Apple stock tops $500 for all-time record high

Tim Cook gives superb performance, incredibly bullish outlook at Goldman Tech Conference

"I’m in the camp that believes Apple will become the world’s first trillion dollar company."

Yesterday we had the pleasure of listening to Tim Cook deliver a superb presentation to a group of institutional investors at the Goldman Sachs Technology and Internet conference in San Francisco.

I guess when you’re Goldman and you host your conference an easy drive from Cupertino, there’s a pretty good chance you can snag an appearance from Apple’s CEO.

If you didn’t catch the whole presentation already, you can catch a replay at Apple’s website. The first several minutes are focused on the issue of underage labor at factories from Apple’s suppliers. Cook was convincing that Apple is on top of the situation, but it honestly doesn’t spark my interest too much as a tech geek and shareholder.

Before I dive into the bits I found most interesting, I need to say that Apple is obviously a well oiled machine when it comes to everything PR. And speaking to investors, while technically an IR (investor relations) role, is still just another form of PR. After all, these events are publicly broadcast due to regulation FD.

Tim Cook knew exactly what he wanted to say to the audience. I’m quite sure that the Goldman analyst’s questions were vetted by Apple ahead of time. It’s all about controlling the message. Apple did this with the precision of a trained sniper.

So let’s move onto the stuff that got me jazzed as a shareholder.

The Huge Opportunity Facing the iPhone

Yeah, Apple shipped 37 million iPhones last quarter. But Cook points out that this still only means Apple sold 1 out of 4 smartphones. And they sold only 1 out of 10 mobile phones.

Consider Cook’s comments that the smartphone market will expand to one billion units by 2015. That’s no so far away. If Apple hangs onto even 20% of this market, that’s 200 million units, or an average of 50 million per quarter. This is substantially more than the record 37 million unit quarter Apple just delivered.

Emerging markets are playing a huge roll. Cook talked about how China generated Apple only a few hundred millions of dollars in revenue a few years ago. But last year? 13 billion bucks! Kinda makes it all clear as to why Apple is so focused on China.

Cook also gave a great example of how Apple keeps operating along its “think different” mantra. The company believes that no matter where you are, people want the best products. So they convinced China Unicom to try a post-paid (contract) plan for the iPhone. The result? It worked in spades. Who knows if Apple can swing this with more carriers in more markets, but for all of us (me included) who thought the market was moving more towards pre-paid, maybe Apple is changing the game again?

Oh, and Cook believes that 25% of smartphone demand will come from China and Brazil by 2015. Apple has said before that it has started to focus more on the Brazilian market over the last year.

Will the Tablet Market Exceed the PC Market

One year ago, I wrote this blog post about how the tablet market would grow to be 400 million units, matching the then-size of the smartphone market.

Cook said that he thinks the tablet market will exceed the size of the PC market. His reasons for stating this line up really well with what I published last February. And just for comparison, by 2015 the PC market is expected to be somewhere north of 500 million units. His prediction exceeds mine. Nice.

Apple only holds a single digit percentage of the PC market. But with tablets? They invented the space. They dominate the industry. Even with the momentum of Android, I’m going to throw out a broad range and say that Apple could hang onto 30-60% of the overall tablet market. That’s 150 to 300 million units if the market demand reaches 500 million.

For comparison, last quarter Apple sold 15 million units. Run rate that number and you get 60 million (and remember last quarter was a peak holiday quarter, so run rating it isn’t exactly fair to do quite yet).

If you believe the tablet market is growing like crazy and that Apple can keep up a reasonable market share, revenue is bound to go up, up, up.

Even with reasonable ASP (average selling price) declines on the product line, the future is looking very bright for Apple. With that kind of growth opportunity, I’m more than happy to see the iPad cannibalize some Mac sales.

More Hints about the TV Market

Tim’s comments here were very interesting. He said Apple doesn’t do hobbies. So why is Apple still calling the Apple TV a hobby? Well, Tim doesn’t think that it has the same kind of potential as the other legs of Apple’s stool (Mac, iPod, iPhone, iPad).

But he did tell us that Apple believed something would come of this market if they kept “pulling the string” and “following our intuition”.

Then he left us hanging, and they shifted the conversation to Siri and iCloud. Kind of interesting when you realize that these are two features that would make an entirely-Apple TV set a killer product. And let’s not forget that in the Steve Jobs biography, he said he felt they finally cracked the problem.

The TV is becoming a smart, connected device. Why shouldn’t Apple extend its dominance to this market? It’s just another device to interact with and connect to the iCloud.

