Apple’s Best Times Are Behind It. For Real This Time!
by Jean-Louis Gassée
Against common wisdom, against difficult odds, Apple rose to the very top of the tech industry. Now that they’ve become the first company to be valued at $2T, they’re certain to fall. Or maybe not.
When I signed up with Apple four decades ago, I heard haruspices explain how the company’s successful IPO signaled the end of good times. The prophecy became a leitmotif for the next 40 years as Apple’s occasional trials brought golden I Told You So moments: The arrival of the IBM PC, the troubled Apple ///, the difficult birth of the Macintosh, Steve Jobs’ departure…
The low point came in August 1997 when Jobs made peace with Microsoft in return for a $150M investment. But the gambit payed off:
“The deal between the two companies was mutually beneficial from every angle. Apple got some much needed cash while Microsoft was able to keep a weakened competitor afloat, thereby alleviating concerns about the company’s monopolistic power.”
Even as Jobs’ historic Apple 2.0 turnaround launched the company towards new heights with a string of successes — the iPod, the Intel Macs, the iPhone and the iPad — the doomsayers weren’t deterred. Each new high was an opportunity to declare peak Apple, it’s all downhill from here.
This brings us to the latest highest of highs. At last week’s close, AAPL was trading for $497/share, giving the company a market capitalization of $2.1T…that’s T as in trillion. Clearly, the skeptics say, this is unsustainable, no tree grows to the sky, the larger a company becomes the more difficult it is to sustain growth. That’s what many, yours truly included, thought when Apple became the first company to cross the $1T market cap line in August 2018. And yet the company has achieved the inconceivable and doubled its value in exactly 24 months.
Nonetheless, Apple has its challenges, both external and internal.
Perhaps the greatest concern is the size of what Apple delicately calls “Greater China revenue”. China is the company’s third largest market, comprising about a sixth of overall revenue. A trade war between the US and China wouldn’t deal a fatal blow to Apple, but it would be a serious setback. How likely this is, I have no idea and will just observe it could only happen in the context of a much broader trade war that would impact a huge range of other companies.
There are also ongoing legal and PR challenges. A number of lawsuits, both domestic and international, allege that the iOS App Store has abused its dominant position. These allegations could lead to an antitrust suit before the Supreme Court. I won’t add my opinion about the legitimacy of these contentions, I’ll just observe that these fights drag on for years and end up producing little. We’ll recall that the antitrust action against Microsoft did little to stop the company’s progress. As Bill Gates recently said, referring to Apple and other companies of its size:
“If you are as successful as I am, or any of those people are, you deserve rude, unfair, tough questions. The government deserves to have shots at you. That type of grilling comes with the super successful territory, it’s fine.”
Gates is right, of course. And Apple seems more than prepared.
Having reached the $2T pinnacle, Apple doesn’t appear to be foundering. All companies have their tailwinds, the momentum that keeps it going. For Apple, it’s all about constantly creating and improving the product line. Here’s what I think is likely to ship in the next four to six months.
We’ll start with Apple’s largest revenue producer (44%), the iPhone. With a fresh release of iOS 14, the fastest silicon, and perhaps a small Pencil for some models, the iPhone 12 is likely to grow the Apple revenue tree.
Next comes the newfangled Mac running on Apple Silicon. The Mac recently accounted for 12% of revenue. The new machines, laptops for the time being, should push that number a bit higher, mainly because they’ll be faster and nicer than the x86-based competition, but also because they’ll (possibly, according to rumor) sport new features such as a touch screen and better cameras. Apple almost certainly will offer their own 27” monitor to replace the LG accessory unit that vanished from the Apple Store without a word.
Apple’s Wearables and Home accessories provide about 11% of revenue. An obvious improvement would be a new Watch with stronger new features than last year’s somewhat tepid iteration whose main claim was an option to keep the screen on at all times — while the battery allowed.
In the same category, we may Finally™ see the mysterious AirTags that will help us keep track of wallets, purses, and hats, thanks to the iPhone’s barely used Apple U1 chip. AirTags themselves won’t move the revenue needle, but they’ll help sell iPhones. Same thing with an Apple-branded charging mat, a replacement for the stillborn AirPower.
While we should see a new Apple TV and improved game controllers, we probably won’t get a new HomePod version, especially after Amazon’s pause in its own Alexa and Echo operations — the cash register rang less loudly than the Web noise about the product line.
Finally, it seems the Beats brand is being “deprecated”, made to disappear, meaning we’re likely to see new Apple-branded headphones and, perhaps, new AirPods variations.
I won’t comment on the Services category, which now represents 22% or more of total revenue. Blind faith tells me it will continue to provide revenue growth. Ditto the iPad, 11% of revenue. We’ll see if and when new models fit the busy lineup we’re traversing.
There’s a good chance that some of this is misinformed or simply wishful thinking (AirTags, especially), but it paints a picture of revenue contributions that belie the Best Days Are Over refrain.
Returning to AAPL’s historic pinnacle, let’s recall Warren Buffett’s saying: In the short-run, the stock market is a voting machine; in the long-run, it’s a weighing machine. The Sage of Omaha must be pretty happy with the 250M shares of Apple stock he started accumulating in 2016, now worth about $118B. Buffett’s vote for Apple weighs a lot more than the vaticinations of web carnival barkers.
After four stock splits (there’ll be another this Monday), a single share of AAPL at the 1980 IPO price ($22) would be worth $27,859 today. That’s a 126,631% gain. Impressive…but Microsoft did even better with its own IPO, six years after Apple’s. By December 2019, MSFT had yielded a 211,000% gain.
Perhaps there is room left in Apple’s upward trajectory.
