Trouble at Apple?
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He raises some things worth considering.
I think the most salient point for an Apple investor to consider is this:
With Apple, they are like the portfolio manager that bets on two or three stocks. When a genius is managing the portfolio, this can be incredibly successful. But what happens when someone different takes over and still tries to manage a three stock portfolio?
Yet I disagree with him on many points as well.
If you had to sum up his two main points, it would seem to be: 1) Apple may be in trouble as it no longer has Steve Jobs, and 2) there is no way to know if Apple is still going to have winning products in 10 or 20 years.
To which I would ask: 1) which competitor or potential competitor has Steve Jobs? 2) which businesses, exactly does he think he can predict 10 or 20 years out?
Sure it was great having Steve Jobs. It was like Michael Jordan in basketball. And sure it stinks not having him any more. But that misses the point that such ultra-rare talents are ultra-rare. So the chance that one of their competitors will have someone like that is rare, and Apple could just as well find or develop the next Steve Jobs.
And as far as this predictable-in-twenty-years idea, I think many can delude themselves on this. There are very few businesses that even come close. Certainly there is not a single technology business that would fit the bill. Does the author pass over the entire technology industry? Is this the best bet? Maybe. Maybe not. Is venture capital inherently a loser industry since most of it's bets go bad? No, because the winners more than make up for that (at least at good firms).
Even outside of technology, businesses which seem invincible generally are not. Ask Buffett about H.H. Brown shoes and NetJets. And lets not forget Sears and G.M. Or look at a business like Borders Books. Twenty years ago they seemed to have an enormously strong industry position; where are they today? Who could have possibly foreseen that an online book retailer would demolish them so quickly?
He goes on to say: "The stock price is cheap so it may not go down a whole lot, but it's only cheap if they maintain these high margins." Well, not really. They could also double their volume and halve their margins, and still earn the same amount...which would still make the earnings yield very attractive. And who knows, they might actually manage to come out with some reasonably-successful new product line even without Jobs. I think a few inventions in the world have occurred without him...but just a few.
Another thing he seems to miss is that Apple's margins are not all due to high selling prices. The iPad is not priced substantially higher than similar tablets, yet it still has much better margins. And even the iPhone isn't really much differently priced than competitive high-end smartphones. While product innovation has been critical for Apple's success, one should not forget that the amazing cultivation of the supply chain (by Cook) is a large part of the outstanding profitability of Apple.
"I have no proof, but I suspect that customers will see where all of their dollars are going and will eventually start to demand a better deal." Really? Seems to me that consumers in general think not an iota about the financial ratios of the business from which they buy their products. They simply chose the product which best suits their desire for the price they think is worthwhile. People still seem to like Coke, even though the parent business is tremendously profitable. And I don't know anyone who refuses to shop at Wal-mart because the business has such high return on equity.
He also seems to have a big problem with the extreme focus of Apple. Well, we'll just have to see about that. I think the story so far is that this is one of the key factors that has made Apple so successful. It does entail some risk. But having a product portfolio full of a bunch of mediocre products has clearly proven to not be a wonderful strategy on average. I'd take my chances on focus.
Overall, I would say that while it is easy to have fears and suppositions regarding Apple's future, that's probably true about the overwhelming majority of businesses in the world today. Heck, you can easily have a lot of fears about the future of entire nations. But I think if you look at the ratio of risk:reward, Apple at this price is a very fat pitch.