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2 More Potential Growth Drivers for Apple Inc.

By Andrew Tonner - Feb 19, 2016 at 3:42PM

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As investors' confidence in the tech giant fades, recent comments from management again signal why Apple's potential growth runway remains greater than many realize.

Source: Apple.

Though its size makes it difficult to do, Apple (AAPL -1.80%) is famous for going to great lengths to keep its cards as close to its vest as possible, especially regarding its forthcoming product pipeline. But the media and analyst community continue to find ways to peer behind Apple's corporate curtain. Case in point: Apple's senior management recently held an employee town-hall meeting, and their commentary leaked out as containing some fascinating tidbits on several aspects for the company's strategy. Let's take a look.

Town-hall takeaways
During the town-hall meeting, Apple CEO Tim Cook, new COO Jeff Williams, and retail chief Angela Ahrendts each reportedly addressed Apple employees in attendance. As several news outlets noted, the contents of the presentation spanned a host of issues. Perhaps most importantly, Cook reportedly made a number of bullish statements about Apple's flagging iPad business, saying he expects the company's tablet sales to return to growth by the end of 2016 at the latest.

Perhaps this news refers to the much-rumored iPad Air 3 Apple is expected to launch this spring, or maybe it's something else. But Cook has repeatedly touted the iPad as a growth business over the years, only to see its sales continue to slow.

In an unexpected twist, Cook also reportedly hinted at the possibility of porting additional Apple services onto Alphabet's Android mobile OS. Apple made waves late last year when it decided to make its much-touted Apple Music on-demand service available on Android.

But what might these tidbits mean for Apple shareholders?

Source: Apple.

Investor implications
In terms of connecting Cook's commentary with what it could mean for Apple's financial performance, the revival of iPad growth as well as expanding additional service to Android should increase investors' bullishness on Apple's shares, which seem quite attractive heading into the iPhone 7's release.

The potential windfall from an iPad sales renaissance should be pretty obvious. With investors increasingly sour on Apple's sales prospects, the company and its investors will welcome increased shipments from any of its segments. If Apple plans to bifurcate its tablet release cycle by launching only the iPad Air 3 in the spring, such a move could signal that the company now views the iPad Pro as the favorite son of its tablet business.

The service-expansion angle is perhaps more interesting, and certainly less straightforward. Apple prefers to keep its software and services to itself, as part of its lucrative closed-loop strategy. However, the company has been known to make exceptions when it serves strategic needs. The quintessential example is the original iTunes, which Apple made available on Microsoft's Windows platform to much internal controversy at the time. However, by doing so, Apple positioned itself to corner the digital-music market, which led to the dominance of the iPod.

Making Apple Music available on Android would be an extension of the same idea -- using a popular service to create a gateway to drive hardware sales. However, it remains unclear which additional services Apple could use to further extend this strategy onto enemy platforms. Apple Pay seems like the most obvious candidate. Could Apple push its stymied Apple cable product onto multiple platforms? Other services, such as the App Store and iCloud, wouldn't make a lot of sense. So I like the overall concept, but I fail to see how it might materialize in reality.

Both of these topics present Apple investors with more questions than answers. However, they also illustrate a key high-level point for Apple. Even though the market takes a dim view of the company, Apple has plenty of ways it can continue to grow sales and profits in the years ahead.

We'll have to wait and see how these two developments unfold, if at all, but they affirm what those of us who follow the company know: Better days lie ahead for Apple.

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