Apple's Future. An Investment, Business and Technology Analysis

Dear Reader, 

Apple, the US based consumer electronics, software and IT services producer, is currently valued at 2.25 trillion USD by public stock markets.

In the next 7 to 10 years I believe Apple's market capitalization could exceed 5 trillion USD. The main factors that are going to drive this enormous value creation is the 5G cellular technology, increased mobile and working from home and higher adoption of Apple's services products.

5G with its promised potential of 10 gigabits per second download is about to change our lives profoundly. Surgeons could operate from distance at the site of a crash or incident. Films and clips streaming will improve markedly and people will be able to watch live sports events on their mobile devices much more efficiently. The increased internet speed will enhance cloud computing, improve information storage and could rusher in a new era or at least enhance the current fourth industrial revolution based on information technology.

One of the main factors for the success of Apple's iPhone was Apple Inc's collaboration with AT&T to develop the cellular infrastructure so iPhones can be used as practically a mobile personal computer. Apple has a great first mover advantage in cellular phones and many people will choose to upgrade their mobile phones with 5G enabled iPhones and new adopters to iPhone's will be attracted because Apple's iPhones have huge brand equity, brand recognition and a are a symbol of quality.

The current coronavirus pandemic has made working from home ubiquitous. Almost all pupils and students in the past one year have studied from home. The work and study from home trend lead to increased purchases of Apple's Mac computers and iPad tablets which translated into a significant value creation for Apple Inc. Apple's iPad tablets, especially, are going through a renaissance. Apple is trying to push iPads as alternatives to its Mac laptops charging similar prices for similar screen sizes for Macs and iPads. Apparently, Apple is trying to move into the personal computer market forcefully via its iPads. Actually, this is not a bad strategy. The price points for iPads, however, are too high, in my opinion.

Apple has recently put much focus on developing its services like the share of revenue its gets from App Store application's sales, iTunes and others. Apple's hardware seems to serve as an anchor for its services products. Yes, Apple's hardware products are the leading revenue generator by market share, but Apple's services revenue is growing faster. Apple's vertical integration of software and hardware combines its hardware with its software and services in a high value added, high margin overall product. That said, Apple's services are now living a life of their own, producing new an exciting value creation channels.

Apple Inc is hugely profitable with very high net profit margins. All this positive cash flow enables Apple to invest into new product initiatives. According to various news sources Apple is looking to develop an own, electric, autonomous driving car. The car market is huge and Apple's know how in information technology can make the company a winner in the car market. As in its hardware business Apple could provide the technology, engineering know how and develop the product, while hiring subcontractors like Hyundai according to various news sources to actually build its vehicles. In the iPhones, Macs and iPads Apples is extracting the profits by doing the more intellectual work of designing the products while outsourcing the manual labor of producing and putting together the parts to various Chinese, Taiwanese and now Indian and Brazilian firms.

Actually, the secret of Apples' success seems to be its consistency. Apple has for decades consistently produced its Mac personal computers without actually gaining a big market share. Yes, Macs account for more than 80 % of the personal computer market profits but they are not ubiquitous like personal computers powered by Microsoft's Windows operating system. Another factor for its success is Apple's consistent profitability which allows it to attract talented hardware engineers and software programmers which in turn allow it to develop market leading products. Apples' culture of innovation and iteration brought up a huge success like the iPhone. iPad was also a big hit.

What is more, Apple now has a loyal user base to which it can constantly upsell new products with higher margins. Apple's industrial design specialists are also first class as evidenced by the external appearance of its products. Now the company has huge momentum from its successful development of high margin, leading products which can translate into new initiatives. Tim Cook is an able corporate manager who can execute an innovation strategy developed by some of his underlings. Yes, the cult of Steve Jobs is still alive, but Apple Inc is much more than one man show now. The real secret of Apple's success is its talented workforce which constantly develops the current know-how.

Apples seems to psychologically increase the consumer surplus people interpret from buying its products. Through its elite standing Apple's products imbue into their users with a higher satisfaction from owning the product, which, although largely psychological, contributes to one's well being and self esteem.

All the aforementioned factors make me believe Apple could be worth more than 5 trillion USD in 10 years time.

There is always the risk, of course, that a new more able, modern and likable competitor can emerge and Apple can go into a decline. But currently Apple Inc has mustered a lot of momentum which will insure the company's bright and profitable future in the mid term, at least.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich