Apple storms ahead

1st February 2012

Browett will take over leadership of Apple's retail arm as it aims to expand into emerging markets. He'll be overseeing expansion in China and Latin America, and, according to reports, we may see openings in India and across Russia in the next few years. As well as these markets, European expansion continues apace.

The company's original retail architect was Ron Johnson. Speaking in 2004 he described his strategy, says Computerworld blog: "Apple's stores have always been about being more than a store. Our goal is to be part of people's lives, so we need to locate our stores to be part of their lives."

Growing retail presence

At the last count, Apple had 361 retail stores across big cities generating $6.1 billion in revenue, up 59% year-on-year. The stores sold record numbers of iPhones, with profits up 118% year-on-year.

Its retail strategy appears to be storming ahead, with a lot of room for expansion – and innovative measures continually being put in place.

For example, and for starters, US discount retailer Target, reports the Financial Times (paywall), is to open 25 Apple stores within its own shops as it launches a series of new retail partnerships to refresh its bullseye brand.

What does the future hold?

Over the next decade, smartphones will become the dominant communication appliance for most people on the planet, claims Forbes. So, instead of selling 93 million iPhones out of a total of 1.6 billion mobile phones-as Apple did in 2011-imagine an Apple shooting for 900 million units or more in annual sales in 2021.

In addition, Tim Cook forecasted in Apple's recent quarterly call that tablets will overtake PCs as the dominant personal computing device. In 2010, total PC sales reached almost 350 million units – while  In 2011, total iPad sales reached only 40.7 million units

Ian Warmerdam, manager of Henderson's Global Technology Fund, who holds a long-term large position in Apple, says: "This is a company with a market cap in excess of $400bn and a $160bn run-rate in annual sales who grow revenues 78% year over year (accelerating from 39% in the prior quarter) and earnings per share by 116%.

 "This is clearly phenomenal. And we believe more strong growth and earnings beats are likely going forward given their product momentum, high growth end markets and conservative expectations. And, most amazingly of all, despite their extraordinary growth, market position and competitive advantage, the stock appears (to us at least) very attractively valued.

"They trade on a PE of 9x calendar 2013 consensus earnings – which is a significant discount to the S&P 500 and the technology sector. And this valuation metric does not give them credit for the enormous cash position they have built on the balance sheet. Ex cash they are on an unusually attractive forward PE of 7x. In the many years we've been involved in the stock and despite the huge performance generated over the period I don't think we've seen a more attractive valuation.

"Apple's stock market performance has clearly been stunning often leading to the erroneous view that the equity must be expensive. The truth is that share price appreciation has been less than earnings growth and the stock has thus been derating."

But what about increasing competition?

Warmerdam adds: "There has been some concern over the last year or two about increased competition in smart phones, maturing market penetration, the law of large numbers and of course the impact of Steve Jobs passing. We consistently stayed with our large position based on a belief in the stickiness of their eco system (iTunes, AppStore and now web services), their leadership position some of the fastest growing markets and, quite amazingly, a very attractive valuation."

Will Apple start paying dividends?

There is no doubt Apple is on a roll. But will investors start seeing dividends out of its $100 billion cash hoard – with no debt on the balance sheet.

Apple has an opportunity to dominate booming personal-computing-related sectors for the next decade-but it will be an expensive, bruising battle, stresses Forbes.  "Apple's resources should be focused on the potential of winning future battles rather than rewarding investors for its past victories.  And, lest we forget, Apple's future success is not guaranteed.  Apple pioneered an earlier generation of personal computing with the Macintosh but, within a decade of its early dominance, was a marginal player on the edge of insolvency."

But there's no denying that Apple is the centre of innovation, with its original products, stresses Seeking Alpha. The company has its moat in almost every single segment it is involved. It is not just one of those companies that steal market share from other.

Apple is also one of the widely followed stocks in the market. Its performance in the last 10 years has been remarkably well. It's an exciting time ahead for the technology giant.

 

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