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Investors in Apple (Nasdaq: AAPL ) have been on quite a ride for more than a decade. The company has turned from a niche player in the computer business to a force in mobile phones, music, and the new tablet market. Apple is no longer the small company it was 10 years ago; it's a $325 billion market-cap giant.
So now that Apple is bigger than tech heavyweights Intel (Nasdaq: INTC ) and Google (Nasdaq: GOOG ) combined, can it keep rewarding shareholders by growing to a $1 trillion market cap? Here are a few of the forces Apple will have to overcome to get there.
The curse of Goliath
When you're the biggest, most successful company in an industry, you run one common problem: Everyone is gunning for you.
For Macs, competition is nothing new. Apple has been competing with Microsoft (Nasdaq: MSFT ) and PC makers including Dell and IBM for years, and that isn’t about to change. But in newer products such as smartphones and tablets, where Apple revolutionized the market, the challenge is different. The target on its back is bigger, and competitors are starting to make inroads. Google's Android platform has more users than Apple's iOS, and form factors are starting to improve in both smartphones and tablets.
When the iPhone came out, it was the only device of its kind. Now HTC, Samsung, and Motorola Mobility (NYSE: MMI ) , among others, have quality devices that are often less expensive. The iPhone is still a dominant product, but the pressure is on.
The tablet market may be even worse. Apple has to compete with niche devices such as Amazon.com's (Nasdaq: AMZN ) Kindle and the Barnes & Noble (NYSE: BKS ) Nook, which are designed for reading books. The Motorola Xoom and Hewlett-Packard Slate are among the tablet devices that provide a comparable experience to the iPad in what is becoming a very competitive market.
Apple is also fighting the same open/closed challenge in its products today that it did in the 1980s. Google's Android platform is open-source, allowing hardware developers to modify as they please and opening a world of possible competitors to Apple.
It's tough being on top.
The market falls out of love
Just ask Intel and Microsoft whether they feel undervalued by the market after being darlings in the '80s and '90s. Both have extremely strong market positions and tons of cash, and they still haven't been able to get their stocks to move in the past five years.
When you become one of the biggest companies in the world, you just can't command the same earnings multiple, and everyone starts pointing out any warts you may have. When it starts seeing the competitors you've attracted and notices that growth doesn't come nearly as easily, the market decides it may be time to move on.
Growth isn't easy to come by
One of the reasons Apple is so remarkable has been its rate of growth, even as a huge company. Over the past year, revenue has grown at an astonishing 71%, though you would assume that kind of performance couldn't last forever.
When Apple added the iPhone, the Mac and iPod dominated its sales. Since then, the iPod has taken a back seat, the iPad has been added, and the iPhone has become Apple's bread and butter. But where do you go from here? The iPhone is in at least 102 countries, Macs are growing share but aren't designed to dominate the PC market the way Windows does, and the iPad has competition left and right.
Apple's premium products are attacked from all angles, and while I've argued that Apple shouldn't make dumbed-down products, that also means leaving room for competitors.
Product risk has been a plus for Apple, but it could prove to be a minus in the future. If you don't hit a home run every time, it's tough when you really only have five product lines (iPod, iPhone, Mac, iPad, iTunes) that contribute significantly to sales. If a company can come up with a wildly superior product, it could put a major dent in Apple and, in turn, Apple shareholders.
Foolish bottom line
I'm not trying to rain on the Apple parade or discount its products. I'm writing this article on a Mac, I use my iPhone constantly, and I wouldn't give either one up. But there are challenges for Apple's stock going forward. The jump from a $100 billion company to a $300 billion one looked like a breeze, but can it make the jump to a $1 trillion company? That may take a lot longer.