I'm Still Bullish on Apple

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:

Apple is a Stock Advisor selection. Dell and Microsoft are Inside Value picks. Try any of these Foolish services free for 30 days.

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.


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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 12:29 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.

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