Dissipating the FUD Cloud Around APPLE

Once again Apple investors are stricken with the F.U.D cloud. What is F.U.D. you ask ? F.U.D., is fear, uncertainty, and doubt. This time the fear, uncertainty, and doubt about the future growth potential of Apple stock is being driven by Scott Moritz of The Street, who believes that Apple's growth potential is limited because of what he perceives as saturation by Apple products in their niche markets , as well as a general recessionary malaise by all tech consumers. Simply put, Mr. Moritz is wrong with his bearish outlook.

I'm convinced that Mr. Moritz has not set to intentionally be wrong, it is likely the mistakes of an overworked tech analyst making the wrong assumptions about Apple's strategy, forgetfulness about deferred earnings on current iPhone sales, and a general disconnect with which computing category the iPad, which is the rumored Tablet device that Apple has not even confirmed publicly that they are developing, will fill. Let's take his points one by one, shall we?

Moritz says, "For Apple, the stunning growth streak lives or dies with the upcoming Tablet." This false. As he reveals earlier, Apple will be unveiling a new refresh of iPods that features cameras that will significantly spark a replacement cycle. It also extremely likely that Apple will finally discontinue carrying the 160gb iPod Classic that, unlike its iPod Touch counterparts, is hard drive based and cannibalizes other iPod sales. It also very likely that they only reason they would finally remove the iPod Classic from the lineup is because the current capacity sizes of the iTouch products will be upgraded from 8gb, 16gb, and 32gb to 16gb, 32gb, and a new 64gb iPod touch. The reason I think is likely is because the iPhone is now available at 32gb and traditionally since the introduction of the iPod Touch its uppermost capacity has been ahead of the iPhone. Also, the addition of the cameras to these iPod Touch will result in increased App Store sales being realized for camera-centric games, photo organization, and photo manipulation apps.

Apple's penetration into the China market with their iPhones in the 4^th quarter of this year as reported by ZDnet UK means that there will be literally millions upon millions more of iPhone sales to be realized in a new market over the next three years. The most important to remember in terms of growth regarding this is that with each phone that Apple sells they only recognize 1/24^th of the income derived from the sale of the device and the subscription mobile phone income generated every month. It slowly recognizes the revenue over a two-year period. This means that every quarter we are only seeing three months of the twenty-four months of sales actually made. A phone sold in September 2008 will still be providing income to the balance sheet for another 12 months from now. This is because of the GAAP earnings reporting that Apple has chosen.

Another critical piece of the puzzle that Scott Moritz ignores is the compounded earnings from Apple's debt free mountain of cash that currently amounts to 24 billion dollars. Without purchasing any other companies (which seems unlikely) Apple's pile of cash will grow and represent even more of the stock price.

Finally Moritz adds: "Apple is putting the final touches on its Tablet... The touchscreen device expands on the iPod Touch and offers users a bigger, more brilliant screen. As a product, the iTablet falls somewhere between smartphones and laptops."

The Tablet will not be a larger iPod Touch, rather it will THE netbook solution and the coolest ebook reader, as well the most exciting gaming platform in ages, and it will already have a ton of software tailored to its strengths in the App Store which is light years ahead of its competition. t

Scott Moritz goes on to say that: "The point here is that Apple's iPhone is a popular mass-market device on track to sell 30 million or more units this year. The would-be successor to that product, the iTablet, has a bit of a hurdle ahead of it. The most popular tablet today, the Amazon Kindle, sold an estimated half million units last year. "

Simply put, Apple will take over this market in under one year, just as they did the smartphone market. Why? Because the Apple faithful will purchase between one million and two million of the device guaranteed in the first year. That number alone would quadruple what Amazon was able to do with the Kindle, and it will become the prime gift giving wish of nearly every teenager in America and around the world. We cannot fathom the limitless interactivity possibilities with such a product! He also fails to acknowledge that Apple's probing into the international markets with the iPhone will make rolling out the Tablet that much easier and more profitable.

Quite simply, if Jobs and company get just one more home run with the iPad, their company, which is currently trailing Microsoft in market cap by merely 75 billion dollars, will be worth more than all of Microsoft, and with more growth potential than Microsoft! They won't get caught up in the search quicksand that has obsessed Steve Ballmer for years.