I took a call yesterday from CBS Radio News, my first in some time.
They wanted to know about the Apple earnings, which blew by analyst estimates. Can this continue, I was asked.
Yes, I answered. And (upon further review) I know why.
For years PC prices have been falling, and the software component of that price has been rising. If you can’t find a laptop for under $500 right now, you’re not looking. In this environment the premium always charged by Apple becomes irrelevant. People have internalized the idea that Macs are not as prone to breakdowns and viruses as PCs (the "Bill and Steve" ads have been brilliant) so if you can get a Porsche instead of a VW for $100 more it’s a no-brainer.
The iPod, meanwhile, is riding up the demand "s" curve all by itself. While everyone else fought DRM as a violation of their rights, Apple embraced a light DRM scheme as a differentiator. As a result Apple dominates the channel for digital downloads, and record labels have lost their pricing power.
Sure, the iPod ride is going to end. But that’s not where the big money is. The big money is in corporate accounts, which are now starting to come around, starting with the smaller ones. Every movie or TV show you see which has a scene featuring a computer in it these days has a Mac in it — Apple pays big bucks for that and it’s a wise investment. It doesn’t have to compete in that area because the other side is split — should Microsoft be paying that money, or Dell, or both? Maybe Intel?
Speaking of which. Because it switched to Intel chips Apple can, for
the first time, supply all the PC market share its advertising earns.
The company had always been supply-constrained before, first because it
insisted on doing its own assembly, then because it had a weak chip
partner. Those days are gone.
So, is Apple a "buy?" At $75/share (roughly)
it’s fully priced. It’s at a P/E of nearly 35, which is awfully high
when the average stock should trade near 15 (and still trades at 17
because not all of the 1990s bubble has yet settled out). It should
have at least a few more years of solid growth in it, while everyone
wonders what Steve Jobs’ next act is going to be.
One more piece of trivia for y’all. Remember that Jobs joined the board of Disney? Well, guess which company is now worth more? Jobs’.
