fred stein

Grrrreat article. Rolling. It's amazing how people don't get Apple, even when Tim Cook spells it out. They invest a ton in h/w and s/w integration down into the chip design. That is what drives demand and margin, and keeps the brand strong. Elegant design and branding add a lot but alone they could never sustain Apple. Another thing folks don't get is that Apple says "no" a lot. Steve Jobs touted this as one of his most important roles. Tim Cook carries this on. Hence Apple does not chase after every new product or feature. People see this as a failing. When Apple does introduce a new product, they are all in, from chip to retail training and inventory management, which costs a lot. Compare and contrast Google Glass and AirPod. Glass was a great experiment and a zero business. Google did not invest much into Glass, hence it's high price. But it generated massive enthusiasm. AirPod, whose demand still exceeds supply, required major investments by Apple and it's suppliers because the technology is so far ahead and it's price is accessible. Analysts just see a small white bauble. Guess what? No one else has such a bauble. Very curious to see how long until competitors release an inferior copy cat. And.. Apple Watch and AirPod, both wearables, show Apple crushing two new categories. The rest is the Smart Watch biz is more fragmented than Android. AirPod has no competition as "smart" earbuds.. Both run variants of iOS.

This is a strong positive for Apple, regardless of comparison or the competition. Apple invests heavily in the chips and the software tools to help App / Game developers on iOS, this include ARKit. Plus iOS updates propagate quickly to a sizable and well-heeled installed base. All these factors create superior ROI for iOS App developers, and superior UX for iOS users. 

That 26.8% growth rate allays concerns of seasonal or cyclical hardware sales.

Arithmetic.

Apple is 4% of the S&P. Apple earns internally about 7%. Apple can buy back 10% of the company and get a 7% ROI. That knocks out any major risk to AAPL.

A 10% hit to AAPL is a .4% hit to S&P 500. How long would this last? Apple will have another $350B to spend on buybacks over the next five years. 

When AAPL goes above $250, we can talk about risk.

Upgradability sounds great and it is. But how much is it worth? Buying extra DRAM or SSD at today's prices is a modest premium of about $1 a day over two or three years. In exchange you get a system that Apple can warranty and can handle workloads for years with just downloadable upgrades of Apple and 3rd party software. 

With the appliance model, Apple can provide better support because the configuration options are finite. This benefits both the majority of users and Apple. If you're a super competent hacker, take the DIY approach and void your warranty. For some people that's perfect.

Other "pros" such as carpenters, plumbers, real estate agents (who lease expensive cars), financial traders, photographers, spend much more on their tools. Real estate agents lease news cars for two or three years and never 'upgrade' them. Pimps do upgrade their rides.

bolen mac said:

The outdoor mall at Simi has been losing tenants almost as soon as it open 10 years ago. There is almost no foot traffic for any of the stores. I have been surprised Apple stayed as long as they did. 

The Northridge and Topanga locations are always very busy.

Thanks for the perspective. Makes me feel OK as an investor.