I'm Still Bullish on Apple

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So if I read my friend Rick's original bearish argument correctly -- not to mention his latest rebuttal -- you're better off buying Research In Motion (Nasdaq: RIMM) than you are Apple (Nasdaq: AAPL), because it's a faster grower and the market leader in smartphones?

Talk about cherry-picking!
Yes, RIM is once again the market leader. NPD Group reports that the BlackBerry Curve outsold the iPhone during the first quarter. What Rick isn't telling you is that Research In Motion benefited from garage-sale tactics that boosted its numbers. Verizon (NYSE: VZ) offered Curve shoppers a "buy one, get one free" promotion in Q1. 

More telling, I think, is that the BlackBerry Storm, a would-be iPhone killer, was nothing of the sort. The Storm was third behind the iPhone on NPD's list. RIM's BlackBerry Pearl ranked fourth, while T-Mobile's Android-powered G1 placed fifth.

And while we're talking numbers, let's set the record straight when it comes to the iPhone. While it's true that iPhone unit sales fell sequentially, revenue improved 22% over the same period. Year over year, iPhone unit sales doubled and revenue quadrupled.

You want growth? You got it
Consumers are buying iPhones as much as ever, in other words. But so are corporate customers. According to a recent survey of 127 large and midsize businesses conducted by Osterman Research, 44% said they planned to support the iPhone this year, up from 20% in 2008, BusinessWeek reports.

Meanwhile, the App Store grows at an astounding pace. Users have downloaded more than 1 billion software programs to their iPhones in the nine months of the Store's existence. That's not just growth, that's crazy growth that neither RIM nor Palm (Nasdaq: PALM) are seeing right now.

So for as much as RIM has built a top franchise, coloring the iPhone as weak by contrast is worse than specious -- it's just plain wrong.

Attacking the Mac
Rick's swipes at the Mac are more appropriate. Rising sales of low-profit netbooks took a toll on Apple in its fiscal second quarter. Total Mac revenue fell 16% over last year's Q2. Unit sales declined 3%.

These aren't good numbers. But let's put them in context. First, Apple faced a difficult comparison. Mac sales were up 51% in last year's March quarter, thanks to the MacBook Air, which has proved popular with business users -- including our own David Gardner, an Apple shareholder and captain of the stock-picking pirate ship we call Motley Fool Rule Breakers.

Second, while Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), Acer, and Asus have been engaged in a race for the bottom, Apple has mostly refused to cut prices. Higher prices have translated into lower sales.

But is that as bad as it sounds? The rumor mill says yes. Various outlets, including AppleInsider, are reporting that Apple plans lower-priced editions of its entry-level MacBook and iMac computers to counteract new Microsoft (Nasdaq: MSFT) ads that cast Macs as big-ticket novelty nice-to-haves.

I'm not convinced. Apple's gross margin -- the best measure of its pricing power -- rose to 36.4% in Q2 from 32.9% in last year's second quarter. To understand how powerful that is, look at the cash flow statement. Overall revenue improved just 9%, but cash from operations ballooned 20%.

Yeah, I'd like to see higher revenue growth, too, but no company gets a second shot at becoming a premium brand. Firms that go downmarket stay downmarket. Better it is for Apple to emphasize quality and innovation and cut prices slowly, as it has traditionally.

That's how you bring back the Mac.

Brrrrrriiiiiinnnng! It's related Foolishness calling:

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Tim had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy has had its daily apple. Buh-bye, Wall Street.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 07, 2009, at 12:08 AM, InfoThatHelp wrote:

    The global collapsing has taught people little in valuating tools and assets. Although valuation technique hasn't changed but people's grasp of value has never matured. The depreciation of Apple products is very slow highly unlike Rim products which are being given away (instant depreciation of the blackberry at time of purchase). In times of high volume business cycles it is not uncommon to depreciate assets (blackberries) in short periods, but in times of low volume business cycles assets are expected to outperform their cost of procurement. Many corporations are practicing employee partnering in providing capital equipment like the mobile phone. Apple equipment always hold their value very well. blackberries' status of corporate mobile equipment is virtually over. Apple makes its bulk of money from consumer products such as the iPod. The iPod benefits from freedom of carrier influence (for example you can already run Skype on it that costs $1.99 per month), WiFi capability further makes the iPod a virtually free and carrier free internet device. With a pocket wireless network attachment to the iPod even the iPhone and blackberry are not needed. Apple had its root from 1978 and it is one of the very last innovative American companies are known for. I can remember Motorola used to be innovative too, and so was IBM. Steve Jobs is apt to raise Silicon Valley to its former glory with Barack Obama refuelling the industrial muscles of America. Rim is a Canaidan company after all, look at Nortel and the host of Canadian companies which passed away,

  • Report this Comment On May 07, 2009, at 12:29 PM, policywank wrote:

    You make some great points. I'm more inclined to agree with your view than with the bearish one. You ended the article with a point that is just not correct. In my lifetime, I've seen several firms dilute their brand by going downscale then recoup their cachet later. One might even make an argument that Apple did that when they stopped licensing the cheap clones. But a much better example is Gucci. At one point in the 80s, Gucci had licensed their name to just about anyone who would write them a check. It made the company a lot of money, but it dropped them from being a luxury brand to being a mall brand for a while there.

  • Report this Comment On May 08, 2009, at 3:08 AM, SkateNYC wrote:

    Comparing Apple products to Gucci products may be clever, but it has nothing at all to do with the tech industry as we now know it.

    Apple dominated the smart phone sector in less than a year.

    They set the standard for downloding apps from iTunes in a relatively short period of time.

    Finally, they instaslled themselves as the de facto standard by withstanding evey "iPhone-killer" pretender from the very beginning.

    Unless and until anyone can come up wih a better, more popular product, Apple remains in the top position along with RIM.

    These are facts; not opinioins.

    Everyone is entitled to his own opinions. No on is entitled to his own facts.

  • Report this Comment On May 08, 2009, at 3:18 AM, ozzfan1317 wrote:

    Although I agree Apple is a good company I just dont see a reason to buy their stock once it tops 100 no real profit in it especially with no dividend.

  • Report this Comment On May 09, 2009, at 5:00 PM, InfoThatHelp wrote:

    Good products are not given away in Buy1 Get1 Free deals. Rim is a Buy1 Get1 Free company. People would not buy Rim otherwise. Rim can't hold the candle to Apple.

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