Apple in a Nutshell (SWOT Analysis)

Erick 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) reported earnings recently with Wall Street acting disappointed. Who knew a company that big could still be growing revenues and profits at greater than 20%, carrying more than $120 billion in cash and short-term securities and still selling for a forward PE multiple of less than 12. Not only that, you get a dividend as well. There's just no pleasing some people! What else can Mr. Market demand of the operational genius that is Mr. Tim Cook?

Let's go through the SWOT (Strength, Weaknesses, Opportunities and Threats) analysis of Apple:

Strengths:

1. Monster market capitalization with ability to secure large amounts of components, raw materials and labor in order to deliver the sleek new iDevices we have come to expect in our Christmas stockings.

2. Genius management in Cook and Ive. Sure they shook up things this week, but I have full confidence in these guys. At this point they are working for the love of the company and their old boss, good ol' Steve.

3. Market myopia that misses seasonality of earnings. Apple tends to blow out of the water Q2 and Q3 and disappoint in Q1 and Q4. It all depends on the product cycle and component constraints. Apple's product line is set to produce some amazing profits with the new iPad mini despite some slight decrease in gross margins. Psst...here's a newsflash buddy, the new iPad mini is set to deliver stellar profits by delivering volumes once supply constraints are resolved.

4. Products more addictive than crack cocaine and heroin put together. Apple makes sleek products that command a price premium for a reason. They feel good in your hands, not cheap. I ordered a new iPad mini this last week in order to carry it in my lab coat pocket. It is the perfect size for it and I am loading it with all kinds of goodies from the Apple app store (Apple makes 30% on each sale!).

5. Pristine balance sheet with sustainable and likely growing dividend payments in the future. Between a 10 year U.S. Treasury and Apple at roughly the same yield I would pick Apple every time.

Weaknesses:

1. Seriously dude, there might not be any weaknesses (OK just kidding, but I wanted to see if you were paying attention!)

2. Law of large numbers: as the size gets bigger it gets harder and harder to sustain growth and innovation.

3. It's the economy stupid! Recessions and global economic weakness have hurt Apple and will continue to cut into its revenue and profit growth.

4. Secretive culture that sometimes ignores basic functionality of core products, Can you say Maps app on new iOS 6?

5. What have you done for me lately? There might not be any new revolutionary products in the pipeline, just evolutionary increments of existing product lines. We haven't seen a truly new product since the iPad came out.

6. Lawyers fees. Since thermonuclear war is expensive.

7. Inability to bring cash into U.S. shores due to current tax laws.

Opportunities:

1. Wide swaths of international markets available to explore in emerging markets. Can you say BRIC?

2. Apple TV? Not the current version, but the future secret version.

3. Price drops in the iPad mini and iPhones as components get cheaper.

4. Mobile ads, search and poaching some of Google's turf. Apple got tired of giving its business in mobile search to Google Maps and as time goes on they will make strategic acquisitions to further strengthen their revenue stream from mobile advertising.

5. Streaming of all media. Apple is already a player and there is opportunity to get stronger. Watch for future deals reportedly being negotiated.

Threats:

1. Google (NASDAQ: GOOG), they may not be truly evil, but they put out Android for free and have been dominating the lower end of the smartphone and tablet market, slowly eating away at Apple's margins. No wonder Steve declared thermonuclear war on them. Their Google Chromebook is sleek and I ordered one of those to try out. For $249, what is there to lose? The same can be said about their smartphones and tablets within their Nexus brand.

2. Amazon (NASDAQ: AMZN), the ambitions of this company know no bounds. Streaming and selling in the digital world is their strength. They have just shot a volley over to Apple with their home website attack on the iPad mini. The Kindle Fire strikes at the heart of Apple's business.

3. Facebook (NASDAQ: FB), the darkhorse right now, but for now forming alliances with Apple and integrating itself into iOS and Mac OS X. Google used to be Apple's friend when Microsoft was the biggest threat, but in 5 years the cycle may repeat itself.

There's your SWOT! I am putting most of my bets on Apple given Steve Jobs' genius, and the plans he left for the next 5 years, I feel confident the company will have a bright future!


Fool blogger Erick M. Santos, M. D., Ph.D. owns shares of AAPL, GOOG and AMZN. He owns no shares of FB. He owns many iDevices and just ordered a new 13" MacBook Pro with Retina Display and a new iPad mini. He also wants to try Google stuff so he ordered a new Google Chromebook made by Samsung. He wonders when Samsung ADRs will be available to trade in U.S. markets.

The Motley Fool owns shares of Apple, Amazon.com, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Amazon.com, Facebook, and Google. 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.

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