Analyzing Apple's Future Profitibility

by , 12:45 PM EDT, July 26th, 2007

Apple seems to be able to weather the buffeting storms of the stock market and temporary bad news because they have synergistic portfolio of products that work together and can survive ups and downs better than the company could when it was Mac only, according to Business Week.

Evidence of that is provided by the initial concern over the number of iPhone activations announced earlier this week by AT&T. Apple's stock took a severe hit, but immediately afterwards, Apple announced that its had sold a record number of Macs for the quarter, 1.76 million, a new record and that Mac sales had a growth rate nearly three times the rest of the PC industry. Apple stock recovered all its losses and then some.

"Apple's ability to develop, launch, and support new products, using the same R&D and sales and marketing investments, creates [earnings] leverage that is substantially greater than people thought even six or twelve months ago," said Goldman Sachs analyst David Bailey.

Analysts, done with the initial iPhone fervor, are starting to look at Apple's long term prospects now. "It's a solid start," said Piper Jaffray's Gene Munster. Referring to the initial iPhone sales numbers, he said, "It's a disappointment relative to the whisper numbers, but you've got a bunch of [PC industry] analysts who are rookies to the cell-phone space. But if you talk to any mobile phone analyst, they'd say the iPhone is off to a strong start. And none of this changes the fact that we still think Apple is going to sell 45 million iPhones in 2009." [iPO emphasis added.]

Apple is benefitting from a unique synergy in their product line. The Macs, the Apple TV, the iPhone, and soon some iPods are all running some version of Mac OS X. All the producs are designed to work together. The message from Apple is consistent with respect to the advantages ot these products and how they all work together.

As a result, investors feel Apple has many more legs to stand on. It's probably no accident that Steve Jobs refers to the three components of their business, Macs, music, and iPhone as three legs of a chair.

Now, Apple really has its work cut out as it plans to expand the iPhone business into Europe and Asia along with new models and enhancements. "We're past the initial bubble [of sales to Mac fans and early adopters], and back in the building-the-business phase," said Mr. Munster.

That's the message investors want to hear, and that's why Apple's business and wealth are soaring.