Friday, March 6, 2009

TheStreet: Illogical Apple Analysis

Today published a dire warning about Apple: at a time that computers' average selling price is about $720, Apple averages $1,400 for every Mac sold. Therefore, predicts doom and gloom for Apple.

This is a problem Dell, for example, would love to have. Or HP. The reason Apple is selling its computers for more money is that (a) it's selling higher-end gear (b) to a higher-margin segment of the market.'s complaint is akin to lamenting that BMW doesn't offer a $18,000 entry vehicle. Well, duh. BMW is hoping to make more money than is made on $18,000 entry vehicles. For that matter, I understand that GM's average selling price is lower than Toyota's $ 24,395.18. Which auto maker would you rather own?

The trends at Apple will naturally be impacted by economy-wide events like the current global depression. However, this impact need not be absolutely bad. For example, Japanese auto makers were famously observed by Lee Iacocca to gain more market share from entrenched U.S. manufacturers during bad economic times than during good ones. Given that the benefit of the foreign car isn't sticker price (see above) but reliability, this may be the exact sort of trend on which Apple can capitalize during a downturn.

The I.T. administrators who so loved Microsoft products because they made I.T. personnel indispensable within organizations employing the company's products gained ascendancy in the 1990s, but the shine is off. The fact of Microsoft's reliability and security record is well-known. Web standards make the desktop API less critical than was the case a decade and a half ago when all applications ran on the desktop or on a local network. Organizational demand for reliable products has made would-be Microsoft upgraders a cautious lot, willing to wait for software upgrades before attempting new versions of Microsoft products. Others are considering simply jumping ship for a less leaky boat.

Apple's supply-chain success and continued operating system and application software improvements leave it in a position to spend less to provide more than competitors who either don't make operating system software (like Dell), or don't sell hardware (like Microsoft ... unless one considers non-general-purpose computing devices like XBox, which has cost Microsoft more money than it's grossed). In a downturn, that might be golden over the long run.

Given the relatively slight 2009 forecast changes made by Apple-following analysts, the recent price action is fairly certain to be more of the jittery-market overreaction we've seen so often of late. From current levels, Apple is a bull play.

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