HOW MUCH WOULD YOU PAY FOR THE APPLE ECOSYSTEM?

Apples ecosystem is an important and durable competitive advantage because it creates a tangible switching cost and of course it takes time to build an ecosystem that consists of speakers and accessories that will connect only via Apple systems: Apple TV, which recreates an iPhone or iPad screen on a TV set, the music on iTunes, great applications and the Photo Stream. From 2003 to 2012, Apples net margins have increased from 1.1 percent to 25 percent. The margins increased from 27.5 percent to 44 percent while Nokia Corp. in its heyday, in 2003 the Finnish cell phone maker was able to command a 41.5 percent margin, which has gradually drifted down to 28 percent. For Apple to conquer emerging market and keep what it has already won there, it will need to lower prices. The company is not doing terribly in China- its sales are running at 25 billion USD a year and were up 67 percent in the past quarter. Apples spending on R&D and selling, general and administrative expenses has fallen from 7.6 percent and 19.5 percent, respectively, in 2003 to a meager 2.2 percent and 6.4 percent today and even the R&D and SG&A expenses actually increased, they did not grow nearly as fast as sales. Apple spends 3.4 billion USD on R&D today, compared with 471 million USD in 2001. As long as Apple can grow sales, and R&D and SG&A increase at the same rate as sales or slower, Apple should keep its 18.5 percentage points gain in net margins through operational leverage. Apples annual sales are approaching to 180 billion USD; at this point, 20 percent-a-year growth means Apple has to sell as many i-thingies as it sold last year plus an additional 36 USD billion worth. Apple releases a new device and a new operating system version every year. Its operating system only supports the past three or four generations of devices and limits functionality on some older devices. The big success of the Apple gadgets was happened due to the benevolent dictator and good manager Mr. Steve Jobs, but now if he is gone, maybe the probability of another product achieving the success of the iPhone or iPad has declined exponentially. There is a lot of value in Apples enormous ability to generate cash. Over the past 12 months, despite spending 10 billion USD on capital expenditures, Apple still generated 46 billion USD of free cash-flows, and if it will continue to generate free cash-flows at a similar rate, by the end of 2015 it will have stockpiled 300 USD of cash per share. Concerning the Apple worth, using a significantly decelerating sales growth rate and normalizing the margins, we can obtain a price of about 600 to 800 USD per share. We all know Apple is going to lower prices, even few months ago (September, 2012) the new iPhone 5 it was going to more than 1.000 USD and even the growth managers will likely rotate out of Apple, because once the stock declined from 700 USD to 450 USD, the label on it changed from growth to value .

INVESTMENT MANAGEMENT AND INTERNATIONAL FINANCIAL MARKETS

STUDENT: NEDELCU ELENA MARIA GRUPA 702 CONTABILITATE INTERNATIONALA

Academia de Studii Economice Bucuresti, 2013