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Friday, January 27, 2012

“Made in America” Means Nothing to Apple Investors


Over the weekend, The New York Times examined Apple’s(Nasdaq: AAPL) reasons for producing its products overseas.
It’s not just cheap labor, according to the company. Instead, it comes down to two main factors: supply chain dominance and factory flexibility.
You see, most of the gadgetry necessary to make Apple devices is already built in China. And because Chinese factories can recruit thousands of workers essentially overnight, they’re able to ramp up production much faster than facilities in the United States.
For instance, when Apple redesigned its glass display just weeks before a launch date, it only took a Chinese factory 96 hours to begin pumping out 10,000 freshly redesigned devices a day. In America, this would have taken weeks, at best.
Still, that efficiency comes with a price. And “This American Life” recently documented the harsh working conditions experienced in these factories.
You might think the bad press would have had a negative impact on Apple’s shares. Not so much. Shares actually climbed 2% within days of the report posted earlier this month.
And if that’s not proof that investors aren’t concerned with where – or how – Apple makes its products, perhaps this is…
An Explosive Quarter for Apple
Apple announced first-quarter earnings last night. And the numbers are unreal.
The company pulled in $46.3 billion in revenue – an increase of 73% over the same quarter last year – crushing analyst estimates of $38.9 billion.
Profits came in at $13.1 billion, or $13.87 a share, compared to the consensus estimate of $10.16 per share. And it tops last year’s profits by 118%.
To put Apple’s numbers in perspective, TechCrunch’s, MG Siegler, compiled a few stats from various sources that show just how jaw-dropping this quarter was.
Here are a few that I found the most compelling:

  • “Apple’s profit of $13.1 billion was equal to its revenue in Q4 2010.”
  • “Apple’s cash hoard is worth more than all but 52 companies on Earth.”
  • “The iTunes Store alone generated 50% more revenue than all of Yahoo! did last quarter… [And] the amount Apple paid to third-party developers via the App Store last quarter ($700 million) is more than double Yahoo!’s overall profits.”
  • “At over $400 billion, Apple is now worth more than Greece.”
Investors were certainly happy with the news, since shares catapulted 8% overnight.
The question is, can the company sustain this unprecedented growth? That depends on its competitors…
The Competition is Losing Steam
There’s no question that Apple’s mobile devices are fueling most of the company’s growth. $33.5 billion – or 72% of the company’s first-quarter revenue – came from the iPad and iPhone.
And competing devices running on Google’s (Nasdaq: GOOG) Android platform can’t seem to slow the momentum.
In November, Android was gaining considerable ground against the iPhone with 52.3% of the market in its grasp. But at the time, I mentioned that Android’s growth could hit a bump in the roadas innovations like the Siri personal assistant application keep consumers loyal to the iPhone.
Sure enough, the explosive popularity of the iPhone 4S has leveled the playing field. Apple’s market share has now jumped to 44%, with Google barely maintaining the lead with 46%.
Android tablets haven’t been able to dethrone the iPad, either.
The Amazon (Nasdaq: AMZN) Kindle Fire tablet, which had the most potential to knock the iPad down a couple notches, hasn’t kept consumers from flocking to Apple.
Analysts predict that Amazon sold upwards five million units of the Kindle Fire this quarter. While Apple burned through 15.4 million iPads.
Bottom line: Apple’s revenue growth rate has been climbing year-over-year for the past three years. And with the competition beginning to lose momentum, there’s no reason that growth can’t continue into 2012.
And as long as that happens, you can bet that investors won’t sweat it if Apple’s products are ever made in America again.
Good investing,
Justin Fritz

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