So we just got a nice $10 correction on Apple
Let's stand up to the hype, right here, right now: The iPhone has not contributed a nickel's worth of revenues yet. It won't even be released until June 29, and revenue contribution won't begin until the quarter that ends in September. For that matter, revenue won't be significant at all until fiscal 2008 -- which doesn't begin until Oct. 1.
Now, with that out of the way ...
Reason No. 1
The press has overlooked the significance of the Safari Web browser for Windows. This critical release is all part of Apple's plan to increase market share for Macs. There are already 22 million Macs out there, but having Windows-friendly Web capability makes the potential computer buyer that much more comfortable going the Mac route. In just two days, there have been more than a million downloads of Safari for Windows! Apple doesn't want to hand over any business to Microsoft
Reason No. 2
You haven't lived until you've heard a Frenchman pronounce "iPod": Donne-moi un 'epod.' And there are a lot more people out there -- in France and elsewhere -- left to sell to. Sure, the company commands a market share north of 70% in the MP3-device market, and with iPod sales having topped the 100 million mark a few months back, that means there are only about 140 million or so MP3 units in existence worldwide. That's a pittance when you consider the viable user population. The iPod has a long way to go in the marketplace before we start hearing the ugly "S" word -- saturation. Pricing of the various types of units has held up like a rock, in spite of the coming iPhone's iPod capabilities. And let's not forget that Apple has sold more than 2.5 billion downloads from its iTunes store. Talk about recurring revenues! No, Apple ain't done with the iPod, folks.
Reason No. 3
Apple has an incredible base of 177 retail stores, 20 of which lie outside the United States. For 2006, Apple was averaging nearly $4,400 in revenues per selling square foot -- that's the highest in the retail industry. The beauty of its retail model is its ability to totally capture the customer's technology budget and loyalty. Sure, customers walk in just to browse, but they often leave an hour or so later with a bagful of goodies in tow. That's how it works. The customer belongs to Apple, soup to nuts. The sales staff is superbly trained in both aesthetics and the technical details. And the stores will be like a magnet when the iPhone is available on June 29, so the opportunity for add-on sales of other Apple products will become very high.
Rumor has it that the store traffic has already picked up dramatically since Apple began advertising the iPhone. A senior sales associate at the Apple store in Minnesota's gargantuan Mall of America told me, bluntly, "Christmas for us began here in June. It just ticks off the other retailers around us!"
There you have it. I haven't even mentioned that Apple's gross and operating margins are juicy and sustainable for the foreseeable future. Nor did I tell you that the several portfolio managers I regularly talk to from a previous life are still buying the stock for the long term. Five of them in particular have $200-$225 price targets for calendar 2008.
But that's fodder for another column. I'm stopping at my promised three reasons this time around.
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Microsoft is a Motley Fool Inside Value pick.
Georges Yared is the author of Stop Losing Money Today: The Art and Science of Investing and Baby Boomer Investing: Where Do We Go From Here? He does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.
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