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mod note (Andy) this was originally posted on 10/26/12
A fundamental contention between bulls & bears seems to be the ability of AAPL to continually sell new iphones/ipads at premium prices given the hyper-competitiveness of consumer hardware. One only has to see the meteoric rise and fall of RIMM to see this fact.

Of course, it's now in vogue to disparage Blackberries, but pre 2008 times were looking bright as ever. With a stranglehold on enterprise/business users, a proprietary security system/network, and an efficient phone design, RIMM could do no wrong. Was that a moat? In hindsight, most definitely not, as missteps in consumer phones (yes, I have one), have brought questions as to RIMM's survival, let alone growth.

For AAPL, bulls point to continual innovation driven backed by $100B-cash on hand, a cheap valuation ~13x ttm earnings vs. 20%+ ttm eps growth. Specifically, Einhorn points to the software/AAPL-halo argument, which says that users who enter the AAPL ecosystem (itunes, icloud, ios, etc.) will continue to upgrade.

In essence, AAPL is a (social) media software company that monetizes through high margin hardware.

Bears point to reduced innovation after Jobs' death, with the recent iPad mini premium-priced but lacking any real new features. At the same time, Samsung's Galaxy S3 has better hardware specs (larger screen, etc) and has outsold the iPhone 4S last quarter (except at AT&T).

Finally my 14-yr old brother, who has an itouch and uses itunes, likes the iPhone 4S better than iPhone 5.

Who is correct? I used to be of the former opinion, but with the recent sell-off and insider selling even into the iPhone 5/iPad mini, I'm not so sure and can think of easier longs to buy.

Other thoughts welcome!


Disclosure: no position in AAPL 

Comments (6)

  • andres17's picture

    Well, I'm still maintaining my long position. Apple has done this pullback after Q4 earnings before. So far, the news are that they are selling all the phones they are making. That does not means necessarily that they will break earnings records in Q1 come January, as the supply can be low due to the difficulty of manufacturing the phones. So even when they sell all the ones they make, they don't sell enough. But I think this pullback is way overdone. And it is a nice entry point. So I may add to my position. I am even considering an options play. What do you guys think is the best option play? Also, let's hear from someone who a different point of view.

  • ladubs111's picture

    Plz, the don't even need double digit growth anymore to have higher valuation than what its trading at now. But their set backs every quarter is a bit worrying. i hate posted this before, my faith in tim cook is quite low but the product can sell itself still, and unless there is an actual decline in IPhone and IPad sales YoY, i'll hold on. And also does MINI really have lower margins than the full size ones? From the BOM estimates I'd figured after all the other freight costs and what not added, it would be around or even higher than current 10" inch ipads.