Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. As of September 26, 2009, it had 273 retail stores, including 217 stores in the United States and 56 stores internationally. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.
During the quarter Apple elected retrospective adoption of the Financial Accounting Standards Board’s amended accounting standards* related to certain revenue recognition. Adoption of the new accounting standards significantly changes how the Company accounts for certain items, particularly sales of iPhone® and Apple TV®. “If you annualize our quarterly revenue, it’s surprising that Apple is now a $50+ billion company,” said Steve Jobs, Apple’s CEO. “The new products we are planning to release this year are very strong, starting this week with a major new product that we’re really excited about.” “We are very pleased to have generated $5.8 billion in cash during the quarter,” said Peter Oppenheimer, Apple’s CFO.
We at Panoptic Management Consultants, Inc. are huge believers in the technology sector. The fundamentals of tech companies are some of the strongest across all of the S&P 500 sectors. In the case of Apple, Inc., they have almost $40 billion in cash and short-term equivalents, and no long term debt. With this amount of cash, they could literally buy Morgan Stanley! Instead, Apple decides to focus all their efforts on innovation and incremental updates of their already existing products.
They have their hands in many of the fastest growing sub-sectors of technology. iPhone has revolutionized the smartphone market, iPod continues to dominate mp3 players, and the Mac computer line continues its comeback story. Macintosh computers have not broken 8% of the US PC market share in over a decade. This in my opinion is the real growth story going on at Apple. Macs are no longer shunned by enterprise users, and the ability to use Windows via BootCamp or Parellels allows PC users to easily transition to the Mac ecosystem. Apple has a virtuous "halo effect" going for them as well. A customer will buy an iPhone, an iMac a year later, etc. Their newest creation, the iPad, launches April 3, 2010. Its aggressive pricing will make it Apple's entrant into the ultramobile computing space.
I was lucky enough to attend the Apple, Inc. Shareholders Meeting on February, 25, 2010. There were a few interesting moments during the shareholder proposed votes on sustainability. At the first opportunity for audience participation just several minutes into the proceeding, a longtime and well-known Apple shareholder--some would say gadfly--who introduced himself as Shelton Ehrlich, stood at the microphone and urged against Al Gore's re-election to the board. Gore "has become a laughingstock. The glaciers have not melted," Ehrlich said, referring to Gore's views on global warming. "If his advice he gives to Apple is as faulty as his views on the environment then he doesn't need to be re-elected." - source CNET What CNET doesn't mention is that the glacier comment drew large amounts of laughter.
After the shareholder votes were cast, there was a question and answer session. CEO Steve Jobs, COO Tim Cook, and CFO Peter Oppenheimer came to the stage. I immediately got in line. I proceeded to hear questions from other shareholders mainly about what to do with the $40 billion in cash on the balance sheet. Dividends, buybacks, and even buying Tesla Motors were suggested. Mr. Jobs had a better idea, TOGA PARTY!
After 6 other shareholders, I got to talk to Mr. Jobs. I told him I had two questions on video gaming:
Why does Apple not have a 1st party developer studio for video games? (Microsoft, Sony and Nintendo all do)
I had an interesting back and forth with Mr. Jobs about this topic. He responded that the thousands of games made by 3rd party developers on the App Store were great, and he didn't see any reason for Apple to compete. I mentioned that "I hear Apple is good at making innovative products, and maybe they could bring something to gaming that other developers hadn't thought of." This even got a laugh from Mr. Jobs.
Would Apple be open to a strategic alliance to bring iTunes content to a video game system?
Netflix has been assaulting Apple on all three video game consoles on the downloadable video front. I broke down the market analysis: Microsoft has the Zune Marketplace, Sony has a load of content. but Nintendo is sitting there not doing much about selling media. I asked if a strategic alliance with Nintendo is something worth doing. He responded that "strategic alliances are tricky, but if they are profitable they are always worth doing."
It was truly a great honor to speak with the 3 top executives at Apple, Inc.
At the time of this post, Apple, Inc. is trading very near its all-time high. It is on the verge of surpassing Walmart for the 4th largest market capitalization in the S&P 500, and has Microsoft in their sights! Not bad for a small company started in a garage in Northern California.
Full Disclosure:
Our CEO, Asif A. Khan, CPA (or his family members) is:
Long Apple, Inc. Common Stock.
Short Apple, Inc. Put Options
Long Nintendo Common Stock
Long Microsoft Common Stock
Long Walmart Common Stock
Long Morgan Stanley Common Stock
Long Morgan Stanley Call Options
Short Morgan Stanley Put Options
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