Innovation to fuel Apple's future growth

24 August 2012

NEW YORK: Apple, the electronics giant, looks set to continue its long winning streak due to its strong innovation pipeline, best practice execution and sales strategy, industry experts have argued.

The firm's market capitalisation recently surpassed $623bn, topping the previous US record of $621bn posted by Microsoft in 1999. Brian White, an analyst at Topeka Capital Market predicted this total could soon surpass $1tr.

"We believe Apple is on a path to generate the highest annual net income of any publicly traded company ever by at least CY13," he said, as reported by Barron's.

This is primarily due to the slate of potential "blockbuster" goods like iPhone 5, Apple TV and widely-rumoured iPad Mini tablet, as well as a possible partnership with China Mobile.

Peter Karazeris, an equity analyst at Thrivent Financial for Lutherans, added that the core strengths supporting this trend derive from the company's capabilities, not investor calculations.

"People spend a lot of time thinking about the market cap," he said. "I expect the market cap to go up, but it will because of execution and cash generation - not because of the multiple."

The fact Apple has a cash pile of $117.2bn with which to invest in categories such as mobile devices and television also separates the organisation from most other major corporations by virtue of its sheer size.

"Apple has more fundamentals backing the company's market cap," said Shaw Wu, an analyst at Sterne Agee & Leach. "They have a lot of earnings, and lot of cash, which a lot of companies can't really claim."

Another tactic benefitting the firm is its decision to cut prices for older variants of gadgets like the iPhone and iPod to reach less affluent buyers, instead of rolling out low-cost lines. Such discounting has allowed Apple to progress without harming its premium status.

"It's a more profitable approach," Giri Cherukuri, a portfolio manager at Oakbrook Investments, said. "It's a better strategy to address these markets with older models at cheaper prices, rather than with cheaper models."

But not all observers ar equally confident. Dan Morgan, a senior portfolio manager at Synovus Trust Co, suggested Apple's reliance on a constant stream of new offerings could ultimately limit its prospects.

"What happens when its markets mature? I think of Apple as this consumer-products dynamo that has kept coming up with stuff that college kids want to buy - and that the rest of us then want, too. But how long can that continue?"

Laurence Isaac Balter, of Oracle Investment Research, voiced similar worries. "The hype concerns us," he said. "Apple's market cap is now equivalent to $87.93 for every man, woman and child on Planet Earth."

Data sourced from Barron's, Bloomberg, Market Watch; additional content by Warc staff