to increase the Mac market share before I’d invest at the current price.

    Like the PDA market, newer models are high in cost and offer very little reason to upgrade. Even if Apple added every conceivable option to the iPod, I’ll still be happy with my 3G.

    The iPod is so close to perfect that it’s very hard to top itself with a new drop dead awesome product that everybody will upgrade to. Not only that, but a high percentage of iPods are purchased by parents for their kids so upgrade purchases will be less common.

  7. I’m still happy with my 1st gen iPod. I have 1302 songs on there (with room for maybe 50 more).

    That’s nothing like my whole library, but it’s enough to carry around and not get bored with the selection. Still more capacity than a mini. The battery’s hanging in there too, so I have no need to upgrade. The iPod photo would be nice, but it’s not compelling enough. I’m not about to spend �500 on something that pretty much gives me exactly what I have at the moment apart from when I’m showing it off.

    I think airport express and a keyspan remote would definitely be higher on my list of wants.

  8. Hello, market share has very little to do with earnings! It’s earnings (and therefore, the resultant P/E ratio) that make the stock attractive to an investor. Apple could sell a million more computers per year and gain some marketshare, but if they don’t EARN profits on those sales, marketshare means squat.

    I own several hundred shares of Apple, and the Motley Fool guy is way off base. He’s arguing that you should take a look at the entire year, and then proceeds not to do that. iBook the only Mac line that increased in sales? HA! What a joke.

    Let’s look at unit sales in fiscal 2004 compared to 2003:

    2004 Unit Sales Compared to 2003
    ————————
    PowerMac: Up 6%
    PowerBook sales: Up 30%
    iMac: Down 16%
    iBook: Up 36%
    iPod: Up 370%

    iMac was the big drag because Apple stopped selling the machine for more than a month due to the bad transition from iMac G4 to iMac G5. If it weren’t for that, iMac sales would also have increased. Unit sales for all Mac lines are UP – way UP for everything in 2004 compared to 2003, and 2005 looks like it’ll be better than 2004.

    The picture looks similarly great when you look at revenues.

    2004 Net Sales Compared to 2003
    ————————
    PowerMac: Up 15%
    PowerBook sales: Up 22%
    iMac: Down 23%
    iBook: Up 34%
    iPod: Up 279%
    Other Music Products: Up 679%
    Peripherals and Other Hardware: Up 38%
    Software: Up 39%
    Services and other sales: Up 13%

    If you actually did run the numbers, you’d realize two things.

    1) Marketshare means squat because lo and behold, Apple is making tons of money REGARDLESS of marketshare. Don’t trot out “marketshare” like a lot of so-called analysts do because you think it makes you sound intelligent.

    2) Mac sales are INCREASING, by unit and by revnue.

    3) iPod sales are EXPLODING, by unit and by revenue.

    4) The biggest mistake analyst make is assuming that Apple has suddenly stopped innovating, just because THEY can’t imagine the next big thing after iPod.

    Take a look at projected 2005 earnings, and AAPL actually is a good deal. This is not just an unsupported statement.

    http://finance.yahoo.com/q/ks?s=AAPL

    Trailing P/E ratio: 94.02 (very expensive stock)
    Forward P/E ratio: 37.03 (i.e. everyone is expecting Apple to earn more than twice as much in income in 2005 than in 2004).

    Looks like AAPL is a good buy to me.

  9. Market share is very important. If Apple’s market share continues to drop, third-party developers will disappear.

    Look at the children’s games market. When Apple was the #1 computer maker, all children’s games were available for Mac. As market share decreased, hybrid CD’s became the norm. Today, a large percentage of children’s games are available as PC only. Don’t give me the line that most children’s games are available online. They aren’t.

    My 12 year old and his friends don’t care about malware or crappy operating systems. All they care about is games. If the choice were his, we’d have a piece of sh*t beige box with a bug-ridden OS in his room.

    There are many more third-party markets to explore. This is just one glaring example.

