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February 27, 2012

Apple close to $500 billion valuation and on the way to a Trillion

Apple ended the last quarter of 2011 with a net income of $13.1 billion. Apple now has a valuation of about $490 billion.

The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October.

Seeking Alpha - analysts expect the company to grow at an annual rate of 20% over the next 5 years. S&P Equity Research predicts that Apple will increase its earnings at an annual rate of 34% over the next 3 years. Apple is expected to be trading at $1,200 a share 3 years in the future. Assuming 950 million shares outstanding, the company is projected to have a market capitalization of $1.14 trillion making it the first trillion dollar company on the planet. At current levels, although hard to believe, Apple is grossly mispriced by the market and is a bargain.

Apple drank the milkshakes of Nokia, Sony, Microsoft and Research in Motion

Apple and Google Android took over the cellphone and smartphone world markets. Apple is the one who is making 80% of the profits, even though android now has more marketshare.

It does not appear that any competitor will be able to move quickly enough to pressure Apple market share or margins before Apple can become a trillion company. Longer term there will be challenges to Apples margins.






ZTE and Huawei could respectively be producing 80 million and 60 million smartphones in 2012.

The immediate and midterm danger to Apple is not that people would not still want iphones and iPads but increasingly capable lowcost android phones could start hurting Apple margins.

The Total Mobile Market

The Total Mobile phone market for 2015 and 2016 looks big enough to support a trillion market capitalization company.

Market research firms forecast data demand and revenue will continue to grow in the coming years, making it increasingly necessary for operators to upgrade to faster and more efficient networks:

* Ovum projected that LTE would be used by 19 percent of mobile broadband users in Asia Pacific by 2016.
* Ovum forecasts global mobile data revenue to rise 10% to USD 1 trillion in 2015, from USD 906.82 billion in 2010.
* By contrast, global mobile voice revenue is expected to fall 8.4% to USD 607.91 billion in 2015, from USD 663.36 billion in 2010.

Apple without much effort on its part, is making rapid headway in selling to corporations.

Apple has seen its iPad become a standard business tool. According to an IDG Connect survey, 51 percent of managers with iPads say they “always” use the device at work, and another 40 percent sometimes do. Seventy-nine percent of the respondents use the iPad for business when outside the office.

Even as Amazon.com Inc. (AMZN)’s Kindle Fire and other tablets play catch-up in the consumer market, the iPad faces little competition among corporations such as financial services and pharmaceutical firms.

The information-technology industry now generates $3.8 trillion a year, according to research firm Gartner Inc.

If Apple could keep winning and growing at 20% per year it would be a $3.2 trillion company in 2022

Global mobile phone subscriptions neared 6 billion in 2011, with Apple's share of the handset market at 5.6 percent, according to the market intelligence firm IDC. "There's no mathematical reason Apple can't keep growing at a premium rate for at least several more years," Cihra said. "At the end of the day, there's no good reason for market cap to be a ceiling."

Apple fans are eagerly awaiting Apple's next big thing. A voice-activated television that upends TV the way Apple transformed music and cellphones? Maybe. And Cihra may well be right that Apple investors have at least several years of breathing room. But history suggests that excessive enthusiasm can often precede a fall. At Cisco's peak, every Wall Street analyst covering the company rated it a strong buy or buy.

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