In the large-cap, large-company growth space, Apple has been breaking records in sales and earnings. Is there another bite to be had of the Apple? Thomas C. Ognar, CFA and Portfolio Manager with Wells Capital Management’s Heritage Growth Team, provides his insight in this excerpt of On the Trading DeskSM from Friday, February 3rd, 2012.
Last week Apple reported its biggest earnings quarter ever, if not the biggest earnings quarter by any company in history, $13 billion. How does Apple represent your strategy for finding opportunity?
We look for three characteristics. We look for robust growth. We look for sustainable growth. We look for where has that growth being under-appreciated by other investors and under-valued. Apple, from a robustness standpoint, grew revenue 73% last quarter. They grew iPhone units, this is an amazing number, iPhones are going to be out five years this June, iPhone units grew 128% last quarter. Their iPad, which is yet to be a two-year product, is still growing 111% on a unit basis last quarter. Mac shipments, which you might say is passé, grew about 26% year over year last quarter in a category that’s barely growing.
The market is surely aware of Apple’s performance. What sort of room is there for Apple to grow?
Look at where can they go with their products. Smartphones today are about 20% of the total handset market in the world. We think that number goes to 40% in 2015. And just giving Apple some credit for maintaining a lot of the share they have, as that goes from 20% to 40% it presents a tremendous opportunity for Apple. Apple can double, we think, their PC plus Tablet revenue over the next four years. And this isn’t even giving Apple much credit for new products like the much rumored LCD TV.
Wow!
I also have one little tidbit. I was listening to Estée Lauder’s earnings conference call and they were bragging about the production increase they were seeing at their cosmetics counters when they gave their associates iPads to help with their color coordination for their cosmetic customers. And they have actually seen a 3% increase in those counters that have an iPad in sales relative to those counters that don’t have an iPad to help out the associates. To us, that again just shows us the opportunity that is still in front of Apple.
When you joined us last October for a program called “Finding True Growth Abroad” you said that true growth would come from companies that were multi-national. Is that still your thinking and does Apple fit that profile?
Apple to us is a prime example. Today, 58% of its revenue comes from overseas. Think about China as the market for them and the opportunity there. Right now they only sell into one of the three main wireless carriers in China. It only allows them really to address 10% of the higher-end mobile subscribers. We think they add China Telecom, they add China Mobile, and that allows them then to sell into that other 90%. Look at worldwide carrier partnerships. Apple has about 30% of the globe covered. Look at a company like RIM, which makes Blackberry. It has a 79% share of global carriers. So if Apple can migrate toward that 79%, it just represents to us tremendous opportunity.
Tom. Thanks for joining us again On the Trading Desk.
Thank you. It’s always a pleasure.
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