  10. ‘one or two hot selling items’.. like..

    windows?

    lol

    most people are sitting on Windows xp and Office 98 haha

    MS is desperately trying to convince people to upgrade but to no avail.. pffft

  11. “If Apple’s market share continues to drop, third-party developers will disappear.”

    I’ve heard this bug-a-boo before, but I’m not sure I agree.

    First off, I’d point out that the top software companies don’t seem to have a problem with the Mac’s market-share. Forbes 500 companies like IBM, Microsoft, Oracle, Computer Associates, Intuit, Adobe, and Symantec all develop Macintosh versions of some of their software–where they can make money doing so. In fact, 7 of the top 10 software companies on the Forbes 500 do Mac development. Needless to say, the ones at the bottom do not. Do we see a pattern?

    Take an example: IBM has Lotus Notes for Macintosh. Why? Because there are companies out there that are looking for the functionality of Lotus Notes for both PC and Macintosh. While they certainly don’t sell as many Macintosh installations as PC installations, they’d probably lose quite a few of their “Mac & PC installations” if they dropped it. As one IT manager put it, having a Mac version is a feature of the PC version.

    I will grant you the games issue. This is difficult because “good games” usually require intimate knowledge of the hardware and speed is important. Creating a Mac version of the game, therefore, is far more difficult due to design considerations that may be platform-induced. For example, if you use Microsoft DirectX APIs, the easiest way to port the game to the Mac is to use some kind of DirectX->OpenGL wrapper, which will slow things down. If it slows things down too much, the game is unplayable.

    That said, companies–at least the smart ones–will look at the marketshare and installed-base of machines in their intended market. While Apple may not have a large market share, a good number of Macs go into the home. I’ve seen estimates of Apple’s installed based in the consumer market to be about 10%. After all, your game isn’t going to be used on the PCs running ATMs, Cash Registers, Info Kiosks, etc.

    As an aside, I do think game companies are missing out by skipping the Mac market. One of the toughest things to do is generate buzz for your game and your company. A little company named Bungie, rather than screaming into the hurricane that is PC gaming, went around it and developed games for the Macintosh. This gave them the buzz they were looking for. After all, it’s tough to get PC reviewers to look at your game with any depth when they receive 100 games a month to review. After a couple of years of this, people had heard of Bungie so when they did the PC version of Marathon, it was easier to get reviewers to look at it. Of course, now they’re Microsoft Game Studios or something like that.

  12. “I’ve heard this bug-a-boo before, but I’m not sure I agree.”

    Exactly. Apple makes $10 BILLION dollars a year and in 2005, it looks like it will probably hit $12 BILLION. Only a fool would write off a tapping into that market because “it only represent 2% of the total market.” As a percentage of the total market, Apple may not be big, but that does not mean there isn’t plenty of money to be made.

    And this is where the marketshare droids have it wrong. It isn’t “marketshare” that determines how many developers Apple has or not, it is actually “the ability to make money.” As long as developers – whether it’s Adobe or Microsoft or a small developer like Delicious Software – continue to be able to make a substantial amount of money, Apple will be fine.

    And speaking of developers, Apple has something like 3 times as many active developers today than it did 3 years ago. So what is happening here? I thought lower marketshare meant few developers?

    Wrong! Lower marketshare MAY mean fewer developers, but in Apple’s case, the Mac platform has been growing fast enough that more and more developers are being attracted to the platform. Many of these developers don’t give a squat that the Mac marketshare is 1% or 5% or 10%. All they care is whether they can make $1 million in profit writing a piece of software or $100 million, or whether any effort doing Mac software will cause them to lose money. Developers follow the money, not marketshare.

  13. Peter and New Type,
    I understand exactly what you’re saying but you have missed an important prepositional phrase in my comment. I said “if their market share continues to decline.” I should have added, “it could eventually get to a point where developers will disappear.”

    One question. Do you think Apple would have better quality software if their market share was 20%. I do.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.