Apple – Is it the peak?

Apple has touched the market cap of $250 billion. At this stock price, it is only second to Exxon Mobil Corporation across all Industries and first in technology even leaving behind Microsoft. Take any two companies of the following set – HP, Intel, Cisco and Oracle – and the sum of market cap is less than that on Apple. In last one year, the stock price has risen by almost 100%. Investors are upbeat about the future prospects.

There are reasons for being bullish. The phenomenal success of multiple products one after another, a cult-like customer following, multi-million worth of free marketing, iconic status in commoditized consumer electronics Industry and charisma of Steve Jobs – multiple set of conditions existing all together! iPod broke all the records and killed all other alternatives. iPhone broke iPod’s record by selling 1 million devices in just 74 days. iPod took two years to achieve this. Then comes iPad and it takes only half the time what iPhone took. And not to forget the phenomenal success of iTunes and App Store. Macs and Macbooks are also doing fine.

However, it is always difficult to maintain this position. Lot of things can go wrong. What if iPad sales do not keep up this momentum? Android phones are closing in [NPD already claims more Android phones being sold than iPhones in the last quarter]. Steve Jobs is going to retire some day. People will get bored of talking about Apple some day and hence goes free publicity. Competitors, are making products which are almost as good as Apple’s and in some instances at half the prices. In addition, technology Industry is always fraught with sudden changes which can shake the entire ecosystem.

Let us visit some numbers.
Sales ending year 2009 – ~$43 billion.
PAT year ending 2009 – ~$8.2 billion
Total equity year ending 2009 – $31.6 billion
Total market cap (as of today) – ~$250 billion

Rewind back by ten years to year 2000 and check the numbers from Cisco and Microsoft
(source: Wikipedia)

Microsoft’s market cap – ~$586 billion
Cisco’s market cap – ~$350 billion

Let us first discuss Microsoft. Microsoft reported revenue of $22.96 billion for the fiscal ending June 30,2000 with net income of $9.42 billion. Windows 2000 was a hot cake. Microsoft had had line of successful releases and enjoyed monopoly in operating systems (it still does). PC growth rate was terrific which was benefiting both Microsoft and Intel. Microsoft also unveiled .NET platform eying the applications market. MSN network of Internet services was the Internet’s largest network. Analysts were bullish about Microsoft. Nothing could have gone wrong (with Microsoft and the whole Technology Industry).

Coming to Cisco, the darling of Wall Street, was in an even faster lane with a sparkling decade behind it. It acquired numerous companies. One startup company was valued at $7billion in 1999. It recorded revenue of ~$19 billion in year 2000 with an income of #2.67 billion. According to letters to shareholders for year 2000, It held leadership position in 16 of the 17 key markets. An equity analyst noted – “But they [Intel and Microsoft] are in a much more moderate growth phase. The more rapid growth is to interconnect all those computers, and Cisco is the standard bearer for all that interconnection.” People were expecting [dreaming] that Cisco will achieve market cap of $1 trillion.

Coming back to 2010. Both Microsoft and Cisco are alive and leaders, albeit at lower market cap even after 10 years. Relatively Microsoft did better than Cisco perhaps because Cisco’s case was more optimistic in 2000.

Today we see the similar optimism for Apple. What would be the market cap of Apple in year 2020?

Disclaimer: I am a fan of Apple. I own an iPod, an iPhone and a Macbook. But I really dont care if Apple’s share fall 90% from the current level. I do not own the stock.