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ATPM 18.04
April 2012




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The Apple Growth Story

by Robert Paul Leitao,

Part I: The Source of Apple’s Success

Apple has become the crown jewel of American industry. The company’s market capitalization (the sum value of all outstanding shares) now exceeds one-half trillion dollars, and next fiscal year, the company’s revenue may rise above one-quarter trillion dollars. By the end of the current quarter, Apple will have amassed cash and marketable securities balances well in excess of $100 billion.

On a per-share basis, there is already more than $100 in cash and marketable securities standing behind each outstanding share. Apple is currently generating cash at the rate of more than $1 billion per week, while addressing only a fraction of the global market for the company’s products.

Over the next few issues of About This Particular Macintosh, I will explore Apple’s success and provide an overview of the factors that contribute to the company’s high value and its prospects for continuing growth.

As the editor of Posts At Eventide, I actively track and forecast Apple’s financial performance. At this site, I provide a repository of information on Apple’s quarterly results over the past three fiscal years and the unit sales history for each of the company’s major product lines over the same quarterly periods. But as an observer of Apple for the past 20 years, it’s my view that the company’s ongoing success is fueled more by the way in which Apple crafts customer relationships than by the popularity of any one of the company’s hardware products.

Posts At Eventide Axiom #1: Apple doesn’t sell products. Apple creates customer relationships, and these customer relationships sell Apple products.

At the center of Apple’s success is the Apple customer. In Apple’s last fiscal year, the retail stores represented about 13% of reported revenue. But the retail stores are much more than product sales locations. The stores function as primary product service centers and locations for the development of new customer relationships. Management has repeatedly stated that about half of Mac buyers at the retail stores are new to the Mac platform.

The introduction of the iTunes Music Store in 2003 and the release of iTunes for Windows allowed Apple to make the underlying computer operating system irrelevant and introduced hundreds of millions of computer users to Apple’s approach to interface design.

iTunes provided Apple with the opportunity to introduce Apple and Apple products to tens of millions of new customers and has been at the foundation of what I call the “Apple Product Mutual Halo Effect.” To understand Apple’s growth story, one must appreciate not only Apple’s individual product sales, but also Apple’s yield per customer. Content sells devices, and content available through the iTunes Store and Apple’s App Store can be shared across multiple devices owned by the same customer. There isn’t a competitor on the planet that can match Apple’s depth of content and array of digital devices. Yield per customer is a driving force behind Apple’s continuing growth.

In next month’s issue, we will continue our exploration of Apple’s success and begin our look at the company’s financial performance and the performance of the company’s share price.

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