Has Apple Had Its Run?
Even with the first quarter pull-back in Apple's (NASD:AAPL) stock, the company carries a rich price tag. The company has a market capitalization that is 3.1 times revenue. Dell (DELL) is at 1.3 times and Hewlett-Packard (NYSE:HPQ) at 1.1. Now, as Babe Ruth said when he was asked why he made more than the President of the United States, his answer was that he had a better year.
Can Apple keep it up and get back to $86? I doubt it. Since the company announced its fiscal first quarter results on January 18, a lot has happened. Success breeds competition, and in 2006, Apple will have plenty, particularly for its iPod and iTune products.
Nokia (NYSE:NOK) has announced that it is working on a cellphone that plays 50 hours of music on a single charge using a new chip from NEC (NASD:NIPNY). MTV and Microsoft (NASD:MSFT) are opening the new Urge music store. Amazon (NASD:AMZN) has announced a new music download service. AOL has launched new video and audio initiatives that offer a great deal of content for free, which could take business from paid services like Apple's. And, of course, Sony (NYSE:SNE) knows that if they cannot take a large piece of the portable audio and video markets, you can put a fork in them.
This does not even take into account the scores of competing products and services from companies as diverse as RealNetworks (NASD:RNWK)Rhapsody and SlingMedia which makes a product that allows you to take your home TV signal with you anywhere in the world.
Apple cut prices on some products in Q1 05 including the iPod Nano. No company wants to cut prices on popular products, so one has to wonder what pressure may have caused them to employ this tactic.
It is hard to fault what Apple has done so far. The quarter ending December 31, 2005 was a record all the way around. Revenue rose to $5.75 billion from $3.49 billion a year earlier. Net profit rose to $565 million from $295 million in fiscal Q1 04. iPod sales were up 207% over the same period the year before and iMac sales rose 20%. The company now sits on over $8 billion in cash and short term investments.
But, iPod growth has to slow, both because many people who want one now have one, and because competing products coming to market will take some share. There are now over 40 million iPods in the marketplace, and that is a lot.
Needham & Co. analyst Charles Wolf recently said he believes the Mac's share of total market could rise to 9%. IDC (www.idc.com) says that there were 206.8 million PCs sold worldwide in 2005. There were 4.7 million Macs sold. That's 2.28% of the market. The glow from the iPod is only going to do so much to get people to leave their PCs behind. With Acer and Lenovo pushing into the U.S. market to join juggernauts like Dell and HP, and the perceived interoperability advantages of the PC platform, the fight for share is going to be a bloody one.
Apple will continue to do very well. Will it enjoy the kind of growth it since 2003? Even Babe Ruth's run ended at some point.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard which, at the time, was the 10th most visited site on the internet. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc., and has, in the past, served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.
Even with the first quarter pull-back in Apple's (NASD:AAPL) stock, the company carries a rich price tag. The company has a market capitalization that is 3.1 times revenue. Dell (DELL) is at 1.3 times and Hewlett-Packard (NYSE:HPQ) at 1.1. Now, as Babe Ruth said when he was asked why he made more than the President of the United States, his answer was that he had a better year.
Can Apple keep it up and get back to $86? I doubt it. Since the company announced its fiscal first quarter results on January 18, a lot has happened. Success breeds competition, and in 2006, Apple will have plenty, particularly for its iPod and iTune products.
Nokia (NYSE:NOK) has announced that it is working on a cellphone that plays 50 hours of music on a single charge using a new chip from NEC (NASD:NIPNY). MTV and Microsoft (NASD:MSFT) are opening the new Urge music store. Amazon (NASD:AMZN) has announced a new music download service. AOL has launched new video and audio initiatives that offer a great deal of content for free, which could take business from paid services like Apple's. And, of course, Sony (NYSE:SNE) knows that if they cannot take a large piece of the portable audio and video markets, you can put a fork in them.
This does not even take into account the scores of competing products and services from companies as diverse as RealNetworks (NASD:RNWK)Rhapsody and SlingMedia which makes a product that allows you to take your home TV signal with you anywhere in the world.
Apple cut prices on some products in Q1 05 including the iPod Nano. No company wants to cut prices on popular products, so one has to wonder what pressure may have caused them to employ this tactic.
It is hard to fault what Apple has done so far. The quarter ending December 31, 2005 was a record all the way around. Revenue rose to $5.75 billion from $3.49 billion a year earlier. Net profit rose to $565 million from $295 million in fiscal Q1 04. iPod sales were up 207% over the same period the year before and iMac sales rose 20%. The company now sits on over $8 billion in cash and short term investments.
But, iPod growth has to slow, both because many people who want one now have one, and because competing products coming to market will take some share. There are now over 40 million iPods in the marketplace, and that is a lot.
Needham & Co. analyst Charles Wolf recently said he believes the Mac's share of total market could rise to 9%. IDC (www.idc.com) says that there were 206.8 million PCs sold worldwide in 2005. There were 4.7 million Macs sold. That's 2.28% of the market. The glow from the iPod is only going to do so much to get people to leave their PCs behind. With Acer and Lenovo pushing into the U.S. market to join juggernauts like Dell and HP, and the perceived interoperability advantages of the PC platform, the fight for share is going to be a bloody one.
Apple will continue to do very well. Will it enjoy the kind of growth it since 2003? Even Babe Ruth's run ended at some point.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard which, at the time, was the 10th most visited site on the internet. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc., and has, in the past, served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.
posted by douglas mcintyre at 9:01 AM
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