Apple Inc.

By: Tyler Haida Frankie Damian Honglu Liu Presented March 13, 2012

AGENDA
Industry Overview Competitors Analysis Company Overview Modeling Recommendation

Industry Analysis
Consumer Electronics Industry is very competitive Products can be looked at as a luxury and not a necessity. Demand is driven by the desire of the product not the need

Demand for Apple products is expected to continue to grow rapidly

Competitors
Google (GOOG)
o Market cap. 196.76 Billion

Hewlett-Packard (HPQ)
o Market cap. 47.62 Billion

Research in Motion (RIMM)

o Market cap. 6.76 Billion

Dell (DELL)
o Market cap. 30.15 Billion

Amazon (AMZN)
o Market cap. 83.45 Billion

Source: Yahoo! Finance

Competitors Products
Company Phones Computers Tablets Digital Music Players Yes No No

AAPL GOOG HPQ RIMM

Yes Yes, kind of No Yes

Yes No Yes No

Yes Yes, kind of No Yes

DELL
AMZN MMI

No
No Yes

Yes
No No

Yes
Yes Yes

No
No No

Competitors Key Statistics

Company AAPL GOOG HPQ RIMM DELL AMZN MMI Revenue 127.84 Billion 37.9 Billion 124.98 Billion 19.80 Billion 62.07 Billion 48.08 Billion 13.06 Billion P/E 15.71 20.33 8.41 3.09 9.02 133.86 N/A R.O.A. 24.01% 11.73% 5.34% 14.36% 6.74% 2.44% -.06% EPS 35.17 29.76 2.86 4.25 1.88 1.37 -.84 Source: Yahoo! Finance

COMPANY OVERVIEW
Apple Inc. (NASDAQ:AAPL) is a multinational corporation that designs, manufactures and markets personal computers, software, electronics and other creative devices.

Key Statistics
Current Price $552.00 Market Capitalization 514.67 Billion P/E 15.71 EPS 35.14 P.E.G. 0.66 R.O.A 24.01% R.O.E 45.58% 5 yr. Annualized HPR 137%

Source: Yahoo! Finance

PRODUCTS
iPhone iPad Mac Hardware Products

iPod o Touch; Nano; Shuffle; Classic iTunes + iTunes Store Mac App Store Software Products and Computer Technologies iCloud
Source: Apple 10-K (2011)

o Desktop computers: iMac, Mac Pro and Mac mini o Portable computers: MacBook Pro and MacBook Air

iPhone

iPad

iPod

MacBooks

Mac Desktops

Apple TV

Peripherals and other hardware 2% iPad and related pro & services 19%

Software, service and others 3%

Desktops 6%

Portables 14%

3 0% 4 5 0% 0% iPod 7%

iPhone and realted pro & services 43%

Music Related Products or Services 6% Data Source: Apple 10-K (2011)

BASIC FINANCIAL DATA

Source: Bloomberg

BASIC FINANCIAL DATA

Source: Bloomberg

HISTORICAL STOCK PRICE

Source: Bloomberg

20 Day vs. 200 Day Moving Average

Source: Yahoo! Finance

New Products???
Apple Television
o display monitor or screen would be more fitting.

Apple Game Counsel

o Epic Games, CEO Mike Capps spoke of the possibility of a Bluetooth controller being developed for the iPad. With a hypothetical controller combined with AirPlay and an Apple TV, he believes Apple could challenge Microsoft's Xbox and Sony's PlayStation platforms for the home console gaming market.

Source: AppleInsider.com

Key Risk Factors

Global Economic Conditions Highly competitive global market subject to rapid technological change
o Wide Moat

Must successfully manage frequent product introductions and transitions Operating results depend on Apples ability to obtain components in sufficient quantity Depend on outsourcing, many outside the U.S. Relies on third-party intellectual property and digital content

The Apple Moat

Huge Market Share?
Industry Market Cap. of Industry Apples Hybrid Industry Market Share

Personal Computers Internet Information Providers (GOOG)

Diversified Computer Systems Catalog and Mail Orders (AMZN) Apple

544.80 Billion 196.76 Billion

293 Billion 149.1 Billion 514.67 Billion 43.48%

Source: Yahoo! Finance

Explaining the Hybrid Market

As we pointed out earlier Apple does NOT have a true competitor Not one company in the Technology industry competes with Apple in all business segments.

So we created this Hybrid Industry to really try and put Apples market share in perspective.
We took the market capitalization of all the industries of Apples competitors and compared Apples Market Cap. to this Hybrid industry instead off just the Personal Computers Industry, which Apple clearly dominates.

The Moat Continued

Low-Cost Producer? Apple outsources all of its production
o Because it can get it at a very low cost overseas.

Average 5 year Gross Margin of 40%

The Moat Continued

Patents, Copyrights, or Governmental Approvals and Licenses? Apple currently has 3.5 Billion Intangible Assets
o Typically are patents and copyrights

Very active in filing patents on new products

o Literally everything they make

They also peruse legal action Apple is very secretive and protects its products

Source: Apple 10-K (2011)

The Moat Continued

Unique Corporate Culture?
o Just go into an Apple store o It is no secret that the culture at Apple is very unique

High-Customer Switching Costs

o Apple doesn'tt necessarily have high switching costs but the way all of the products integrate with each other makes it very convenient and attractive to own more Apple products.

The Network Effect?

o This is created by being a first-mover in an emerging technology. Because the networks value increases as more people use it, a network is created that can create a massive moat.

So Apples Moat?
Morning Star classifies Apples moat as being narrow I say its bigger. moderate or even wide

Graham-Greenblatt
1 year Earnings Growth 35.17% Graham
o 7-10 year growth 347%

Greenblatt
o o o o o APPL=353.7% GOOG=46.37% RIMM=148.26% HPQ=81.81% DELL=42.19%

Competitors Graham-Greenblatt
Company AAPL GOOG 1 yr. EPS Growth 35.17% 66.67% Graham 347% 6.21% Greenblatt 353.3% 46.37%

HPQ RIMM
DELL

55.58% 32.11%
15.95%

.21% 2.65%
.26%

81.81% 148.26%
42.19%

Source: Yahoo! Finance

Recommendation
BUY 100 shares at the market. Will have to get permission because it will exceed the limit of 2.5% of initial position.