The Boatist

Sailboat Ownership, Translation Work and Tales of Minor Adventure

Retire early, be passionate, don't worry, die poor

Saturday, January 26, 2013

To Apple or not to Apple

I've been stuck at home all day jeepless (still waiting for a part), doing a translation and cleaning up the post-storm debris in the yard.

I haven't gone to the marina to check on Jakatar for over a week and I'm getting cranky with this stay-at-home, non-mobile life. As a result I got somewhat obsessed with Apple shares. Makes perfect sense, right?

Apple shares price
Apple's demise...uhhhm, an iPhone would have probably taken a better picture.
It's 18:00 and I have an Apple itch to scratch. I hate to sing the "anybody could see it coming" iTune, but I did see it coming. If you don't believe me you can ask Joe. We talked about it by the beach not that long ago when Apple was still up in the sky.

Lineups of screaming Apple fanatics salivating to get their hands on the latest Apple release are history. In fact, those newscasts killed the Apple "cool" factor. Like hey, do you want to be seen as just another hysterical Apple groupie? Let me reword that: if you own an iPhone or iPad, you may be mistakenly associated to a hysterical Apple groupie.

The Incredible Fact
Apple is (sorry, was) the world's top company by capitalization. And how did it get there? Selling Macs, iPhones, iPads, iPods, iTunes and other fun stuff...expensive stuff. Where I'm living an iPhone 5 not tied into a mobile provider's service scheme costs 1,099 euros at a discount store (Staples). The most expensive Samsung, despite being much larger, costs 789 euros, and that's because they're riding piggyback on Apple's hyper-inflated prices.

Let's see, 100 of these beauties would cost you as much as a fancy 2-bedroom apartment near the beach. Now, you could argue that a handful of Rolex watches or gold rings would cost you just as much. You could, except that Rolexes are for the wealthy and that's why Rolex - or whoever makes the watch - will never be a really huge company. It's a question of numbers; if Rolex dropped their prices to boost sales, they'd be competing with Timex.

Clarity vs Hype
Imagine a sailor that has been lost at sea for the last 3 years and, on getting back to terra firma, is told that the world's richest company (Apple) got that way mainly by selling really expensive mobile phones. He'd think that a) Apple had a monopoly or b) the world had gone nuts. I'll go with b.

Why has the world gone nuts? Simply because in the near future you'd have to be nuts to pay 1,000 euros for a good smartphone, just like you'd have to be off your kilter to pay 3,000 euros for a decent laptop today (that's why a good laptop costs about € 600).

So, it's safe to say that Apple is huge because it has fantastic products, incredibly high prices and little competition, UNTIL NOW!

The million dollar question is (a drum roll now would be nice) how low will Apple shares fall?

Here's my magic calculation formula (and it's got to be fast because Ana just started making dinner - but that's OK because I'm at my best under pressure):
  • iPhones provide 50% of Apple's profits - so subtract 25% for lower sales;
  • Prices of most iPhone models must be slashed by about 40% to compete with newcomers - so 40% on 50% of total profits = 20% drop;
  • The iPhone groupie craziness (not to mention ownership saturation) is going to level off in developed countries, the main market for expensive units - subtract 20%;
  • Apple is losing its cool factor (it's much cooler now to whip out a larger Samsung from your pocket) - subtract 15%;
  • Apple will always have good products - add 10%;
  • Apple will continue to be innovative - add 10%.
Any unknown factors will probably balance out in the end.

Apple's profits will fall 60% over the next two years according to my formula (- 25%, -20%, -20%, -15%, +10%, +10).

Conclusion $700 per share is about right for its current profits (a fair price if Apple could maintain sales and profits, if it had no competition charging up the alley).

Take 60% of profits and you have a FORECAST SHARE PRICE WITHIN 2 YEARS OF $280.

$280, take it or leave it.

I may be wrong, but I doubt it. 


  1. My iPhone 3GS is dieing. Yahoooooooooo!
    (don't ask me the relevance)I'd just assume not having a phone... so people would stop bothering me!
    On the serious side, I'm freaking out. Navionics is a very cool app plus the weather stuff, I'd be lost a sea without them, even though they aren't dependable. Did I mention all my pcs are 10 years old and my laptop is 8 kilos?!? I just refuse to buy into any more of this junk... I should spend more on women and booze.
    But that's just me talking...

    1. As George Best once said: "I spent 90% of my money on women, drink and fast cars. The rest I wasted."
      Pete, can't you get those apps on a cheaper smartphone with GPS? I have a Magellan chartplotter I bought on Ebay, plus Navionics charts I bought for Spain, Portugal and Atlantic Islands. I'll keep that until death do us part...hopefully it before me. After years of paper charts and a handheld that chartplotter was like a gift from the gods.
      You buy what you need, more than that and it's junk for junkies.