Monday, October 19, 2009

Why I like Apple (4)



Once again Apple has far exceeded even the most bullish expectations with the release of its fourth quarter results. The stock is trading after hours at $202 as I write this, an all-time high. I first wrote about Apple last January when it was trading around $85, and I've been bullish all the way (I actually bought the bulk of my position back in 2002).

A quick check of the stats on this blog shows that 70% of those who visit are still using Windows XP; 13% use Vista, and 11% use Apple's Mac OS. XP is now an ancient operating system, Vista is widely considered a failure, but Windows 7 is getting good reviews. So I expect that a lot of XP users are going to entertain the thought of upgrading (finally) to a modern operating system. Unfortunately the upgrade path is difficult and painful, requiring users to wipe their hard drive and reinstall all their programs manually. If they don't feel quite that adventuresome, they will likely consider alternatives such as simply buying a Mac instead. I know many people who have made the switch, and the most common observation is something like this: "gosh, it's so nice to use a computer that just works." Most of those XP users probably need to buy a faster, more capable computer in any event.

So I see lots of room for Apple to gain market share against Microsoft in the OS market, and against other computer manufacturers in the hardware market. Meanwhile, Apple is the acknowledged innovator in its field, and the iPhone is rapidly becoming a major player in the smartphone market, with over 7 million sold in the most recent quarter. That's a winning combination: a small but rapidly rising market share, plus technological leadership and innovation that produces products that are a marvel. I just don't see how anyone can dethrone the Mac OS, Apple hardware, and the iPhone at this point. The competition is getting better every day, to be sure, but this race is Apple's to lose.

XP users: please feel free to comment on your plans. Will you upgrade to Windows 7? Wait for awhile? Try a Mac instead?

Full disclosure: I am long AAPL at the time of this writing.

UPDATE: Apple yesterday announced new iMacs. Among their many features, possibly the most interesting one is the ability to use the 27" iMac as both a HD-screen quality computer, and as an optional monitor for a Mac laptop or Mac mini.

21 comments:

alstry said...

You are buying tonight!!!!!!!!!!!!!

Michael said...

Hi Mr. Grannis,

Thanks for your sanity producing blog.

I'll stick with Linux, Mac OS's cousin.

Some might take issue with labeling Windows 7 as "modern". It still is burdened with XP's performance-killing registry. Reviews have shown that Win 7 bogs down, just as XP does, over time.

Linux does not have this problem, nor does the Mac, from what I understand.

Take Care, Mike in Tacoma

d said...

120 shares executed at 12:55pm PST. oh yeeaaa!!!!

Thomas B said...

I switched to Apple's OS X and also bought the stock several years ago. It has been a great user and investor experience!

Not only is OS X an outstanding OS, the Apple hardware is the best in the industry (I have three Apple machines and run Vista on one of them under BootCamp - and will upgrade to Windows 7 in a couple of weeks).

The iPhone/iPod Touch are great gadgets. What concerns me, however, is that the handset business is a different animal. I am not convinced that Apple can execute equally well long term in this space.

Microsoft needs Apple for antitrust reasons. Nokia, Motorola, and Sony Ericsson are in the process of regrouping and they know their ways around the mobile operators much better. Keeping the unique differentiation of the iPhone may become difficult over time.

j said...

Thomas B.

The young people I talk to see the i-phone more as their primary computing platform that just happens to also include a phone. Again, it's about the operating system and 85,000 available apps. Apples's moat seems to be getting wider at an accelerating pace.

DouglasR said...

Mac RULES!

Rob said...

I am writing this comment on a very nice 24" iMac. Not so nice were the unresolved gremlins that caused some trouble when I recently upgraded the OS to Snow leopard, eg my HP scanner, there's a fair bit of comment online about this. But the bigger question to me is not so much Apple v. Windows but Apple v. Google. I have become a huge user of Google products and their cloud computing concept. This makes me less inclined to stay within Apple's walled garden, eg the iPhone not allowing Google Voice on it. I think Google's upcoming OS, Chrome, will signal a new battle. But certainly hats off to anyone who bought Apple stock in recent years. I sometimes wonder what Microsoft did with their Apple stock purchased in the dark days of 1997,as part of their controversial partnership with Apple and its recently reinstalled "temporary" CEO, Steve Jobs. They must have made a nice return on that investment !

