Friday, February 15, 2008

Apple and the Analysts

Recently there seems to have been a major disconnect between Apple Inc. (AAPL) and Wall Street.  It's not just that investors have sold down about 1/3 of the value of the company in a correction that mirrors sentiment about the economy across the board.  No, it would appear that a lot of analysts simply don't understand Apple and its products.  That could just be because they don't actually use or own Apple products or it may be that they are taking an industry wide look at technology and assuming that what is happening elsewhere is going to happen to Apple as well.

One aspect of this disconnect has already been discussed here, the missing 1 million iPhones.  Wall Street finally cottoned on to the truth about two weeks later but even then they worry too much about Apple's lost revenue from the Telcos.  What they don't seem to understand is that a grey market iPhone in another country cannot add to Apple's revenue stream once it's sold and no grey market would mean no sale at all.  Apple isn't going to talk about this as it will only upset their partnering position with present and future Telco partners.  But do the math:

4 million iPhones + 3 million contracts >>> 3 million iPhones + 3 million contracts

This article believes that if Apple was more open with investors its stock would be higher.  Hmm.  I'm not so sure about that.  Apple thrives on secrecy, much of the value of iPhone was built in to the stock before anyone actually saw the device.  Fortunately the product delivered and the stock went from strength to strength.  iPhone is now the smart phone yardstick.

This January Steve Jobs announced a number of near-blockbusters (if the iPhone is a blockbuster, MacBook Air is only a near-blockbuster IMO).  After last year's iPhone announcement this was seen to be disappointing.  Yet Jobs also said they would be announcing new products with regularity during the rest of 2008.  In other words, the pipeline is full!

AppleTV Take 2 is now out and has delivered all that was promised in January.  The number of movies on offer for rental can only grow, the number of AppleTVs will also grow as word gets out.  I don't think there are any ads for AppleTV yet but iTunes software is pushing the device in not so subtle ways.  Yet Wall Street analysts are already suggesting that Apple gives up on AppleTV just to prove that they listen to outsiders (i.e. to them)!  Give me a break.

The whole Enterprise market thing is something else the analysts love to debate.  Apple is quite correct to distance itself from Enterprise in that too much control could be lost - control that makes Apple what it is, a tightly integrated hardware-software relationship.  The last thing the rest of us Apple users want is to have our computing lives influenced by Windows-experienced IT specialists.  Besides, if present day Enterprise solutions are so good why is it that all these Government databases have been lost?

The more important question the Wall Street analysts should be asking right now is "what will Apple be like one year, two years, five years from now?"  A difficult question, no doubt, but the only one that will provide an indication of the future value of the company.  And there are plenty of websites out there that have their opinions for all the analysts to read!