Apple (AAPL) recently reclaimed its highest-ever stock valuation at a post-split price of $100 and change. This price is mostly predicated on expectations of a big rollout of for the new iPhone 6 and the speculation around a wearable “iWatch” device for consumers. What is not discussed nearly as much are the firm’s growing opportunities in the corporate world.
Apple’s latest quarterly results confirmed something a lot of anecdotal observers have been thinking for a while: the Macintosh is quietly taking over the PC market. That conclusion is strikingly at odds with reports from the analysts at IDC and Gartner, who have been reporting declining Mac shipments, even in the most recent quarter when sluggish PC sales supposedly picked up. These firms reported year over year unit drops of 1.3% and 1.7% percent while Apple insists there was double-digit growth. Who’s right? Because Apple controls much more of their chain with retail and online sales Apple has much better sell through data than the analysts at Gartner. It also has much higher margins than its competitors. When in doubt believe your eyes.
“But wait!”, you say, “That’s a consumer story and you’re ignoring the vast corporate market where most PCs are sold.” If you’re over 70 you might add something like, “you can’t run a business on Apple equipment.” Guess what? The world’s most valuable company runs on Apple equipment. Doh!
Now, I’ll admit that if you wander the cubicles of corporate America you’ll find them dominated by Dells and HPs but you will also find a lot of fax machines and copy machines. Investors should be talking about future growth and the Macintoshes are well past the “sneaking in the backdoor” phase. Does anyone seriously believe that there has been a reduction in Macintosh penetration at the corporate level?
Further, does anyone love his or her Dell? I mean other than that ancient “Dude, your getting a Dell” dude. I can’t say I’ve ever heard anyone rave about the latest corporate black box and say, “I’m going to get me one of those virus infested puppies for home!” No, these folks are grumbling about the latest iteration of Windows or even still bitching about Vista. With support for Windows XP dropped, are rushing to the Apple store. If you have any doubts about this, after your visit to your local Mall, take a gander the vast empty spaces in the Microsoft Store, if you can find one.
Let’s take a moment to look to the future. Here is class of undergrad business students at a major university where I teach. Notice anything? Frankly, being “stuck” with a windows machine has become a stigma in college. I’ve observed the same story at the MBA level and even the executive MBA classes. These folks are the future and often-current managers of the global corporate world. They will soon be driving purchasing decisions from New York to Shanghai and they do not want to do windows.
While the consumer channel may be stuffed full of really cheap Androids tablets every fall, most of those grandma bought gizmos are going to rot under a pile of dirty clothes in a dorm somewhere. Lately it seems about half the small retailers I visit are using iPads are cash registers. Many chain restaurants are using them to seat clients, take orders and again as registers. Comparatively few are choosing less expensive Android tablets. Why is that?
Virus, hassle, option and thumb drive free, Apple’s locked down, high-margin tablets make a lot more sense for corporate and retail environments than their Windows or Android competitors. For one thing Android tablets come with all sorts of physical connectors and options to support peripheral devices and optimize user options. However, this plethora of possibilities, which look like a competitive advantage on paper, is actually a disaster for the distribution channel and constantly undermines the Android echo system. While all those options are awesome if you’re a uber-nerd who gets off on having that one-of-a-kind configuration, from a business standpoint, simple is secure and Apple wins hands down.
There are only two physical configurations of the iPad – full size and mini – and updates are methodically slow and iterative. This means makers of docking stations, card readers, cash draw adapters, podium stands etc. can provide solutions to a large number of potential clients with two versions as opposed to accommodating the dizzying array of hardware from a hundred different Android manufacturers. These hardware firms lack control over the real user experiences in the OS and therefore they must compete by lowering cost (and quality) and adding features and options. Consequently, they update their products so often that as soon as an accessory designer has stuffed the distribution chain with their latest wares they find that half the announced tablet models were either never really distributed or were quickly discontinued. The unlucky accessory manufacturer must take back that useless inventory and when they go bankrupt the distributor is stuck with the plastic waste. Apple rarely strikes out with a product. Even a “failure” by Apple standards, the iPhone 5C, is one of the best selling phones on the planet. Corporate IT and the resellers who support big retail don’t want to get stuck with junk. It’s sooo much safer to just push their clients toward Apple. Once Apple solidifies its corporate foothold, the opportunities for backend products and services are enormous as well.
The bottom line is that the consumer market is filled with phones and tablets and that Apple’s high-end products already capture most of the profits there. Consumer growth is not what investors should be eying. Apple’s future is in the business world and no iWatch is required to tell what time it is.
Now, if we could just get more of this stuff made in the USA – and maybe California.
Note: I own Apple stock, develop corporate products for the IOS platform and also routinely criticize the firm for concentrating its production in China.