“The fashionable iPod has made Apple Computer beloved on Wall Street. But its success masks an erosion in the company’s profitability… The bulls hope that the introduction of Intel chips into Apple computers this year will drive Apple’s share of the personal computer market from its recent 2.5% back toward the 10% it enjoyed 15 years ago. Another hopeful thought: Because only 8% of U.S. households own an iPod, Apple can sell a lot more,” Michael K. Ozanian writes for Forbes. “But once you turn down the hosannas on the music player, you are left with a company with no hammerlock on the technology (Creative holds the patent to the interface for MP3 players) and no unique operational advantages (such as Dell’s made-to-order computers).”
Full article here.
MacDailyNews Take: While reading the full article, keep in mind that Ozanian shapes things in keeping with the overall theme of his article. For one example, just from the bit quoted above, note the “Creative holds the patent to the interface for MP3 players” statement. As analyst Roger Kay, president of Endpoint Technologies Associates, stated last month, “Getting a patent agency to say you have a patent is one thing, but getting a court to say that it is enforceable is something else.”
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Ok Steve (Forbes) you invest $1,000,000 in Dell shares and I’ll invest $1,000,000 in Apple shares.
Oh look, I just made $89,000 today while you lost $29,000.
I guess there’s a reason you never made it to Dubya’s seat.
Ozanian. Hmmmm. Isn’t he the lead singer of System of a Down???
“As a magazine Forbes sucks, Money and Fortune are much better. Forbes is a rah rah club for CEO’s and I’ve often found their economic predictions were flat out wrong, not surprising since they ran contrary to Money and Fortune.”
I agree. I’ve had a subscription with them on and off for years. About 6 months ago I let it lapse and have no desire to go back. Too much fluff, nothing enlightening, boring.
Pathetic perspective. It’s been interesting to see the naysayers appear over the past few weeks. Wonder who’s on Dell’s and MS payroll? A lot of agendas running in the press trying to make Apple seem like an illusion. Yet quality usually wins out over everything else. Time will tell.
Dell CEO put down Apple about a year ago, saying the success of the iPod was not sustainable. Since, Dell has been struggling while the non-sustainable iPod is redefining what it means to be a market leader.
3 percent market share today represents more numbers sold than 20 percent market share generated 15-20 years ago. With a bigger pie, it takes a lot of sales to jump 3 points, let alone 15.
Let’s see, what misakes can we find:
1) 46x trailing earnings.
Wrong, he writes just prior that Apple’s earnings “were $1.8 billion in the most recent fiscal year”. And, he writes that “Apple’s shares have climbed sixfold to $72”. Clearly he wrote this over a week ago; but if you put the shareprice that he cites with the earnings he cites, you get trailing earnings of 34x, not 46x.
One thing you have to do when writing articles with lots of numbers is to be consistent. If he’s going to cite earnings figs and shareprice figs, use them when he calculates his ratios.
Okay, the gist of his article is that Apple’s shareprice is “overripe” at 46x trailing earnings, but we already know that is tripe. Second, he attacks Apple’s gross margins, using estimates of what Apple’s gross margins from Munster. He asserts that since Apple’s iPod business is growing, and since the margin on an iPod is only 20%, that Apple gross margins will decline from 30%, which is what they earn on hardware.
Okay, this is problematic. We know historically Apple’s margins have been between 27 and 29%. In fact, during the iPod era, the margins have stayed in that range. Nothing indicates that iPod margins are 20%, except when Apple sold iPod thru HP. Perhaps, the Shuffle had margins around 20% when they were first sold, but not anymore, since flashmemory continues to drop in price, while the wholesale price on the shuffle stays the same. Essentially, this point is false too. Apple’s margins will stay within their historical norms.
3) The third big mistake is to look at R&D as a percent of sales! SALES have skyrocketed! Of course, R&D as a percentage have dropped! Duh! R&D is not dropping as an absolute value, it’s dropping as a percentage. This is just spreading FUD.
As an analyst of a single stock, I make a lot of money. That stock is AAPL. This author does not know what he’s talking about:
1. Apple sold 14 Million iPods this quarter. His statement that Apple is expected to sell 4 Million was obviously off by about 250%. He exposes his bias as well by using a figure quoted by only the most confirmed anti-Apple analysts. Apples own forecast was 9 Million.
2. He states that Apple has REDUCED its R&D budget from 8% of sales in 2003 to 4% in 2005. In fact there was no reduction in real dollars. Apple’s sales have increased more than 100% in the last 2 years, so R&D spending has actually increased by his own measurement.
3. He cites Neff’s “hold” recommendation in mid-December as proof of Apple’s decline. If you’d taken Neff’s advice not to buy in mid-December at $72 per share you’d have missed out on a $13 per share price increase over 30 days. That’s 18% over 30 days, or 216% annualized return. If he can’t recognize that Neff made a call that amounts to a monumental blunder then he’s really quite a fool.
4. As for Creative’s patent, when it gets to court Creative will discover that patents covering “prior art”, or things that are intuitively obvious are invalid.
To sum up, the man either has an anti-Apple agenda, in which case he’s simply a liar, or he believes what he’s putting out, which makes him monumentally stuoid. Take your pick.