Apple Isn't Done Growing

Winter may be months away, but when it comes to Apple (Nasdaq: AAPL  ) , the bears are hibernating.

They've good reason to stay in their caves. Late yesterday, the Mac maker, under assault from Consumer Reports and others over trouble with the iPhone 4's antenna, crushed Street estimates in reporting fiscal third-quarter results.

Revenue soared 61% to $15.7 billion. Diluted earnings surged 75% to $3.51 per share. On average, analysts were expecting just $3.11 a share in profit, Reuters reports.

Macs led this quarter's growth story. All told, Apple sold 3.47 million Mac desktops and laptops -- a new record and a 33% increase over last year's total. "More people are buying Macs than ever before," CEO Steve Jobs said in a press release.

Cash also continued to flow. Through the first nine months of 2010, Apple has generated $12.9 billion in cash from operations, up 83% from $7 billion at this point last year. The iEmpire now has more than $24 billion in cash and short-investments available. Mix in another $21.5 billion in long-term investments and you've got a company capable of outright buying many of the market's more interesting mid-caps. Partners Akamai ($7 billion in enterprise value) and Netflix ($6.3 billion in EV) come to mind, for example.

As impressive as those numbers are, two others from this report interest me most:

  1. At $1.25 billion, capital expenditures through the first nine months of fiscal 2010 are up 82% over the same period last year.
  2. Research and development expense rose 36% during Q3. While still below sales gains, R&D investment growth is increasing.

Here's why these two numbers interest me. Historically, Apple has been stingy with cash, choosing to keep billions in low-interest savings vehicles rather than investing aggressively in new equipment. If that's changing, it means the Mac maker could be getting serious about a worldwide throw-down with chief mobile rivals Nokia (NYSE: NOK  ) , Research In Motion (Nasdaq: RIMM  ) , and HTC.

Second, in the same quote where Jobs lauded the Mac, he foreshadowed "amazing new products still to come." Normally, I don't pay attention to this sort of rhetoric. But the numbers suggest that Jobs and his team are investing more than they have historically.

To be fair, the added spending could be as much due to the hot-selling iPad and iPhone 4 as anything else. I don't buy that, though. Apple has had years to spend R&D and capex dollars on these products. Let the bears keep sleeping -- I'm taking Jobs at his word.

But that's my take. Now it's your turn to weigh in. Is Apple preparing for global domination? Let the debate begin in the comments box below.

Apple and Netflix are Motley Fool Stock Advisor selections. Nokia is a Motley Fool Inside Value pick. Akamai is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in Akamai 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. The Fool's disclosure policy has never seen anyone surf on turf, for what it's worth.


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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 July 21, 2010, at 9:46 PM, JonathanLeeds wrote:

    Absolutely, Apple will, in years to come, be the biggest and the best. Lets just think, if this iPhone 4 didn't have the overblown antenna problem, which is a tiny easy to fix problem, the stock would easily be over 300 now with a market cap close to XOM. Apple is heading for domination. There is no comparison saying Android sells more phones than iPhone. iPhone is one single phone on one single network. Imagine 20 different iPhones on every network in the United States? Complete domination.

  • Report this Comment On July 22, 2010, at 12:06 AM, SimchaStein wrote:

    Does Apple have to acquire someone to have more amazing new products? Did not need this in the past.

    What about Apple TV. Redo this an get it right?

    What about storage? So much to improve here. If I have a Mac, iPad, and iPhone, most likely 80% of my data hasn't been touch in year and won't be. Give me a home-based smart cheap, smartly power- managed storage server that does smart back-ups, remote secure access, transparent sync'ing across all my devices, and compression. Add an extra layer of protection with .mac.

    Noted in WSJ, Apple are building a tech force to support Small local businesses. Totally brilliant. Most small business are stuck with easily hacked, and crash-prone MSFT PCs. For them, the incremental cost of MAC is 25 cents a day (I made this up) and it saves them giant costly head-aches.

  • Report this Comment On July 22, 2010, at 3:55 AM, AAPLto350 wrote:

    Why don't analysts see the big picture - how on earth can they still be putting $16 profit per share on FY11?? AAPL will hit $4.50 in Q4 making $15/share for FY10, add in the iPhone 4 YoY at at least 50% (conservative), add 20m iPads making $150 net profit per unit (=$3b total), you have a $20/share year coming. Easily. On conservative iPad and iPhone growth targets.

    $20/share in FY11 plus $50/share in cash at a forward PE of just 15x gives us $350. That's the fair value and doesn't consider future growth prospects beyond FY11. This stock is a bargain, I can't see why anyone would think otherwise.

  • Report this Comment On July 22, 2010, at 10:40 PM, beetlebug62 wrote:

    Someone tell Anders Bylund, who picked Apple as his worst stock for 2010.

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