Apple: Big Moves Mean Big Numbers
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) doesn’t do anything small. The absolute hysteria created by its line of iProducts has catapulted the company into a bone-rattling upstream that many doubted it could maintain. Even though Apple holds the title of ‘Most Valuable Company’, this is not the end-all judgment of a company’s health. What will keep this company at the top is its ability to enter new and emerging markets, its offering those markets products that consumers want, and also through strategic partnerships with other industry leaders.
Those Amazing Numbers
There was no doubt that the launch of the iPad 3 would silence all competition on the subject of who is the dominant force behind both smartphones and tablets. What was unexpected, was the financial windfall that would ensue.
Apple’s quarterly profit nearly doubled as iPhones and iPads quickly became the best selling products stores could (or at least tried to) carry. After a rough few weeks of trading with stock falling in 10 of the past 11 regular trading sessions amid concerns about a potential iPhone slowdown, after-hours trading yesterday saw shares gain more than 7%, or $40.55, to $600.83. This was largely due to iPhone shipments jumping 88% to new and emerging markets like China.
Sales of iPhones in China are now five times greater in the latest quarter than last year. iPad sales were slightly lower than expected but still up more than 150% from last year ago to 11.8 million units. Demand for the new iPad is relentless and several stores have reported trouble keeping them in stock. Apple also sold four million Macs, up 7% from a year ago.
But growth in sales is not necessarily the best gauge of a company’s standing. For example, IBM (NYSE: IBM) reported a higher profit last quarter, but a drop in sales of computer hardware raised questions about technology spending by businesses and governments.
The key lies in expanding growth into other markets. While IBM faces dwindling markets, Apple is tapping consumer demand in other countries and in other market sectors. Currently, is gearing ad campaigns and improvements toward providing business solutions.
How to Handle Being Popular
A great quarter does not a pattern make. In order to sustain growth, Apple will still need to stay on its toes. It will also need to compensate its strategy to support such rapid scale. Chief Executive Tim Cook is brilliantly preparing for continued growth by ensuring the company uses its long-held bunker of cash. Cook plans to put some of Apple's cash toward a dividend and stock buyback. Apple said it would issue the dividend in the quarter beginning in July and begin a $10 billion share-repurchase program the following quarter.
Cook is also acknowledging what several companies often overlook: market saturation. Smartphone growth in the U.S. is slowing because it has reached a saturation point. Apple is extremely well-positioned in other markets to compensate for that, and is also able to maintain brand loyalty through its host of other products.
This is the case with rival Google (NASDAQ: GOOG) that can continue growth because of its diversification. It’s Android platform is most notable, but Google still makes the majority of its revenue through advertising. Slow sales at home will not impact either of these companies.
Finally, Cook has also decided to conquer the slough of litigation that Apple seems to revel in. The company is now hinting that it would be willing to settle the sprawling legal battles it has stretched across the globe. Most notable, it has agreed with Samsung to enter settlement talks in the California patent case.
What Will Happen
Analysts predict Apple will launch its next iPhone in the fall, about a year after the 4S model. Expectations for Apple's stock are still lofty, with some analysts having 12-month price targets approaching $1,000 a share. While I don’t necessarily see this happening, I do know that Apple’s gain will likely result in heavy losses for companies like Research in Motion.
Alternatively, some see competitors like Nokia (NYSE: NOK) pushing out new devices during the window of opportunity left open by Apple. My prediction is that with the launch of the Lumia 900 that it has hyped up with the help of AT&T (NYSE: T), there won’t be a game-changing announcement other than upgrades and new features. Even if a new phone is rolled out by Nokia or others, it is highly unlikely that it would have sufficient thrust to overtake the iPhone as the best selling phone in the world.
What should be on Apple’s radar is the Google - Motorola (NYSE: MMI) partnership that is making the most notable movement toward combining phone and PC with its new Webtop – a smartphone/PC hybrid that made the Motorola Atrix act like a computer once docked on the ‘Lapdock’. As Apple has no equivalent product, this could have an effect on financials over the next few quarters.
Or perhaps even more plausible is the Intel and Microsoft partnership to produce a tablet/laptop hybrid. Announcements have been made of prototypes already built for a Windows 8 supported device that could be the best of both worlds in terms of mobile computing.
In its report of quarter earnings, it was obvious that the key driver for Apple was the sale of its iPhone. Apple said it sold 35.1 million smartphones, up from 18.65 million units a year ago. This one device and related products and services formed 57.9% of Apple's sales, up from 52.7% last quarter. With the iPhone now available in more than 100 countries and supported by more than 200 wireless carriers, it is an understatement to say the company is ‘pleased with the results’.
What is more, with Cook on a ‘settling litigation’ rampage, iPad sales opening in China will likely also result in some impressive numbers. I encourage a continued look toward Apple for growth and profitability.
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