Apple First Quarter Results

On 02/02/2012, in Equities, Investment Strategies, by Jordan Wilson
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Apple released its first quarter 2012 results last week.

Interesting stuff.

Yes, the results were impressive, but that was not the most fascinating part. 

The Interesting Results

According to the Apple press release:

The Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share.

During the quarter, Apple sold:

37.04 million iPhones, representing 128 percent unit growth over the year-ago quarter.

15.43 million iPads, a 111 percent unit increase over the year-ago quarter.

5.2 million Macs, a 26 percent unit increase over the year-ago quarter.

15.4 million iPods, a 21 percent unit decline from the year-ago quarter.

Not bad.

The Fascinating Part

In 1976, Apple was founded by Steve Jobs and Steve Wozniak.

In 1985, Steve Jobs was considered a “bad Apple” and ousted from the company. Share price fell under USD 2.50 (adjusted for subsequent stock splits) by the middle of 1985.

Apple was not seen as a great investment.

In December 1996, Steve Jobs returned to Apple and took over as interim CEO in July 1997. No great market reaction to either news. In November 1996, Apple adjusted share price was USD 6.03. At year end 1996, USD 4.16. And USD 4.38 on July 1, 1997.

Investors were clearly not impressed with Jobs and Apple.

But then things started to change.

In late 2001, the iPod was introduced. Perhaps an interesting creation, but investors did not think so. At the start of 2001, Apple was worth USD 10.81. By the end of 2001, USD 12.36. And by the end of 2002, USD 7.18. A negative 33.6% return over the two year period.

Did this Jobs character have any idea how to grow a business?

Yet the iPod became a very successful product. And it laid the groundwork for the iPhone and iPad lines. A decade later, in the first quarter results, Apple sold 67.87 million of these 3 items.

Just over a decade ago, there were no iPhones, iPods, IPads, iTunes, MacBooks, et al. Today they account for the bulk of Apple’s success.

And a share price as at February 1, 2012 of USD 456.19. With diluted earnings per share of USD 13.87.

Compare both to the share price at the end of 2002, USD 7.18.

Maybe Steve Jobs had a clue after all.

The Really Fascinating Part

Also known as the relevant part for investors.

Hindsight is 20-20

It is easy to look back and see a great company in the making. And many people you meet in life – especially at parties, in the office, or nephews – will magically have bought the Apples of the world back when they were unloved and worth USD 2.00.

Unless they are wearing genuine Rolexes and driving fancy cars, take their words with a grain of salt. Because Apple did not really start to take off as an investment until 2006.

Any truly smart investor could have made a bundle investing between 2001 (introduction of the iPod) and onwards. Most did not.

But was it their fault?

Forecasting is tricky business

Investors did not realize the future impact of the iPod and other product lines from the early 2000s. If they had, it would not have taken until 2006 for the stock to really soar.

Investors did not realize the impact that Steve Jobs would make in his return.

And not just investors.

Professional analysts who are supposed to understand the industry.

Apple management and Board members who thought Steve Jobs was hurting the company.

If industry experts, analysts, and Apple insiders did not know what would ultimately result under Steve Jobs, it is difficult to imagine ordinary investors getting it right back then.

Corporate Management

Corporate management is crucial to a company’s success. Leadership, vision, creativity, drive, etc., are all important attributes in good management.

Yet what about Steve Jobs?

World beater in the 1970s. Corporate destroyer in the 1980s. “Not him again!” in the 1990s. Creative genius in the 2000s.

Sometimes that is a tough thing about individual leaders.

Maybe Apple made a mistake tossing him aside in the 80s.

Maybe Jobs was hurting the company and needed a break from Apple. Perhaps the time away allowed Jobs to become the leader he was in the 2000s. Maybe if he had not been ousted, Apple would not have had the success they did.

Good management is key to success. But assessing who is the right manager at the time may not be easy for investors.

It Makes Investing a Complex Pursuit

Looking back, it seems that the success of Apple is a no-brainer.

That Steve Jobs was a genius and visionary.

But as you can see from the share price changes and perception of Steve Jobs over the years, it was not always so clear. In fact, the consensus may have leaned more to the opposite side of the spectrum.

Assessing a company’s future based on current events is a difficult business.

Another reason that I generally recommend a passive investment strategy. One that invests not in individual companies, but rather in well-diversified mutual and exchange traded funds.

Where is the Next Apple?

But if seeking individual companies, is there another Apple out there?

Which companies today have depressed share prices and shareholders yelling for change in leadership?

Is Research in Motion (RIM) and its line of BlackBerry products a future Apple? Its share price is down about 75% over the last year. The co-CEOs of the company were ousted in January. Neither RIM nor its shares appear to have promising futures.

Given media analysis of RIM today, it is hard to believe Apple was once in very similar straits.

So have you invested in RIM this week?

Probably not. It is tough to invest in a company that looks weak. Difficult to buy when conventional wisdom says not to. But often that is the precise time to buy shares.

RIM is not a company I am fond of. As one of my associates who is a significant shareholder knows too well, I recommended that he sell over two years ago. And keep reminding him of that. Of course, he also has substantial holdings in Apple, so I do not expect to see him at the soup kitchen anytime soon. So more soup for me.

Regardless of my opinion, I am interested to see where RIM stands a decade from now.

I know not whether it will soar high again or crash further. The only thing I do know is that if it does rise again, my nephew will have bought shares last week. As will many other experts.

And if it fails, I know that my nephew will have shorted the stock.

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