If I were running Samsung’s TV business, I’d be crapping my pants in fearful anticipation of what Apple’s got planned.

Returning Cash to Shareholders

Cook came right out and said that Apple has more cash than it needs to run its business. It’s an extremely obvious statement, but when a CEO publicly admits this it all but guarantees they’ll be doing something about it.

Wall Street is expecting a buyback or dividend this year. I think we’ll see it. I hope we’ll see it. I don’t think Apple is getting the credit for its cash hoard in its stock price. But we have to wait and see. Cook is asking for investors to be patient so they can “do this in a very deliberate way and make the best decision for shareholders”.

Heading to a Trillion Dollar Market Cap?

Overall, I thought Tim Cook did an amazing job at the Goldman Sachs conference. His message was clear, strong, and believable.

I’m in the camp that believes Apple will become the world’s first trillion dollar company (by market capitalization).

Who’s with me?

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 13 comments. Add yours.

FlopTech says:

Re: "Yeah, Apple shipped 37 million iPhones last quarter. But Cook points out that this still only means Apple sold 1 out of 4 smartphones. And they sold only 1 out of 10 mobile phones."
This is one corporate trait that makes Apple so strong. They don't dwell. They don't wallow in success. They look forward to future opportunity and stay hungry.

FlopTech says:

Great writeup, by the way!

Martin says:

"The first several minutes are focused on the issue of underage labor at factories from Apple’s suppliers. Cook was convincing that Apple is on top of the situation, but it honestly doesn’t spark my interest too much as a tech geek and shareholder."
Child exploitation doesn't spark your interest too much?! You couldn't find a better example of why the US reputation around the world has deteriorated and why our corporate-run government can keep the 99% under the thumb of the 1%.
Very dissapointing.

taz says:

Some people just want what they want no matter the cost..

Martin says:

Yah, it seems the new motto for this web site is: "iMore or less care..."

Chris Umiastowski says:

Martin - I meant no disrespect by that part of the article, and I believe you are misinterpreting me (my fault).
I wrote:
"Cook was convincing that Apple is on top of the situation, but it honestly doesn’t spark my interest too much as a tech geek and shareholder."
Two things there:
1) Cook seems to show Apple is on top of the situation (which I believe)
2) I'm not that interested in talking about it AS A TECH GEEK AND SHAREHOLDER.
I could have done a better job wording it. Point is that from a Wall Street POV, it does not affect the stock. Apple talked about that stuff to improve public perception, which is smart. But I'm not going to over analyze it. I've never stepped foot into a Chinese factory. I haven't researched what's normal, what's not, what's considered acceptable and what's not. So given those personal limitations, I'm not gonna spend time on the topic in an article.
That's all I meant by it. Sorry if anyone was offended.

Chatnoir80 says:

I dunno man. You might wanna scratch that "not caring" line out of this post.

Juan says:

I like his comments about the work that needs to be done. I'm surprised there is no mention (at least in article) about his penetration in the markets they currently compete in.
ex 1 in 4 smartphones is a worldwide figure and iPhone currently isn't worldwide (yet)

dorkus maximus says:

Tim Cook covered a lot of territory. I'm not surprised that this article would have to leave some of it out. I'm sure the author is as concerned as most of us about what Apple is doing about worker conditions; but he can't cover it all or he'd just be printing a transcript of the Cook interview.
Tim Cook came across very well in the interview. It's still odd to hear someone else say the things we'd expect from Steve Jobs, but Tim sounded sincere when he said Apple didn't just want to sell product. Apple is still out to make a dent in the universe, and while I'm sorry Steve Jobs isn't there to help make that happen, I'm happy to hear Tim Cook say it's still what drives the company.

Rob White says:

So shareholders are going to keep waiting for being rewarded fire giving Apple interest free loans? I'm not seeing much reason to keep that stock in the portfolio.
A nice high price does nothing if it doesn't reward the buyer.

cardfan says:

I can't say i'm in agreement in wanting a cash dividend. I'm just fine with my apple stock appreciating and don't care to pay taxes on unwanted income. Besides, I trust Apple has it invested properly.
That kind of bothers me anyways that Cook would say they have too much cash. It's like saying their growth is behind them and they lack any future innovative vision. And without Jobs, that's the last message they should be sending.

Aaron says:

Re: child labor, if it doesn't "interest you as a tech geek or share holder" then briefly mention it and move on. Pointing out that it doesn't interest you makes you sound like a prick. I also disagree...as a shareholder myself, I think it's quite important.

cardfan says:

It doesn't interest me either. But I agree that i wouldn't have mentioned that part.