When Apple changed its name from Apple Computer to Apple Inc. they signaled that their business has moved on. We can say it’s to devices or to mobile computing or to the Post-PC era. To understand that this is not a shift driven only by wishful thinking we can plot the change in volumes for the platform-based devices Apple sells.
The stack of products is shown in an increasing level of mobility. At the bottom is the non-portable desktop Mac, above are Mac portables (laptops) followed by the iPad, iPhone and iPod touch. The mobile computers Apple sells are explosively more popular (and important).
To gauge importance consider the following chart which shows the unit values above multiplied by the average price they are able to obtain for a picture of the sales mix.
In a new ad for the iPad Apple once again makes the case that the tablet is a good substitute for a PC in a number of use cases (and permits some new ones.)
We’ll never stop sharing our memories. Or getting lost in a good book. We’ll always cook dinner and cheer for our favorite team. We’ll still go to meetings, make home movies, and learn new things. But how we do all this will never be the same.
This belief that the iPad “cannibalizes” the PC is a powerful concept. The growth of the PC has certainly been affected. But has the Mac’s growth also been affected?
Tim Cook seems to think so. In the earnings call he said:
In terms of cannibalization, we do believe that some customers chose to purchase an iPad instead of the new Mac during the quarter, but we also believe that even more customers chose to purchase an iPad over Windows PC. And as I’ve said before, there’s a lot more of the Windows PC business to cannibalize than the Mac.
If we look at the behavior of Mac vs. iPad, the following chart may be useful:
After Apple reported earnings growth of 125% its share price dropped to a P/E of about 15. This reduction in valuation is part of a trend I’ve written about for over a year so there were no surprises. The first chart below shows how the stock has traded between increasingly lowered P/E bands.
As the second chart shows, not only is the P/E ratio declining, but when seen against the trailing twelve months (TTM) average growth rate, the P/E/TTM ratio is now at the lowest since the great recession (around 0.17–a value of 1.0 is a rule of thumb for “fair value” in a growth stock).
Those values include cash. Excluding cash, the P/E as of Friday was 12.4. On a forward basis (my estimate–which has shown be be conservative lately) the P/E is around 7.
Perhaps some day in the future
Apple’s cash and marketable securities increased to $76,156,000,000. The increase was 15% sequentially or $10.4 billion in three months. That’s the equivalent of an increase of $11 per share (to a current $81.2/share.)
The composition and growth of liquid assets is shown in the following chart:
There is little I can think to say about this that hasn’t already been said (see last Critical Path show.)
Except maybe that the amount is now nearly 16% higher than three months ago. And that the amount added last quarter is higher than the amount on hand 4.5 years ago. And that the cash added is higher than Google’s overall revenues in the quarter.
In Q1 2009 the company’s share price briefly traded at $78. A buyer of shares at that price will have recovered their investment in retained earnings in nine quarters.
Here were my predictions for the third fiscal (second calendar) quarter from April 25th.
Estimates for Apple’s third fiscal quarter (ending June) | asymco
Later in the quarter I updated them for submission to Philip Elmer-Dewitt’s blog at Fortune. The original and updated figures are shown in the following table (with actuals).
The changes were not significant except in a reduction of iPads. Three items were better in the early call and three were better in the late with one item equal. Using a simple method for scoring the results I gave myself the following report card:
As the Revenue and EPS figures are dependent on the other line items, the most significant error is clearly the iPhone where the error was over 30% (and hence deserves an F). The other figures were not very close either so the overall grade point average is a very mediocre C (2.3).
So, as in previous quarters, nailing the iPhone number is everything. Having failed to guess correctly, the whole performance fell apart.
So how did I manage to get the iPhone number so wrong?