Thursday, May 22, 2008

WSJ: What will Apple (AAPL) be Creating in 5 Years?

A very interesting take in today's Wall Street Journal regarding what Apple (AAPL) could potentially be doing in 5 years. I won't rehash my old posts but most of my bullishness on this name, aside from the potential market share wins of Mac vs PCs revolve around Apple as the center of the digital revolution. [Nov 24: Apple (AAPL) the Cultural Icon] Much of the ideas in this article, are similar to my longer term vision - i.e. Apple will be running your home ;).

My timeline on this name is quite far down the line, hence I don't get too stressed regardingthe quarter to quarter numbers, although we have to be aware of the lemmings knee jerk reactions to Apple's ALWAYS conservative guidance. Technology, to me, as a sector is very overrated - there is very little true secular growth. Hence, despite the expensive valuation - I am willing to pay up for the few real growth stories - with that said, I have Apple down at the lower end of its typical allocation due to this very nice run the past few months - would like to add back more exposure at lower price points.

And yes, the US consumer is stressed, and no Apple won't be immune. But this is becoming an international story - with nearly 50% of sales now overseas. And even stressed Americans still will cut things less important to them than such valued treasures as video games and Apple products. ;) Let's see what Forrester Research is predicting 5 years out.
  • Forrester Research is the latest to look into the crystal ball in a new report that imagines the Apple products of 2013. But rather than predict Apple jet packs or other outlandish new directions, the research firm uses the company's recent history as a guide to forecasting.
  • Forrester's conclusion: While much of Apple's great successes have been mobile products such as the iPod and the iPhone, the company will seek to colonize rooms throughout the home.
  • Among the new products Forrester predicts Apple will create are wall-mountable digital picture frames with small high-definition screens and speakers that wirelessly play media, including photos, videos and music, stored on a computer elsewhere in the home. Such products already exist, but Apple could put its own twist on them -- for example, by adding its design panache and a touch-sensitive screen that lets viewers flip from image to image with a finger swipe, a la the iPhone.
  • For the bedroom, Forrester envisions an Apple "clock radio" that pipes in music and other media across a home network.
  • Possible, too, is an "AppleSound" universal remote control, also with a touch-sensitive screen, that lets users browse their music collections and change the songs playing through their stereo as they stroll around the house.
  • Forrester also thinks Apple could extend into the home the technical assistance currently offered by "Genius Bar" personnel in Apple retail stores. Apple in-home installation services will become especially important as its array of products for the home grows. (ohh we love services over hardware, nice margins - right IBM?))
  • The iPod remains the top MP3 player, with more than 70% of the market, and Apple is now the top retailer of music in the nation, ahead of Wal-Mart Stores. Less than a year after entering the cellphone business with the iPhone, Apple became the second-largest provider of smart phones in the U.S.
  • That said, the company had an underwhelming foray into the living room with a television set-top device called Apple TV that plays music, photos and movies downloaded from the Internet and PCs on a home network. In an interview earlier this year after dropping the price on the product by $70 to $229, Mr. Jobs said he was disappointed in its sales. (and when Mr Jobs gets angry, Mr Jobs makes sure the next iteration will be better - Mr Jobs does not like to lose)
  • Despite the hiccups, veteran observers of Apple say Mr. Jobs's intent is clear. "I see everything Steve is doing as positioning himself to take over completely the living room," says John Seely Brown
  • Steve Wozniak, the co-founder of Apple with Mr. Jobs, says it would make "a lot of sense" for Apple to do a television set that can also access media stored on the Internet and local PCs. "I only started thinking that way recently," Mr. Wozniak says. "Apple is obviously in the world of delivering display devices already."
One beauty about Apple is they find a way to make elegantly designed product that is dummy proof.... if you have tried to install your Sony DVD to your Panasonic HDTV to your JVC surround sound stereo to your ... well you know all those fun cables involved. This is where Apple will simplify life - and people love having a simple life - and they will pay for it. So, as we do every 90 days we'll hear the lemmings cry about this or that line item in the earnings report and how its a clear signal the story is over... occasionally the stock will drop 25-35% allowing us to buy at bargain prices, which in turn we will sell back to the lemmings when they are "comfortable" that Apple is back on track - usually when the stock has rebounded 30%+. And so we'll repeat in 2009, 2010, 2011, 2012, etc. At some point growth will have to slow just due to sheer size but there are so many markets for Apple still to conquer not to mention the prime market they deal in...

....meanwhile Microsoft (MSFT) is chasing relics like Yahoo (YHOO) (hello AOL/Time Warner) - instead of fully focusing on morphing Xbox into something that could compete with what Apple is dreaming up for 2010 and beyond.

Long Apple in fund; no personal position

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