Ap­ple

Share price: $145.86 P/E: 17.3

Finweek English Edition - - COVER STORY -

Ap­ple re­ported rev­enue of $52.9bn for the March quar­ter, re­flect­ing a year-on-year in­crease of 4.5%. Earn­ings per di­luted share rose 10.5% to $2.10, it said. CEO Tim Cook said the “strong quar­ter” saw con­tin­ued ro­bust de­mand for the iPhone 7 Plus. Some in­vestors have voiced con­cerns that all it does is im­prove its iPhone, iPad and Mac; that there is no sig­nif­i­cant in­no­va­tion on the hori­zon.

Ap­ple is a very se­cre­tive com­pany and does not lay out its plans, says Talpert. But there are a lot of things go­ing on be­hind the scenes. “It has 300 engi­neers work­ing on vir­tual real­ity and aug­mented real­ity; the re­sources it has com­mit­ted to ar­ti­fi­cial in­tel­li­gence are mas­sive.

“It gen­er­ates huge amounts of cash and a huge amount is go­ing to R&D,” says Talpert, adding that mo­bile phones are the en­ablers to the growth in aug­mented real­ity. A lot of Ap­ple’s prod­uct in­no­va­tion has been around the cam­era, which is also very im­por­tant as an en­abler of new tech­nolo­gies.

Some in­vestors have voiced con­cerns that all it does is im­prove its iPhone, iPad and Mac; that there is no sig­nif­i­cant in­no­va­tion on the hori­zon.

“Ap­ple has not nec­es­sar­ily al­ways been the first, but when it brings some­thing out it is of­ten the leader. It makes sure it gets it right and brings out prod­ucts with fewer prob­lems than oth­ers.

“Ap­ple has a base of 1bn phones – that is a pow­er­ful met­ric in it­self. Add things like the app store and sub­scrip­tion ser­vices and Ap­ple has built a big ‘ecosys­tem’. Peo­ple who have bought into an ecosys­tem are less likely to switch to an­other brand.”

Ash­ton adds: “Ap­ple is to an ex­tent be­ing treated as an ex-growth de­vice busi­ness – its val­u­a­tion is still com­par­a­tively low at a for­ward 14.5 P/E, with 20% of the mar­ket cap in cash, so the val­u­a­tion on the op­er­at­ing busi­ness is even lower.

“While the iPhone dom­i­nates sales (over 60%) and has stag­nated in re­cent years, we be­lieve a fresh re­place­ment cy­cle should drive re­newed sales growth. What is also not suf­fi­ciently ap­pre­ci­ated, in our view, is the po­ten­tial for the Ap­ple ecosys­tem to ac­count for a much larger share of prof­its in the fu­ture via the Ser­vices divi­sion, which should drive a re-rat­ing given the higher an­nu­ity na­ture of prof­its.”

Tim Cook CEO of Ap­ple

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