Apple's margin problems are of their own making. They chose a design that was ridiculously expensive to make... Ah, but this choice was in part because the expensive designs generally yield higher-quality products, and Apple can't let their foot off the quality accelerator when Android phones have recently passed them in that department. Apple can just decide to reduce component expenses without risking quality issues.
The original premise of this thread was that Apple at $200 pps could only happen if Apple started losing money, per Slacker. Presumably, that was because unless they started losing money, they would have at least $145 per share in cash. If you are also now agreeing that your price target requires burning through a portion of the cash pile with negative earnings (not just negative earnings growth), then we can stop. A big part of our disconnect is that you are wrongly presuming that $145/share in cash is worth that to a shareholder. It isn't. Most of Apple's cash is parked overseas. If it was the only asset they had, you'd never pay $145/share for it because tax-adjusted, you'd get less than $115/share for it.
Using the more accurate $115 cash value, and assuming they burn only a little of it (say $15/share) in acquisitions while trying to shore up, I'd pay $100 more for a company I believed would spit out ~$8/share in earnings rather consistently... maybe even a bit more. Does that clarify my position?
Substitute whatever you feel is an accurate market expectation for Apple's growth, then compare it to what you feel is realistic for tablet and smartphone industry growth. I think you will find that your statements that Apple is expected to maintain market share have been way off base. Again, my primary reason for believing that Apple is a value trap (that earnings are going to decline, making it *seem* cheap) is that I believe margins will fall more than they already have. The iPhone, by itself, is almost 2/3 of their profits. If the iPhone margin declines even modestly and Apple's sales grow slightly less than the overall market, you'd have declining earnings. |
