Apple: The Trillion Dollar Question
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A question that has come to realization recently and allows me to raise my estimate for the company's 12 month share price to $976, is based partly on iPhone shipments in the second quarter. That would raise the market capitalization from $576 billion to $1 trillion, creating the largest company in history.
How did the nearly bankrupt company rise from the ashes, partly from a loan given by former rival Microsoft, to become one of the world's largest companies in history?
Coming to Trillion
According to my estimation, Apple (NASDAQ: AAPL) began its $400 billion ascent in early 2008 and shortly after the original iPhone announcement, investors started switching to tech stocks, and competitors like HP, Dell, Nokia, RIMM and Sony lost a combined $400 billion in market cap. I predict that half of Apple's gains have been from competitor stock losses, and foresee that trend continuing.
The goal of that target price is consumer interest. Does Apple have what it takes to lead the company on the mobile front for the next two years? The company has shown that they can lead consumer excitement, win the interface wars, and make money in China.
OK, How Does it Happen
I estimate that over the next three years, the overall US tech market will grow 5 percent, while in 2011 it grew 9 percent. Therefore, the market cap for the tech sector should grow $390 billion through 2014, whereas Apple should be able to capture half of this.
Apple's competitors represent nearly $1 trillion in market cap and I estimate that Apple should capture 20 percent of their industries. These competitors include, Google, Dell, Hewlett-Packard Company, Research in Motion, HTC, Samsung, and Microsoft (NASDAQ: MSFT).
The Chinese market has been slow to adopt 3G coverage and according to a new report, China Mobile is in need of an 'iPhone.'
Smaller competitors like China Unicom and China Telecom both offer the iPhone and have seen 3G subscriber rates increase allowing for higher margins from data plans. China Unicom saw gains around 5.3 percent month over month, and China Telecom 5.7 percent month over month.
Chine represents one of the lowest 3G adoption rates for a country of its GDP, with rates at 16 percent. There is certainly an opportunity for growth here.
Apple has also made many additions to its future mobile iOS6, intending to allow for spoken Mandarin commands. The company is also expected to launch a phone that takes advantage of China's predominant mobile spectrum.
Investors have a lot to fear in buying Apple; let's break down some of those fears. One of those fears is that over time phone carriers may decide to no longer issue subsidies, which is a key ingredient to iPhone sales in the US. Because the company has introduced its phone to multiple carriers including prepaid providers, mobile operators will have to compete to win consumers with competitive offers. Recently, AT&T's mobile Chief Ralph De La Vega had this to say "[the] subsidy model is one that the American consumer likes," expressing the need to keep subsidies intact.
Then there is Microsoft's Surface tablet, which some consider a strong rival to Apple's core business model. Acer's CEO doesn't buy into this mentality and offers his advice, that the company launched to promote its interest in the Windows 8 platform. This seems plausible that Microsoft would launch a tablet just to keep investors interested in its mobile laptops instead, focusing more on building higher quality notebooks. However, one would note that Apple has ramped up its notebook offerings with a new Retina Macbook Pro, the first of its kind. The new notebook has been able to raise average sales prices of Apple products three times, and is the number 10 bestselling computer on Amazon. Unlike Microsoft that may have invented a product at a loss in revenue to generate brand awareness, Apple created one that did that and raised its average sales price on their competitor's core competency.
I'm not sure how long all this positive Apple news will last, but for now, they are on track to perform and succeed. I and most analysts, base this information on existing trends and offerings that do not include an expected TV. Therefore, I believe Apple is a buy.
muhammadbazil owns shares of Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.