How big can Apple get?
These are incredible times for Apple, with news worthy achievements almost on a daily basis. In February it became only the sixth company to achieve a US $500 billion rating and its now valued at $530.26 (as of Mar 6). It has also just achieved a key victory in the long running patent fight with Google, its iTunes store has passed the 25 billionth app download after just four years and it successfully launched its iPad3 to universal positive reactions from the trade, consumers and media. All of which begs the question how big can Apple get?
Historically as a rule companies that achieve a $500 billion rating don’t retain their valuation for long as complacency sets in and they soon lose their competitive edge. Despite Apple’s valuation falling by 9.7% from a high of $545 in just four days (Mar 2-6); I fully expect Apple to be the exception for two main reasons.
Unlike other corporations that have achieved a $500 billion valuation, Apple operates in a very competitive sector and it was only last year that many were predicting that its bubble would burst in face of renewed competition from Samsung, Motorola, Amazon and Microsoft. Apple responded in characteristic manner with the successful launch of the iPhone 4S and iPad 2 which saw them generate $13.1 billion in the final quarter of the year, the highest quarter in the history of Apple and one the highest quarterly profits on record. That this was achieved in an economic downturn is even more remarkable and showed that if you have the right product and the right focus, you can make a difference.
2012 will be not any easier for Apple, for while it will see the launch of its iPad 3 and iPhone 5 it will face tough competition from the likes of Samsung’s Galaxy Note 10.1 and their Galaxy Tab 2 and Amazon’s Kindle which has been substantially reduced in price. Even its iTunes store faces tough competition from the new Google Play, all of which will ensure Apple won’t become complacent any time soon.
Apple is currently sitting on $97.6 billion in cash and investments which CEO Tim Cook has admitted they are “actively” discussing how to use as its “more than we need to run the company,” which suggests something big is in the works. While investors would appreciate a large dividend or share buyback scheme, the more realistic option is that it will be used to finance future growth. From our understanding Apple is seriously considering two main avenues– Apple TV and China.
Apple TV was a long held dream of Steve Jobs, where he hoped to stream television shows through the iTunes store and offer TV channels as apps. According to a recent report in the New York Post, the company is aiming to introduce a streaming TV service by Christmas 2012. According to Walter Isaacson’s biography of Steve Jobs the technical difficulties involved have been resolved but a major stumbling block remains in securing commitment from the major TV companies to supply content.
If Apple decides not to go ahead with Apple TV the other main avenue for growth would be China.
China is a very data-sensitive country which has proven beyond the capabilities of many in the past such as Google, Facebook and Twitter. However Apple could be the exception and although it has yet to make significant inroads into China according to Tim Cook it still provides 16% of Apple’s total revenue and is the company’s fastest-growing region. One entry strategy that Apple is rumoured to be considering are tie-ups with Chinese phone companies.
Whatever direction Apple decides I expect it to more than prosper and before the year is out to become only the second company after Microsoft to pass the $600 billion valuation.