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But the real question is why competing companies have P/E ratios despite demonstrably worse prospects Apple and Microsoft's P/E ratio aren't that far off each

But the real question is why competing companies have P/E ratios despite demonstrably worse prospects Apple and Microsoft's P/E ratio aren't that far off each other. The latter, however, pays a dividend (the two ways to make money off an equity are appreciation and dividends). Further, and saying this with the understanding the P/E is more general guidance than science, Microsoft's products are structural, and despite an endless stream of disasters Microsoft can still pull in the relatively mammoth profits. Apple, on the other hand, exists almost entirely on the backs of the iPhone and the iPad, neither of which have much structural fixedness at all. If the iPhone 6 is a dud for any reason, or the supply lines of either of those face any issues...boom, Apple's profits evaporate. There is dramatically more risk factored into Apple's profits.

parasubvert 14y ago
Um, Apple also pays a dividend - 10x more than Microsoft actually, at $2.65 quarterly vs $0.23. Further more, Apple's P/E of 11.4 vs microsoft's near-15 is a pretty big difference. Not Amazon big, at 3872x! But among the tech sector, it barely covers Apple's incoming 5 year cash flow in a zero-growth scenario. Supply lines for Apple are the same supply lines for other manufacturers, so that's not it. As for "the next phone being a flop and boom, dead", that concept seems rather far fetched, no? A slow meltdown in favour of Android or others is much more likely than any one model somehow being magically disastrous. How often has this ever happened in consumer electronics?
- corresation 14y ago
  Um, Apple also pays a dividend - 10x more than Microsoft actually, at $2.65 quarterly vs $0.23. Whoa, totally didn't see the news that they had caved to pressure and gone the dividend route. It isn't actually 10x, however, as AAPL has approximately 1/10th the shares issues. Their dividends are very similar. Regarding the P/E ratio, it isn't so big. Just a few months ago AAPL had a similar 15x P/E ratio. that concept seems rather far fetched, no Ask RIM. They owned the market, and one year everyone was talking about how much cash they had in reserves, and the next they were on life support. Apple has even less of a lock-in than RIM (enterprise blackberry messenger being how RIM hung in for a little while), though they've been trying to make their own platforms (Me, Facetime, Airplay, etc). If the next version simply isn't a compelling enough upgrade for existing users, Apple will see very rapidly declining fortunes.
  - snowwrestler 14y ago
    > Just a few months ago AAPL had a similar 15x P/E ratio. Exactly, and what has substantially changed in their business since then? Nothing, which is why the depression in the share price is weird/suspicious.
    - corresation 14y ago
      There is nothing at all suspicious about what has changed. Skepticism has grown to the point where it is now actually somewhat believable. Six months ago a story about collapsing orders would have been laughed away, whereas now it gets a serious reading because it seems actually possible. Share prices are a speculation about the future, and Apple's heights have an inherent growing risk factor with them.
      - snowwrestler 14y ago
        I assume you're talking about the Nikkei and WSJ stories, but those came after the share price was already down to about $520. To the extent those explain the slide, they can only explain a very small, late portion of it. With all due respect, it seems like you have a mental narrative about Apple and you're just going to stick to it without regard to the details of this specific situation. You didn't even know the stock pays a dividend. We'll just have to wait and see what the earnings report looks like. If it is satisfactory or good, as I expect, then I think it's likely the stock will be back over $600 within a couple months, and likely even higher by the summer.
  - parasubvert 14y ago
    RIM didn't have a specific "failed model" that led to a collapse in margin. They were a case of slow death, with warning signs beginning even in 2007 with market share instability as the global market for smartphones exploded. Actually you could point to the failure of the Storm in 2008 as their inability to adapt to a touchscreen-centric device, though that didn't directly lead to a margin collapse - just part of an overall slow market share whithering. A lot of these failures were hidden due to RIM's internal explosive growth through 2010, keeping their eyes off how much more Apple and Samsung were growing. So for Apple, the two areas to watch out for will be: market and profit share losses (so far Android has not been growing at Apple's expense- that may change), and whether they fail with a major "me too" feature that another carrier brings to market and has big success with. The latter I havent seen any real sign of. The former, there's a question mark if Android can successfully kill margins in the mobile phone space through their market share to a point that hurts everyone (Samsung, Apple, etc) but mostly Apple. On the other hand, Android is buying its market share from being a fully Google-subsidized set of software with no licensing fees. Is that sustainable? As for lock-in, surely the success of iTunes and the integration of AirPlay across all devices has caused significant lock in? I mean, media options in the Android world pale in comparison, only Microsoft Xbox Live really has a comparable selection of movies and tv shows. Similarly, the App Store selection have been a huge advantage to Apple with strong equivalents being slow to appear on Play. So of course, to your last point, if Apple doesn't keep making compelling upgrades, their fortunes will decline. but that goes for EVERY manufacturer that wishes to make a profit. if the Samsung Galaxy S4 isn't compelling, wouldn't that benefit Nokia and HTC and Apple? Samsung's profit growth too is almost exclusively driven from Smartphones - their other product lines aren't as profitable. Ultimately I think Apple has many risks ahead but I don't think they're as fragile as you seem to believe.

