This week AAPL stock price crossed $100, which is equivalent to over $700 prior to the 7:1 stock split that happened earlier this year. This represents a record high. That makes Apple's market value $600 billion. (A company's market value is determined by multiplying the share price by the number of shares in existence.) I've been an Apple shareholder ever since the original iPhone launched. At the time I was working as a sell-side analyst in Toronto covering tech stocks such as Research In Motion (now renamed to BlackBerry). Even though I was totally wrong about how badly Apple (and Android) would destroy BlackBerry, I had a friend of mine, who was living in San Francisco, buy me an iPhone and Fedex it to me in Canada. Even being an EDGE device (i.e. prior to 3G) I was convinced Apple had a game changer on its hands. So I bought the stock for a split-adjusted $19. Yeah. It's been a nice ride.
Apple has gone from being a smaller player in the tech space to one of two clear leaders in arguably the most important technology market - mobile computing. I think they deserve to be the world's largest technology company because of this series of accomplishments. But at the same time I have to acknowledge the immense importance of one single product on the company's financial results. That, as you all know, is the iPhone.
iPhone sales were responsible for $19.8 billion of Apple's $37.4 billion in sales last quarter. iTunes/Software/Services brought in another $4.5 billion and accessories rang in at $1.3 billion. Both of those categories are obviously heavily driven by iPhone usage. I think it's fair to say the iPhone and related stuff makes up about 60% of Apple's revenue. Because the iPhone is widely believed to generate higher gross margin than iPad and Mac, it probably means more than 60% of Apple's profits come from this tiny mobile device.
Bears on the stock see inevitable pressure coming to Apple in the form of competitive Android handsets that drop pricing everywhere in the world. There is no question that is a valid risk investors need to think about. But at the same time, I think Apple's strength in mobile computing represents a huge long term opportunity.
Ten years ago I don't think we had any clue how big the mobile industry would be, nor how important Apple and Google would be to this emerging industry. Similarly, I think that today we don't really know what the mobile industry will look like in another ten years. That said, I'm guessing a lot of the growth will come from how we use our mobile device as a remote control or access device to all kinds of things around us. Developers are flocking to iOS and Android as the only two operating systems that matter. And in many cases, iOS still seems to be top priority. I believe that as long as Apple maintains a price premium and keeps delivering us a beautiful and simple user experience, hundreds of millions of people around the world will keep buying their stuff.
If you look at the headlines on Apple these days, it's all about the iPhone 6. While I respect the level of importance investors place on the next iPhone release, I think most of Wall Street is again unable to see the forest for the trees. The iPhone 6 is just a phone. It's just the next release in a long history of product releases by Apple.
I'm not hanging onto Apple stock because I'm excited about the iPhone 6. I'm looking for the next 10 years of growth. I'm only interested in staying a shareholder if I think Apple can sustain its premiere position in an industry that still has a ton of growth left.
Today I remain bullish. I like Apple's position in the industry and I like the pace of development within the larger mobile industry. So I'm hanging on.
What about you?
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