Does Apple (SYM: AAPL) Deserve a 2nd Look?
- Apr 09, 2005
- admin
- Investing
I WAS SURPISED THE OTHER DAY.
Not the kind of surpise Saddam got when his guards put a tv in
his jail cell and tuned it to CNN just as the Iraqi Govt. was
electing a KURD as their new President.
Now that’s a surpise!
But my surpise comes in a close second.
How?
Because my good friend Robert just bought me an IPOD.
I must confess – at first I wasn’t sure I even wanted it.
Sure I admire the way they look.
And it’s hard not to mess with them when friends come over and
proudly plug them into my stereo, creating an instant party.
But I think I had developed some IPOD Envy.
Not envy in the sense that I couldn’t buy one.
Although I did a double-take at the near $400 price, I can’t put
a price on how much I love music.
And the thought of being able to “digitize” my entire collection –
hundreds of cd’s from Miles Davis to the Beatles – has admittedly
been very tempting.
But looking back now I can see clearly that I had a
textbook case of IPOD envy.
You see, right before IPODs came out big I bought
what I thought at the time was a awesome MP3 player.
For 2 months I blasted tunes while I proudly walked around
NYC, hitting the Village, SoHo and ever other place I
enjoy parusing.
Friends marvelled. People at the gym were curious.
Girls did double-takes (ok, maybe I’m exagerating a wee bit).
But my point is that everything was just great.
And then came the age of the IPOD.
Beautiful. Clean. Circular. Different.
Suddenly everyone had one.
Before I knew it, my cool MP3 player acquired a nickname
that I never even new existed – “flash player.”
They might as well have called it “gimp player.”
Instead of being the “man” at the gym while other people
fumbled around with their CD players, I was the one fumbling
because my “flash player” didn’t have the capacity to make
long playlists.
And for a guy on a Marathon Training Schedule, having only
60 minutes of music can become as painful as shin splints.
So last night I began to fill my IPOD with music on my hard
drive.
The first thing that impressed me was that almost 300 songs
were transferred in less than 15 minutes.
As I marvelled at the speed, I cautiously picked it up – not
knowing exaclty how to handle this heavy little beast I
had just acquired.
I slowly put the headphones on.
And then, almost automatically – perhaps instinctively –
my right finger made a curious little circular motion.
Instantaneously, I was flooded with the clearest version
of the Four Tops’ “Bernadette” that I’ve ever heard.
My legs began to move.
Before I knew it, I was walking around the streets of South
Beach like Brad Pitt in Interview With a Vampire.
Everything just seemed, I don’t know…different.
So I walked around slowly, taking it all in.
I made my way several blocks when suddenly, almost as soon
as the Madonna’s “Material Girl” came on, I thought I saw
Paris Hilton walking down the street.
It wasn’t her. I had to remind myself that SoBe is the land
of Paris look-alikes.
So I continued my journey down to South Point, where I listened
to Jimmy Hendrix’ “All Along the Watchtower” as I watched the
yachts pull into the harbor and park next to Monty’s.
And then it looked like the weather was going to turn.
So, as the Rolling Stones’ “Gimme Shelter” blasted, I decided to
go home and look at my notes on Apple Computer to see why I
didn’t like the stock.
HERE’S WHAT I FOUND IN OUR WEEKLY ISSUED JANUARY 14 OF THIS YR:
“In 2002 and 2003 – before the IPOD took off – Apple had
a Return on Invested Capital of close to 2 percent.
That’s compared to 12 percent for the “typical” American company.
That means that for every $1,000 Apple invested into selling
its “high-margin” machines such as the G-4 it only made $20 back
on its money.
That’s it – $20!
Last year (04) that number jumped to 5 percent – or $50 – just because
they introduced the IPOD.
That means that for every $1,000 Apple invested into its business
it got $50 back.
$50 is not much but it’s a heck of a lot better than $20.
So that begs the following question: Why would Apple take all
their excess cash and invest it into sub-$500 machines.
Steve (Jobs) has to know that if they’re only getting back
$20 from selling their top-of-the-line computer than the
sub-$500 crowd can’t be greener pastures.
But he doesn’t seem to get it.”
What does that tell me?
It tells me that – no matter how much I love the IPOD –
Apple Computer, as an investment, is not the kind of
company we want to buy.
Of course if anybody wanted to give me Apple stock as a gift,
I’d certainly take it.
Remember, you are what you read.
–Dylan Jovine