BlueDun said...

I know Windows really well. I even built my own Windows XP machine. Even as an expert I tired of the onerous continued maintenance and problem solving. This is inherent to all Windows machines, and I found myself fiddling with things that we wouldn't tolerate in any other consumer good. One day I had a couple drinks at lunch, walked into the Apple store and walked out with a Mac. It is rock solid, the OS runs on a Unix platform, it plays beautifully with hardware and other add ons, is very secure, easy to upgrade, etc. I haven't had a problem in two years, and I've upgraded the OS and other things. It never crashes. Ever. I was converted and will never look back.

Scott Grannis said...

BlueDun: this is what leaves me baffled but bullish on AAPL. Why do people put up with all the hassles of Windows? I suppose it's just inertia. But sooner or later people find out that the Mac OS is better. And of course if you buy a Mac you can have the best of both worlds, since it's easy to run Windows side-by-side with Mac programs.

Rob said...

Scott, could you address my point about Apple v. Google rather than Windows ? And what is your view on the merits of the two stocks ?

Scott Grannis said...

I have no special insight into GOOG stock, but I don't think Google presents a threat to Apple. Cloud computing has its advantages, and I am a fan of Apple's MobileMe since it does a great job of backing up things and keeping all our computers in synch. But I don't the cloud replacing my iMacs or my MacBook Pro. I run 15 different programs at the same time and I doubt I could do that with a netbook and the cloud. I like to work with a big screen. Anyone who likes cloud computing must have been concerned over recent news of a big data loss at Microsoft's cloud. You can't trust your data to any one source or media.

I've heard that Google's iPhone app has some problems and that is the reason for Apple's delay in approving it. I don't think that Google can ever be as smart as Apple when it comes to designing phones and phone software. Plus, Apple's control of everything (as opposed to MSFT's model of licensing) has big advantages: things just work.

STS said...

Mac won't displace desktop/laptop Windows until there are cheaper Macs. AAPL has always maintained a premium price-point -- elitists, you know ;)

On the other hand, if hand-helds start to genuinely displace 'traditional' PC computing -- ie. people start going without the laptop in favor of a super-duper iPhone -- then maybe MSFT will finally become irrelevant.

MW said...

"Why do people put up with all the hassles of Windows? I suppose it's just inertia."

1. Windows is a better platform for [software] development
2. Apple alienated a lot of it's more techy users when it switched from proprietary to Intel chips
3. My perception and that of many others is that comparable spec Apple machines are much more expensive than Windows

No position in AAPL stock or products!

Scott Grannis said...

MW: I'm not a developer, so I can't really address that issue. But I will note that there is no shortage of applications written for the Mac, and the developer tools Apple has provided to iPhone developers must be rather astounding, given that there are over 85,000 apps now on the iPhone platform, which is similar to the Mac platform.

Whoever was alienated by the switch to Intel can't be still alienated since quite a few years have passed and a lot of things have changed for the better.

As for the cost of a Mac, I have seen many people make a feature-to-feature comparison of Macs and comparably equipped PCs, and they find very little difference in price if any. But when you factor in the value of your time, then Macs become unquestionably cheaper. Computers cost relatively little these days in terms of hours of work.

Rob said...

Scott, I can't agree with your more sceptical view of the cloud since Google has liberated me from individual computers and all their flaws (including Apple Macs which I used and cursed for many years). But I will say this: take a look at the new iMac 27" and start drooling !!

Scott Grannis said...

Rob: I was just looking at them earlier this morning. I am writing this on my wife's iMac, which is now about 5 years old. When I pick up my laptop at the Apple Store later this week I plan to buy a new iMac. They are simply stunning!

When will you be buying one?

Daniel said...

Buy Apple products, with your AAPL profits?!?!? I like the sound of that!!!

Scott Grannis said...

It's the least I can do.

MW said...

If you want a discussion of the chip issue, see here: http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=51295

Scott Grannis said...

MW: isn't that very old news? The facts (soaring Mac sales and profits) would suggest that Jobs made a good decision. Whatever was lost in the processor switch, was more than made up for by, for example, making the switch from PC to Mac easier (i.e., by huge gains in virtualization software).

MW said...

Just responding to your question as to why people stick with Windows --- don't shoot the messenger! As I wrote, I have no axe.