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Savings Experiment: Snow RemovalBack on May 23rd of this year I wrote a post for AOL's BloggingStocks, that Apple (NASDAQ: AAPL) would become bigger than IBM (NYSE: IBM). At the time of that article, Apple's market capitalization was just under $100 billion and IBM's was at $158 billion. Apple had a long way to go to capture the title away from Big Blue and frankly, I conservatively wrote it would happen within 2 years. I was wrong: it has happened in 5 months. Today, Apple's market cap is a sterling $161 billion while IBM's has remained stagnant at $157 billion. The power of growth investing. Explain please!
IBM is an excellent company, well managed and has the respect of the technology world. There is no question that Big Blue is a mainstay and that millions of enterprises and governments rely on IBM's products every day. The problem with IBM is its growth is slow and there has been no visible acceleration. Apple on the other hand, has become the go-to, consumer electronics/technology giant. Apple has a line up of exciting, gotta-have products and the expanding margins to boot.
Apple has built a relationship with the consumer and that franchise is virtually impenetrable. The iPod and iPhone have defined their respective spaces. iPod has sold over 110 million units globally, and is still in a massive growth phase. The attendant iTunes store is the gift that keeps on giving. More than 2.5 billion -- that's billion -- tunes have been sold via iTunes. Talk about a franchise.
The iPhone is just in the beginnings of its cycle. The iPhone was met with high anticipation and a ton of hype, and has lived up to it. Apple has put forth a modest goal of 10 million units by year end 2008. I estimate that 10 millionth iPhone will be sold by April/May 2008. It also has the gift that keeps on giving: monthly royalties from the telecom carriers that will provide service. In the United States, it is AT&T (NYSE: T). 10 million units represent about 1% of the globally sold 1 billion cell phones per annum. Seems conservative for a "revolutionary" product. It is!
The Leopard operating system was released today at a retail price of $119 for installs to existing Mac Computers and, of course, it comes installed in new Macs. The Mac has blown away all estimates as it sold 2.6 milllion units this past quarter. That number is 400,000 ahead of the June quarter's outstanding numbers.
The add-on software and accessories sales for Apple gear is also part of the gravy. Coupled with 180+ retail stores that are user-friendly, Apple can control the entire transaction from soup to nuts and also builds customer loyalty along the way.
To put Apple's market capitalization gain these past 5 months into perspective: Apple's grew its value the size of Dell Computer (NASDAQ: DELL) in the 5 months! By the way, Apple will surpass its next target in the market cap game within the next 12 months. That target is Cisco Systems (NASDAQ: CSCO), another very well run technology giant. Cisco currently has a market cap of $200 billion....
Georges Yared is the CIO of Yared Investment Research and the author of Baby Boomer Investing...Where do we go from here?"
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Reader Comments (Page 1 of 1)
10-26-2007 @ 10:56PM
Adrian Clark said...
I am not surprised!
After working for IBM for 30 years and having been retired for 14 years I see the same people who were inadequate first line managers now promoted to directors. These people were promoted for who they knew not what they knew or what they were capable of doing.
IBM needs a drastic change in its management selection process.
10-27-2007 @ 3:04PM
Neil Anderson said...
Top 4 Tech Companies in the World (market cap)
1. Microsoft
2. Google
3. Cisco
4. Apple
Overnight success takes ten years of hard work. :)
10-27-2007 @ 4:10PM
Dan the man said...
Good call with predicting that Apple will surpass IBM in market cap! I read the prediction back in May and agreed, but it's one thing to agree silently and another to stake your reputation on it. Anyway, just a small correction, Apple shipped 2.16 million Macs last quarter, not 2.6 million.
Keep entertaining us with your intelligent and informative posts on Apple!
Dan
10-29-2007 @ 8:30PM
reinharden said...
Second small correction: Apple announced that they passed 3 billion iTunes sales nearly 3 months ago.
In fact, considering that they announced 2 billion in January (http://www.apple.com/pr/library/2007/01/09itunes.html) and 3 billion in July (http://www.apple.com/pr/library/2007/07/31itunes.html), we might well see 4 billion announced before the year is out.
reinharden
10-29-2007 @ 9:19PM
Bobrcnut said...
A well-written and easy to read article, but informationally obsolete. What's the purpose of comparing two companies that (now) have very little in common, other than to justify your past predictions? Apple sells to consumers. IBM sells to corporations. What products does each company make that compete directly? What services does Apple offer to augment high-end data management? What music-oriented devices does IBM offer? If you were to instead compare two companies who are fighting tooth and nail for a share of the same market, it might be more useful to us out here.
10-30-2007 @ 6:57PM
Amit said...
I do not believe AAPL will surpass CSCO in 12 months. CSCO is growing but not at the pace of AAPL. CSCO should have a great quarter next week reporting and should boost market cap by 10-15%.