Thursday, April 21, 2011

Apple - the 35-yr old Giant that Tangos, Ballet dance and Runs 9sec in 100m

Apple just announced a US$6 billion profit for its first quarter 2011 result last night - amazingly it almost doubled its profit from the same quarter a year ago. What is the significance of a US$6 billion profit for a company to many who really do not realise Apple is a Giant.

Well two quarters of Apple's profit, could probably be similar to CIMB's (Malaysian's largest cap company in Bursa) total PAT from the day it was incorporated till now - and Apple meets that in two quarters. Note that Apple registered almost a similar PAT in its previous quarter (usually a good quarter due to Christmas period).

Frankly, I am a late Apple believer. When my friends were crazy over the Macintosh, Ipod, Iphone 3, Iphone 3GS and lately Ipad - I was still a non-believer. Being a macho person (in thinking), I always thought that Iphone was only for those who wanted to show off. Basically, to me it was almost like the ladies who could not wait for the latest season's Louis Vuitton handbag. And Iphone covers that demography (to ladies who puts their Ipad and Iphone in their LV handbag) in addition to school children, men, young and old - basically all walks of life who can afford an Apple's product that is.

Well, I had a changed of mind when I looked at its financial performance, tested Iphone 4 when my wife got one and imagine this, my mum got an Ipad recently. That changes everything!

To me Apple is no longer a nice to have - I to a certain extent understand why people queued up days to the launch in every single city it launches its iconic products - and it will be no different when it offers its first Ipad 2 in KL this 28 April (notice I know the date, I am not queing up though).

Enough said about how amazing its product is (hey, my blog is about stocks). Amazingly, Apple a US$320 billion company - larger than GE, Microsoft, IBM, Intel, Citigroup, JP Morgan etc - fact is Apple is the 2nd largest market cap company in US after Exxon Mobil. And it can dance!

How many products Apple has? Well, you can go to a less than 3,000 sq ft Apple store - you can see all its products. Another question, how many models are there for Iphone 4? 2 and both looks the same - only difference is whether it is 32G or 64G. Can you differentiate them from the outlook? 1 design means cost of production must be low while it continues to produce solidly made products. I have a feeling that the Iphone 4 is the single most profitable product made over the last 1 year. It for one contributes to 50% of Apple's revenue last quarter!

At US$6 billion per quarter profit and growing (news say that this little company cannot meet demand), it is trading at slightly more than 12x PE. Expensive? No. Hence it is not that you are getting a company at 70x PE as to what we paid for Google when it was first listed.

I actually do not know what is the limit for Apple. Will its iconic status continue to overwhelmed its customers? Fact is in every launch it made over the last 5 years, it does overwhelmed the enthusiast. It now overwhelmed me. Imagine a new introduced product - the tablet called Ipad - Apple controls 80% of the market. No other companies are able to introduce tablet successfully. Only Steve Jobs and Apple can. And I do not know how many more tablets will be sold. I also do not know how many tablets can be sold in a year. If it is 100 million units, then Apple can theoretically and potentially sell 80 million units assuming it maintains the market share.

Only the factories that produce the tablets, Iphone, Ipod can limit Apple's revenue upside. Imagine this! Its products especially Iphone are not even available in some countries. I see Vietnamese coming to Malaysia to get an Ipad.

And my first Apple is its stock. :)

p.s. I wonder if Forrest Gump still holds his Apple shares...

Serious Investing!

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