parasubvert 14y ago

Um, Apple also pays a dividend - 10x more than Microsoft actually, at $2.65 quarterly vs $0.23. Further more, Apple's P/E of 11.4 vs microsoft's near-15 is a pretty big difference. Not Amazon big, at 3872x! But among the tech sector, it barely covers Apple's incoming 5 year cash flow in a zero-growth scenario. Supply lines for Apple are the same supply lines for other manufacturers, so that's not it. As for "the next phone being a flop and boom, dead", that concept seems rather far fetched, no? A slow meltdown in favour of Android or others is much more likely than any one model somehow being magically disastrous. How often has this ever happened in consumer electronics?

corresation 14y ago
Um, Apple also pays a dividend - 10x more than Microsoft actually, at $2.65 quarterly vs $0.23. Whoa, totally didn't see the news that they had caved to pressure and gone the dividend route. It isn't actually 10x, however, as AAPL has approximately 1/10th the shares issues. Their dividends are very similar. Regarding the P/E ratio, it isn't so big. Just a few months ago AAPL had a similar 15x P/E ratio. that concept seems rather far fetched, no Ask RIM. They owned the market, and one year everyone was talking about how much cash they had in reserves, and the next they were on life support. Apple has even less of a lock-in than RIM (enterprise blackberry messenger being how RIM hung in for a little while), though they've been trying to make their own platforms (Me, Facetime, Airplay, etc). If the next version simply isn't a compelling enough upgrade for existing users, Apple will see very rapidly declining fortunes.
- snowwrestler 14y ago
  > Just a few months ago AAPL had a similar 15x P/E ratio. Exactly, and what has substantially changed in their business since then? Nothing, which is why the depression in the share price is weird/suspicious.
  - corresation 14y ago
    There is nothing at all suspicious about what has changed. Skepticism has grown to the point where it is now actually somewhat believable. Six months ago a story about collapsing orders would have been laughed away, whereas now it gets a serious reading because it seems actually possible. Share prices are a speculation about the future, and Apple's heights have an inherent growing risk factor with them.
    - snowwrestler 14y ago
      I assume you're talking about the Nikkei and WSJ stories, but those came after the share price was already down to about $520. To the extent those explain the slide, they can only explain a very small, late portion of it. With all due respect, it seems like you have a mental narrative about Apple and you're just going to stick to it without regard to the details of this specific situation. You didn't even know the stock pays a dividend. We'll just have to wait and see what the earnings report looks like. If it is satisfactory or good, as I expect, then I think it's likely the stock will be back over $600 within a couple months, and likely even higher by the summer.
- parasubvert 14y ago
  RIM didn't have a specific "failed model" that led to a collapse in margin. They were a case of slow death, with warning signs beginning even in 2007 with market share instability as the global market for smartphones exploded. Actually you could point to the failure of the Storm in 2008 as their inability to adapt to a touchscreen-centric device, though that didn't directly lead to a margin collapse - just part of an overall slow market share whithering. A lot of these failures were hidden due to RIM's internal explosive growth through 2010, keeping their eyes off how much more Apple and Samsung were growing. So for Apple, the two areas to watch out for will be: market and profit share losses (so far Android has not been growing at Apple's expense- that may change), and whether they fail with a major "me too" feature that another carrier brings to market and has big success with. The latter I havent seen any real sign of. The former, there's a question mark if Android can successfully kill margins in the mobile phone space through their market share to a point that hurts everyone (Samsung, Apple, etc) but mostly Apple. On the other hand, Android is buying its market share from being a fully Google-subsidized set of software with no licensing fees. Is that sustainable? As for lock-in, surely the success of iTunes and the integration of AirPlay across all devices has caused significant lock in? I mean, media options in the Android world pale in comparison, only Microsoft Xbox Live really has a comparable selection of movies and tv shows. Similarly, the App Store selection have been a huge advantage to Apple with strong equivalents being slow to appear on Play. So of course, to your last point, if Apple doesn't keep making compelling upgrades, their fortunes will decline. but that goes for EVERY manufacturer that wishes to make a profit. if the Samsung Galaxy S4 isn't compelling, wouldn't that benefit Nokia and HTC and Apple? Samsung's profit growth too is almost exclusively driven from Smartphones - their other product lines aren't as profitable. Ultimately I think Apple has many risks ahead but I don't think they're as fragile as you seem to believe.