Apple: A Well Rounded Look

William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

An investor needs to view Apple (NASDAQ: AAPL), a computer tech giant famous for its iPads, iPhones, and former CEO Steve Jobs, from an objective viewpoint. Sure, the company gave its shareholders a whopping 10,000% (chart below) return beating the S&P 500 100 fold since Jobs took over in 1997. However, will the company continue its stellar performance? Like every company, Apple possesses strengths, weaknesses, opportunities and threats.

AAPL Total Return Price data by YCharts

Strengths

Mobile computing - Apple’s biggest strength lies in mobile computing. The iPhone and iPad fulfill the social and computing needs of people operating under the fast paced pressure of modern living. People can check their e-mail, stock quotes and Facebook while on the commuter train or while on lunch break. The sleek design and the choice of different colors for Apple’s devices enable consumers to do this in style.

The iPhone represented the highest growing segment for Apple with a 71% growth so far in 2012. The iPad segment grew 59% during the same period.

Apps - Apple’s vast array of Apps represents another strength. Don’t have time to go to the bookstore for your favorite book? Just download it to iBooks on your iPhone or iPad to take with you to read on your lunch break. Music, movies, video games and television shows can be downloaded through the iTunes and App stores.

Apple’s Apps segment grew 35% in 2012; the second highest growing segment for the company.

Steve Jobs legacy - When Steve Jobs came back as CEO of Apple in 1997 the company was on the verge of bankruptcy. Under his reign the company revolutionized how we consume music, communicate and compute. Even with his passing, his attitude, personality, creativity and intellect left a lasting impression on the next generation of executives.

Brand equity - Apple possesses significant brand equity which separates its products from the many competitors in the marketplace. The iPhone and iPad names resonate with potential customers more than Microsoft’s (NASDAQ: MSFT) Surface. The Apple trademark imprints on the consumer psyche much like Coca-Cola’s red and white packaging.

Financials - Apple’s excellent fundamentals give Apple the means to invest in research and development and trounce challengers. As of the end of Sept. 2012 Apple sat on $121 billion in cash and investments which doubles Microsoft’s $66 billion and triples Google’s (NASDAQ: GOOG) $45 billion in cash and investments.

Apple’s debt is low compared to stockholder’s equity. Apple possesses no long term interest bearing debt. Its total debt to equity ratio stands at 49%, below my personal threshold of 85%.

Weaknesses

Productivity software - Apple’s productivity software still leaves much to be desired. According to kippreport.com, Apple’s iWork possesses many aesthetic qualities but lacks the functionality of Microsoft Office. For example, iWork’s “Numbers” spreadsheets slow down with large amounts of data. Microsoft Excel can handle huge amounts of data giving it an edge over Apple on this front. Microsoft Word’s shortcuts make it easier to use versus iWork “Pages” which gives priority to look over the functionality that is crucial to the fast paced business world.

Opportunities

Productivity software again - If Apple can work out the bugs in its iWork software; productivity can represent another avenue for growth. An improved iWork suite could go a long way in shifting the “office standard” from Microsoft to Apple and boosting demand for Apple’s ailing desktop segment. Apple’s desktop revenue declined 6% in 2012 with units shipped being flat.

Emerging economies - The Asia-Pacific region represents new ground for Apple. Asia-Pacific sales grew 47% in 2012. Sales in China grew 83% and represent 15% of 2012 revenue. Apple, like many multinational corporations, will benefit from a rising middle class in developing nations.

Threats

Many Players - Many companies want to take a bite out of Apple’s tablet pie. Analysts revised shipping estimates for the iPad from to 63% from 65% of total tablet shipments.

Amazon (NASDAQ: AMZN) sells its Kindle Fire table at cost all in an effort to sell books, merchandise, and digital products similar to what Apple sells in iTunes, iBooks and Apps stores. Some analysts predict that the Kindle Fire HD will reach 13% of tablet shipments versus 11% expected a month ago.

Microsoft’s Surface tablets could gain traction due to the ability to house superior productivity software such as Microsoft Office; a weak point for Apple. So far this doesn’t seem to be happening as reception for Surface has been less than stellar thus far.

Google’s Nexus also eats into Apple’s tablet share although analysts are lowering shipments for that company as well. Google does have trouble meeting demand for its tablets, highlighting just how hot the tablet market has become for all players.

Design lead - Rumor has it that Samsung will take the lead in design with its flexible screens. This could give Samsung the ability to build uniquely designed smart phones with interesting shapes. This could put the rectangular iPads and iPhones to shame. Functionality may trump design if the flexible screens can’t add utilitarian value.

With the passing of Steve Jobs everyone worries that innovation at Apple will be a thing of the past. Time will only tell.

Conclusion

Apple’s popularity, brand recognition, and mobile technologies will continue as it expands into emerging markets. Apple’s cash stash will enable the company to effectively invest in research and deal with competitors. Apple will cut into Microsoft’s productivity software market if it can improve the functionality of its iWork software. Despite a competitive marketplace Apple will continue to dominate.


stockdissector has positions in Apple and Microsoft mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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