It is no longer the world’s largest company. Falls in Apple’s share price yesterday took its market cap down to a mere $378 billion, which is a full $7 billion less than that of ExxonMobil. Is the beginning of the end of Apple’s run of growth, or is this just a temporary blip? If it is the latter, than right now Apple may represent a pretty unique buying opportunity.
Back in January 2003 Apple’s share price was hovering around $7. By last year it had risen to $667. That strikes me as quite a good run. Of course no one could have predicted what was going to happen over the following nine years. Could anyone have forecast the success of the iPod, the iPhone and then the iPad? The answer to that is almost certainly no. Yet if you look back to 2003, Apple achieved an extraordinary level of publicity for a company of its size. I have gone back over my writing from that year, and I wrote more about Apple than almost any other company. In 2003, when the company really did seem to be close to going under, Apple held a degree of fascination, a kind of mystique, particularly amongst the media.
I can also tell you that if during the 2003 to 2005 period I wrote anything vaguely negative about Apple, I got inundated with emails of complaint. I even got criticised for saying Steve Jobs was not a demi-god, and didn’t walk on water.
So maybe the rise of Apple was predictable – or at least maybe if one had examined the media coverage of that era, one could say the company was a contender for greatness.
But have the underlying qualities that made the company so successful gone? Has it lost its ability to come up with world beating products? Judging by the company’s share price, I would say the markets have concluded it has. Its shares are now trading at a p/e of 9.13. Analysts predict that the company’s cash hoard could reach $170 billion by the end of this year. Deduct that from its market cap, not an unreasonable thing to do as I don’t think Apple needs much of that cash to conduct its business, and its market cap net of cash is just over $200 billion, with a p/e of between five and six.
Yesterday Cirrus Logic, which makes audio chips and gets most of its revenue from Apple, revealed a sharp rise in inventory. This has spooked markets, which seem to think Apple has lost its touch.
With the current state of play in the smart phone/tablet market I get that. Apple’s products may just about still be the best, but the company increasingly looks like just another player within the industry. It has no god given right to sell more smart phones than Samsung, or HTC. Regression to the mean is sure to set in for the company.
The point is, however, that Apple’s strength does not lie in implementing incremental changes to products. When Apple is a me-too company, it looks vulnerable.
Right now the smart phone/tablet/computer technology seems to be hitting something of an innovation slow patch. I don’t mean sales are slow, rather that the development of ideas is slow. New products have better cameras and bigger screens and more whizzy things, but they are essentially the same.
Apple’s strength has been in creating new markets, or in redefining a small market and transforming it into something massive. It introduced disruptive technology to MP3 players, smart phones and touch screen computers. When the iPad was released, critics said it was just a touch screen without a keyboard. In truth Apple re-defined what touch screen meant.
Design remains its one overwhelming USP. There is something very neat and elegant about the iPhone; it just feels cooler than rivals’ products.
A leading designer once told me that it is not so much that Apple is brilliant at design; it is that its rivals are awful at design.
It’s the ability to combine design with new technology that sets Apple apart, which enables it to disrupt the marketplace in a way that rivals find very hard, maybe impossible, to replicate.
The markets are showing a lack of imagination. They are assuming the days of disruptive technology are over. In reality, I suspect we are two years or so away from another rush of disruptive technological innovations, which will bring yet more billions (maybe trillions) into tech. In such a market would you bet against a company heading for almost $200 billion worth of cash, a proven track record in creating world beating disruptive technology, and a single figure p/e ratio?
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees