So You Thought Apple Would Keep Growing Forever?

LONDON -- So you've all read the headlines, saying that Apple  (NASDAQ: AAPL  )  has lost its bite. It can't do TV. It can't do mapping. It can't do without Jobs. Its head is lost in the iCloud. It's all out there and worse, as the world's biggest company enters its death spiral. I've read those articles, too. I enjoyed them. There's a little bit of schadenfreude in everybody. Bah, Apple sucks! Feel better now? Right. Good. Then let's be sensible here. Yes, Apple's latest results were a bit rotten by its pristine standards. But they're not the end of the world. They're certainly not the end of Apple.

I mean, what did you expect? Did you think Apple would keep growing forever? As analyst Tony Sacconaghi at Sanford Bernstein pointed out, if it had maintained its sales growth for another five years, its annual revenues would have equalled the GDP of Australia. It had already overtaken Sweden, with its population of 9.5 million. That rate of growth was barely credible. It wasn't healthy. The slowdown had to come, and now it has.

Newton's Apple
The news was expected, but still dominated the business headlines. Apple's profits have just fallen for the first time in a decade, plunging 18% to 6.3 billion pounds in the first three months of 2013, as gravity finally asserted itself. Yet in many respects, it continued to defy Newtonian laws, with sales rising 11.3% to 28.6 billion pounds. It also shifted 19.5 million iPads in the quarter, up from 11.8 million, while revenues rose 11% year on year to 28.5 billion pounds. Sales were up, margins down. The share price barely shifted on the day, yet at $406, it is 43% down on last September's peak of $700. Investors who bought at the height of Apple mania will be feeling crabby today, but it's tomorrow that counts.

Cook's books
If you're as rich as Apple, with its $137 billion cash mountain, you can buy your way out of trouble, and that's what it's done. It has promised to smear shareholders with an extra $55 billion over the next three years ($100 billion in total), mostly in the form of share repurchases. It also hiked the dividend 15% to $3.05 per share. Less impressively, in my eyes, it tried to thrill us by promising an as-yet-unnamed "exciting new product category" in the autumn. Could it be watches? Could it be TV? We'll have to wait and see. But that leaves plenty of scope for disappointment. With Jobs done, Apple will struggle to get its groove back. Chief executive Tim Cook is a solid supply chain specialist -- he's not a world-changing visionary. Just look what happened to the much-hyped Apple TV, or iPanel, as it may (or may not) be called. Um, nothing. The doubters are likely to be back in force when nearest rival Samsung releases its latest results, which are expected to show it winning the battle of the smartphones.

Core investment
The bad news is out there. You've read it, you've secretly enjoyed it (there is something satisfying about the way the wheel of fortune spins). But let's get serious here. Apple is a vast business. It throws off billions of dollars. More of that money is finding its way into shareholders' pockets, through buybacks and dividends. Yes, iPhone 5 was a squib, but there's always iPhone 6. And, yes, it may struggle to deliver that exciting new product category. But it is still the company to beat, while Samsung remains the cut-price upstart. The Chinese might think Apple is arrogant, but they can't get enough of its iPads. Despite the profits drop, Apple is shifting more iMacs, iPhones, and iPads than ever. Better still, you can buy it at nine times its (massive) earnings and pocket a 3% yield, with more to follow. This isn't the growth monster of yore, but an established company in the throes of transforming itself into an income machine. Maybe that's what the "i" stood for all along.

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Comments from our Foolish Readers

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  • Report this Comment On April 25, 2013, at 9:08 PM, lakawak wrote:

    Funny that Motley Fool would say that, considering that is al THEY talked about...even during the huge collapse.

  • Report this Comment On April 25, 2013, at 9:10 PM, DanManners wrote:

    Ok ok, You are sounding a bit harsh. I myself say the same things but I am not writing the article.

    1. How the heck do you have any idea they can't come out with a new product category that will be successful. Mind you, they have taken the ipod in every direction so it is harder now to make a new category. The i5 got fairly good reviews. The maps ap overshadowed it . it was a very bad thing. But the phone was pretty good. And even though they dont have a big screen they sold alot of older iphones with even smaller screens. People want their product.

    2. If the i5 is pretty good and has some neat new things it will help sales. The i6 could come out next year with a bigger screen and you would be able to buy the i5, i6 i4/s and have a few choices. It may not have been Jobs inventing the ipad but approving of the idea. You are silly when you say Cook is an op man not an innovator. He just has to approve it and he may use internal consensus which could be what Jobs did too.

    3. If Apple regrows margins and they have all this cash to do 15 % buybacks 3 times in 5 years the stock goes to 1000 and up. This is a big machine. It is tech and they can't operate like a regular company. They cant grow forever but they can get to 1000 and be come a super big cash machine and keep buying back shares until this company has only 1 share left.

  • Report this Comment On April 25, 2013, at 9:39 PM, iBillionaire wrote:

    One of the main reasons the gross income has been lowerd is because of the billions they spent in building out the datacenters, the tooling and equipments they own at suppliers' facilities....i ya, at Smasung's factories too.

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