While Apple (AAPL 0.64%) certainly gets a lot of attention for any big enterprise iWin, small and medium-sized business iSpending doesn't typically make headlines. That's a shame, since small and medium businesses drive more than $125 billion in advanced technology spending each year -- about 80% of Apple's fiscal 2012 revenue. If Apple can dominate this less-talked-about end of business spending, it's a good indication of Apple's trajectory in the years ahead. That's good news for investors, since the evidence is beginning to suggest that Apple has already become the established leader in this space.
Source: Intermedia via AppleInsider.
This data was collected from September through November by Intermedia, which manages more than 500,000 email accounts with Microsoft (MSFT 1.65%) Exchange. The Apple iPhone represented 68.2% of activations by small and medium businesses, but even more surprising was that Google (GOOGL 1.27%) took a sizable No. 2 position. When you think of all the fragmentation issues surrounding Google's ecosystem because of its OEM distribution structure, it seems counterintuitive for businesses to adopt Android OS. However, the data suggests that Android works well in small and medium businesses, probably because these companies don't need the uniformity of Apple's iOS or Research In Motion's (BB 3.21%) BlackBerry OS, as an enterprise would. And they can save a few bucks while they're at it.
When it comes to making decisions, small and medium-sized businesses are more nimble than their enterprise counterparts, making upgrade cycles more likely and presumably faster than an enterprise fleet. So while everyone is going after the big catch in the enterprise market, Apple has been quietly carving out a sizable market share in the small and medium business space. The general market is possibly overlooking this hidden lead and sizable opportunity.
Source: Intermedia via AppleInsider.
Three things become apparent from this data. First, RIM commands a larger market share in tablets than in smartphones, although it's probably a smaller installed base. Second, Microsoft's Surface tablet is doing extremely well in the small and medium business space, considering it was released on Oct. 26. That's almost half of the PlayBook's share, a potential boon for NVIDIA (NVDA 3.65%), the supplier of its processor. However, this data also leads me to believe that the number of activated tablets is probably a smaller pool than enterprises, indicating that tablets have not seen as much widespread adoption among small and medium-sized businesses as smartphones have. It's important for investors to recognize that Apple owns the mindshare of tablet adoption among small and medium businesses. And smartphones are probably a higher priority for business spending, which sets the stage for greater tablet adoption to come later.
Big chain and bigger channel
Apple's business is unmatched when you think about its supply chain and distribution channel. It's a key advantage that explains why Apple is in a much stronger strategic position than its competitors. The iTunes Store, for example, is available in 155 countries worldwide. But the way you can really see Apple's supply chain in action is by reviewing the release schedule of the iPhone 5. Within the first eight days, the iPhone was available 31 countries. Fast-forward to today, and now the iPhone 5 is available in 87 countries around the globe. The fact that Apple's supply chain can keep up with 87 countries simultaneously selling iPhones in such volume is nothing short of amazing. It gives Apple a huge lead over the competition. Amazon.com's (AMZN 1.30%) newest Kindles, for example, are currently available in only seven countries, which have localized Kindle stores.
Irrational opportunity
What if I told you that you could own a company that has a five-y0ear history of growing earnings on average of 62% each year, yet you could buy it for less than 12 times earnings? This is the same company that has the greatest supply chain in the history of consumer technology, which just so happens to be dominating this little-known, quite sizable $125 billion domestic SMB market. Zoom out to a global perspective, and researcher Gartner estimates SMB IT spending was $860 billion in 2011.
Wall Street wisdom says the market can stay irrational longer than you can stay solvent, but in this case, the market's irrationality has created an outsized opportunity to own one of the greatest names in technology for a ridiculous discount. Yes, folks, I'm talking about Apple, and this market has totally distorted the value of this opportunity in favor of long-term investors.
