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How big will Apple get?

  • Apple market cap nearing $700bn
  • Court victory over Samsung sends stock soaring
  • Where to from here?
Written by Adam Wajnberg
28/08/2012

On news that it won $1bn USD in damages from Samsung this week, Apple’s stock soared by nearly $12 per share, inflating the most valuable company of all time by a further $10bn and bringing its market capitalization value to about $675 billion. The next iPhone is believed to be on slate for release in just two weeks, and will be the biggest electronics product launch of all time. What are the unique circumstances in Apple’s meteoric recent rise, and just how big will this behemoth get?

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                  apple

 

 

Market cap

Apple’s valuation seems odd for a company with a product line that can fit on a banquet table. Apple owns no massive land holdings, no mines, no oilfields and no farmland. They make a small line of expensive, design-heavy consumer gadgets and computers. They also operate a software and media ecosystem that seems to act as a perpetual money making machine, despite offering a ridiculous amount of free, high quality content.

They do own a retail store network of about 380 outlets across 33 countries, so there’s some real estate there. And this real estate turns out over $3000 per square metre, double that of the 2nd place challenger, Tiffany’s and Co., which sells sparkly rocks that can’t even send a text message.

Besides that, they have no debt, more liquid cash than anyone else (including, from time to time, the US Federal Reserve) and a fervent fan base. Even in the light of suicides at their draconian Chinese manufacturing partner’s facility, Apple can be said to levy a relatively small impact on the health and environment of the human race, especially when compared to ExxonMobil, the oil giant with whom they jockey for ‘World’s Richest Company’ status.

Their $675bn market cap represents the worth of their patents, production facilities and business model, and even then it might be underpriced. For the last 10 quarters, Apple has spit out profits (not revenue) in the tens of billions. That’s profits, not just speculation on stock – this is one of the few American firms left that buys raw materials, applies meticulous design in both hardware and software, and shapes it into something that sells for 5-10 times what the components cost (albeit with foreign workers).

Sore thumb

                     think different

On that last point, Apple is particularly noteworthy. The US is still up there with China, Germany and Japan as one of the world’s largest manufacturers of goods, but with the formula of selling a handful of items that costs millions of dollars, rather than millions of things that cost a few dollars. The US is still a leading manufacturer of chemicals, white goods, bicycles, cars, aerospace, weapons and heavy plant equipment. But consumer electronics are a different beast – they’re intimate, personal and put company branding right in the hand and pocket of the end consumer.

The only company to reach these lofty heights has been Microsoft, which briefly touched the mid $600bn mark in the late 90’s. Microsoft’s product line was even more ethereal than Apple’s – just software, with maybe a couple of mice and keyboards for good measure. They left the messy business of putting computers together to everyone else.

Microsoft looked like the future for American business – and indeed for businesses all over the western world. Leave the messy business to poorer countries with cheap labour- meanwhile, the rich world will be lean, mean, patent owning machines. Apple stuck out for their commitment to integrating their software and hardware, limiting their ability to appear on every cheap plastic device in the world. Now they stick out like a sore thumb for their burgeoning balance sheet and do-no-wrong aura.

Next iPhone

 

                    next iphone iphone 5

Each successive iPhone launch has been more hotly anticipated than the last, and the first one was nuts enough. But this year’s release represents the first major upgrade in 2 years (the 4S did little to expand upon the iPhone 4), and it’s the first release that will serve as a response to some real competition – Samsung has emerged in the last 12 months as the world’s largest shipper of smartphones; HTC is pulling themselves up from a bad year, Nokia is making a play as the manufacturer-of-choice for Windows Phone handsets, and even Sony and LG still…well, never mind Sony and LG. The point is, the next iPhone launch will represent the first time since 2007 where Apple actually has to impress.

And so far, the early buzz is that Apple will actually be playing catch up. iOS 6, the next version of the iPhone and iPad operating system, is already in the wild. It offers several novel upgrades, but nothing ground breaking. The leaked shots of the hardware have been similarly yawn inducing, with a longer screen, 4G access and a few other bits and pieces added in. It’s hard to imagine what Apple could do to revolutionize the game again and offer something original, but when you’ve built an empire on innovation, this is what’s expected of you.

Patently ridiculous

apple vs samsung

Which brings us to this week’s decision. Samsung was ruled to have transgressed US patent laws on a host of features, which resulted in a $1bn judgement (itemized by supposed lost revenue to Apple, broken down by individual handset) and a request to ban the sale of 8 different Samsung handsets in the US. Putting aside how ridiculous patent law looks to us normal citizens, Apple at least had the good sense to specify particular handsets that actually do look a lot like iPhones. Recent Samsung winners, like the galaxy S3 and Galaxy Note, were left unscatched. Apple may have done Samsung a favour – their pace of release is a little noisy, with a lot of dross bulking out a product line that could be limited to about 3 handsets- Cheap (Samsung Galaxy Ace), Premiere (Galaxy S3) and 'Whackadoo" (Galaxy Note).

The benefit to all of us might be a few less black rectangles in each shop, which often do more to confuse than offer choice. It also might force manufacturers to spend a little more time and effort in design and development, to make something more than an iPhone with lots of extra features that detract rather than add to the experience.

How big is big?

 

     apple stock soaring

Can Apple become the first trillion dollar company? They certainly have the momentum. Their long game could be to restrict Android (the Google made free operating system running on most smartphones) in such a way that people eventually migrate to iOS after becoming frustrated. That seems unlikely – Google is run by very smart and talented people, and has already started moving away from Apple and their design ethos, for the better. If anything, the momentum to put a phone in every hand is in Android’s court – even though they make far less money on each user, they’re gaining more ‘space’ in customer’s lives.

Apple is expected to make a big play into TV soon, expanding on their nice-but-limited Apple TV media player, to making full TVs with integrated software. A quick use of any current Smart TV (even the nice ones made by Samsung and Sony) will demonstrate that there’s fertile ground for someone to come along and make it all work nicely – most Smart TV systems are complete rubbish.

There’s a view that TV is a losing business anyway, with online content continuously chipping away at traditional broadcast models. But this misses the fact that a lot of online content is also rubbish- TV and Cable networks still have years of know-how when it comes to production, and in fact we’re in something of a Golden Age when it comes to providing brilliant content – think specifically of drama and comedy from the likes of HBO, AMC and Showtime. Sports broadcasting, always technically ahead of the game, has never been capable of bringing viewers closer to the action; the only content model really suffering around the world is News, thanks to the ubiquity of news content on the internet.

Apple has the money and tailored approach that might be best suited to running a studio. They’ve mostly been about music in the past, but Video content is a bigger driver for most, and Apple might be getting fed up dealing with the panicky demands of traditional broadcasters clinging to a model that is becoming increasingly irrelevant.

Aside from that, it’s hard to see where Apple can go next to get bigger- or even if they have to. Their model is surprisingly old-fashioned: no leveraged buy outs, no financial shenanigans, just good old design, engineering, manufacturing and retailing. As long as they do that better than everyone else, the sky is the limit.

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