AAPL is a fantastic business. The problem is that it's likely to become a less fantastic one, imo. Sure, the revenues may continue to go up but I think the profit margins are likely to get worse.
The gross margin has already declined from a peak of 43% to 38%. Given that they are driven by the iphone and the iphone is going to see more competitive pressure plus Apple is going after lower price market segments, I think the gross margin will get worse. R&D is <2% of the revenues! Goes to show that Apple is not really a technology company. SG&A is a mere 5% of revenues. Apple is running a hyperefficient business and they got to that point because they generate incredible revenues with just a few products. But now, they are starting to segment their markets (ipad Mini, Midprice iphone), which will reduce economies of scale, and increase the cost. Anyways, their costs are so low, that they have nowhere to go, but up.
My guess is that in a couple of years, their R&D costs will probably be 4% of their revenus and they will have many more products to generate incremental revenue or maybe just to defend their market position.
The smartphone market as well as the tablet markets has competitors like GOOG, AMZN that sell their devices at cost and don't care abut hardware margins. AAPL needs to have better products that those, or they will be toast LT. Besides that need to be successful in new product lines (TV?) because the growth in existing lines will stall out. On top of that, we have an ~2% tailwind from stock dilution. Because of these factors, my guess is that Apple sill need to grow the topline >10% annually just to keep earnings where they are right now.
From market/technical point of view, it seems that the growth investors are abandoning the stock and the value investors are stepping in slowly. Based on what i am hearing, those that own AAPL are heavily weighted into this stock, which means that there are a lot of weak hands, imo.
FWIW, this is another Einhorn tech bust, after DELL, MRVL, XRX etc. |
