Apple's Market Value to Surpass IBM, Intel

Apple, Inc. (AAPL) has had an incredible string of successful years and product launches. The iPod has an installed base of over 100 million units sold and the iTunes store has sold over 2.5 billion downloads. Apple has surpassed both technology bellwether names of Dell Computer (DELL) and Oracle (ORCL) in terms of the ultimate measuring stick: market capitalization.

Apple's market cap is a robust $114 billion, up from $45 billion one year ago. Apple passed Dell, with a current market cap of $64 billion and Oracle, whose market cap is $100 billion. Next in sight for Apple is Intel (INTC) and IBM (IBM), whose market caps are $145 billion and $161 billion respectively. I believe Apple will pass up both companies within the next 18 months. Why, you ask?

Intel and IBM are both superb technology firms holding leadership positions within their respective sectors, but have nominal growth prospects. Both have high operating margins and world wide presence, but sustainable, long term double digit growth is questionable. Apple's revenue and earnings growth for the next three years I expect at a solid 25-30%, and that is a conservative estimate.

Apple has multiple legs for growth that are currently still early in their cycle. The iPod's market share is above 70%,and that market is still growing. The re-vamped Mac computer is gaining valuable market share positioning and with the addition of the Windows version of the Internet browser Safari, the sustainable share gain is now in place. With the new Mac comes huge add-on software sales that carry high margins. The Apple retail store system, almost 180 strong, is the highest-revenue-per-square foot retailer in the United States, period.

Then comes the advent of the iPhone. Apple has a modest corporate goal of 10 million iPhone units sold by the end of 2008. The early numbers are impressive and the most important point investors should keep in mind is the iPhone is not just a new phone, but a technology revolution. Several reports are now circulating that Apple will launch a less-expensive version of the iPhone by the end of this year, thus dramatically expanding its addressable market.

I estimate Apple to earn $3.60 per share this year ending September 30th. For September 30, 2008, I estimate Apple will earn $4.25 followed by $5.50-5.25 for fiscal year 2009. With the momentum of new products, high margins, retail store excellence and consumer satisfaction, Apple will indeed pass up Intel and IBM in market capitalization.

AAPL 1-yr chart

Disclosure: none

Comments

[samij]

Don't you think iPhone's going to cannibalize the iPod sales? If you just add iPhones sales to iPod sales you'll end up counting some sales two times. Further, Apple's product line seems vulnerable for economic downturn. Even if that wouldn't happen this year or the next one, you should give it some probability in 2009 earnings estimation. It would affect significantly on both Apples earnings and margins.

[Brewer]

iPod and iPhone are VERY different products. I want both the iPhone and a new iPod (my current one doesn't hold enough). But for now I would rather buy the stock.

[retiarius]

You forgot to mention the venerable Hewlett-Packard [HPQ] (now sitting just a shade above
at a market cap of ~118B), which has very special meaning to Apple.

The irony stems from the fact that ye olde HP sat back and watched while Mssrs. Jobs & Wozniak
pursued their destiny in the face of HP passing on the original Apple PC.

This would be big enough news to be passed on to Apple employees in email (as was the
Apple-internal announcement about Dell) and perhaps coverage in the mainstream media.

[Dan Poarch]

I think the whole point is that the iPhone will cannibalize iPod sales. The iPod will lose favor at some point, why not lose favor to Apple's own product line? Apple has a lot more in the pipeline. If Apple relied on iPods it would be named Motorola and the iPod would be named RAZR.

The very fact that Apple has set out to top the iPod should be comfort enough. Why the fear of flagging iPod growth? It'll happen no matter what, why not pat Apple on the back for being the first one in line to kill the iPod? Even better, apparently the iPod is going to start looking/acting more like the iPhone by year's end. Perhaps the iPod will just continue to grow because they're paying attention and growing the product wisely?

Don't complain that Apple is refusing to act like Motorola or Dell, invest in the fact that they don't.

[Partners inGrime]

That would indeed be big news to pass HP. And at the current rate of Apple stock price increases it may not take long.

[BillyJackson]

if the iphone can become as popular as the ipod than I see a very bright future for apple.

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