Mike Trigg sat down with stock analyst Rod Bare to determine exactly where Morningstar disagrees with the market on the case of Apple Computer, Inc.
“Many people believe the disagreement among investors over the future of Apple deals with whether or not iPod sales will increase Mac adoption and increase the firm’s PC market share,” Mike Trigg writes for Morningstar. “But it actually boils down to whether or not the company can continue growing iPod sales over the next five years, which would be one of the most remarkable achievements in the history of consumer electronics. After all, they’re all toasters in the end!”
Trigg writes, “There are several trends that suggest iPod sales will slow in the future. Competition is growing and the early-adopter phase is coming to an end, which typically means that sales will be driven by replacement purchases (think cell phones). Also, it will only get more difficult to drive demand with incremental product improvements. Lastly, some think Apple is a margin-expansion story, but we’ve seen little evidence of this thus far. Even management continues to talk down the prospects of Apple meaningfully expanding margins beyond their current high-single-digit level. As a result, until we’re convinced that the market has it right, we’ll pass on Apple.”
Full article here.
There are so many assumptions and errors in common sense in the thinking behind this article! If Apple continues increasing Mac unit sales at the rate it has been, the iPod becomes less important than many seem to think it is right now. Also, after the “early-adopter” phase comes “mass-market adoption,” so Apple’s iPod sales have an excellent chance of continuing to increase dramatically.
This past weekend we met several people (ages 25-50) who were intrigued about Apple’s iPod, planned to buy one, but our iPod was the first one they had actually touched. These people don’t know much about digital music players, yet, but they all seemed to know one thing for sure: they’re going to buy an iPod. Not a “digital music player.” An iPod.
Just shy of twenty-two million iPods have been sold worldwide so far – now how many people that might eventually want an iPod and have the money to buy one live in the U.S. alone? In Japan? In the world? This iPod thing is just getting started and those already looking for some artificial end to Apple’s iPod run are looking for the wrong thing in the wrong place at the wrong time from the wrong company. We won’t even get into what iTunes will eventually bring in — hint: it isn’t going to be a “break-even” business forever. It’s already turning a slight profit according to Apple’s last conference call.
If you’re an Apple shareholder, you shouldn’t be worrying so much about iPod sales, but you should definitely be praying for Steve Jobs’ health and well-being and that he keeps on doing what he’s been doing for the last several years.