The Market Corner: the most valuable company in the world
Published: Tuesday, February 21, 2012
Updated: Tuesday, February 21, 2012 17:02
This week I will focus on one of my favorite companies, Apple (AAPL), which has been in the news quite often lately.
For starters, AAPL missed earnings for the first time in 26 quarters for the fourth quarter of 2011, causing their stock price to tumble. There were many headwinds facing Apple at the time, including the uncertainty after Steve Job's death.
The miss was attributed to the delay in the launch of the new iPhone, and even though they sold four million iPhone 4S's in the first weekend of its debut alone, by late November, Apple had shed about 14 percent of its value.
On Jan. 24th, Apple declared their first quarter 2012 earnings, their best yet, reporting quarterly revenue of $46.33 billion and a net profit of $13.06 billion, compared to revenues of $26.74 billion and a profit of $6 billion in the previous year. IPhone sales also topped estimates by 7 million units.
The stock price soared about 7 percent to new all-time highs. Apple announced it has 96 billion dollars of cash available on hand and hints of a possible dividend issuance in the future were made. Apple raised their guidance once again for next quarter. They also released the iPhone 4S in China in January. China, which represents 17 percent of their market, will show a nice boost of iPhone sales numbers, for Apple likes breaking records.
Now Apple makes its products in China, and one of its largest suppliers is being investigated for allegedly having bad labor conditions, which led to the suicides of some of its workers. What people easily oversee is the fact that this company Foxconn is huge, with close to one million employees. They also make products not only for Apple, but also for Sony, Dell, HP, Motorola, Microsoft and Amazon. Yes, they also make the beloved Kindle.
This isn't anything new. Most of this news is re-surfacing over and over again. Steve Jobs himself was questioned about the labor conditions at Foxconn and other suppliers. With disregard to professionalism, I dare say Apple wouldn't be stupid enough to keep doing business with a company that was being questioned for their labor practices. They would value their brand image over any possible bargain in working with a company that exploited its workers, the numbers show that they don't need the money.
If Apple chose to continue doing business with its suppliers even after more and more allegations surged, there is nothing really going there on that could possibly harm Apple. At most they were forewarned that an investigation would occur, and had all the time in the world to correct these bad conditions.
In an attempt to clear up their name Apple released a valuable list of 150 of their suppliers along with their earnings, sort of daring any opponents to investigate the suppliers themselves.
Moreover at the request of Apple, Foxconn is being inspected by the Fair Labor Association to ensure proper working conditions. A preliminary report by the FLA and its president said that the recent increase in suicide rates might be related to boredom, but that the facilities themselves were "first class."
The ongoing patent war between Apple and its rivals is another thing that has been in the midst. Recently Google has acquired Motorola Mobility worth twelve billion dollars. Google, with more financial power than Motorola, can enforce their patents more strongly on Apple.
Apple is also involved in another heated debate with screen manufacturer Proview, which claims they have the rights to the name "iPad" in China. They demand 1.6 billion dollars in damages, or for Apple to be banned from selling that product in China.
Here's the best part: Proview seeks to ban imports and exports from China. Not to mention the little fact that Apple products are made in China, or the fact that Proview Holdings has a $155 million market cap, compared to Apple's $475 billion. Needless to say, this lawsuit is going nowhere. I also find it ludicrous that authorities have actually pulled iPad's from a handful of store shelves in China, and that it drew such a spur of attention.
Apple is also involved in 19 lawsuits all over the world with Samsung. Apple claims that Samsung, its largest competitor in the tablet market, is infringing on 8 patents. Four of which they seek to get an immediate injunction for and prevent the sales of the Nexus Galaxy smartphone. Such patents include the slide to unlock feature, touch screen word completion, siri search and data piling.
For critics amused at this patent war, by law companies are actually required to protect their intellectual property rights or risk losing them.
AAPL has now surpassed Exxon Mobile and has become the world's most valuable company. A whole new line of products are coming out this year including the iPad 3 and rumors of a 4G compatibility. Still in the sidelines is the possibility of Apple televisions, which no news has yet been further announced. Apple has also just announced the release of the Mac Mountain Lion, an update to their previous operating system in wake of Microsoft's Windows 8 launch later this year.
Something interesting thing to look at for AAPL is their Price to Earnings ratio, a tool most commonly used to determine the growth potential of a stock. Due to their great earnings numbers, Apple's PE ratio stays low regardless of how "expensive" the price of a single share might be. A low PE usually indicates a good value in terms of growth. A high PE usually means that the company's growth is already priced into the stock.
Take a look at the analyst estimates for Apple's growth. Realized in 2009 was a 106 percent increase, a 75 percent increase in 2010, and in 2011 Apple had a 115 percent increase in earnings. The projections for next year are negative 1.5percent. You can check this information yourself. Now are these expectations realistic, outdated, or perhaps analysts can foresee an AAPLcalypse that I'm overlooking?