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Thursday, October 20, 2011

when to question AAPL

On CNBC this after noon Herb Greenberg pointed out a post by Jeff Mathews about Apple's retail sales, and how it is a prelude to negativity.

I completely disagree with this assumption to negativity. Partly due to the jumpiness of Apple's revenue over the quarters, and the obvious effect of the iPhone 4S launch. (Dan Frommer put graphs to the numbers for all to see.)

The other main reason to not care about physical retail sales is because the store was meant to be so much more than just a retail outlet.  Its your local Apple hub. A knowledge center, and customer service extension.

Every Apple device and every computer screen is a point of sale mechanism for Apple products. So to focus on just the retail store is absurdly lacking in analysis.  Especially, when seeing the type of demand for the iPhone 4S.

Apple has developed a virtuous cycle of a positive feed back loop from their great products, huge ecosystem, to their great customer service.  The loop is so strong, it can withstand many hick-ups.  But the one thing that truly separates Apple's growth drivers (iPhone and iPad) is their hardware. (Although that is over simplifying the combination of friendly user interface, very efficient OS software, huge ecosystem and when combined works effortlessly.)

IMO, the main link that lets everything work together effortlessly is their "A" series chips. It allows for the fluid activity of the device (iPhone and iPad) and extended battery life.  With out these chips, Apple's margins will slim as the device becomes a commodity (in relation to the mimicking competition), and Apple would become dependent on their ecosystem for sustained business, not growth. 

I would begin to question Apple when I no longer see a differentiation from their A6 or A7 or A8 and so on.  But Apple is far from a stupid company.  They know the importance of this differentiation, and how it allows for revolutionary type of software services not seen in other devices. During the recent CC, we learned Apple has about 1000 employees working on these chips. (And history has shown they are not shy about buying relatively small, under the radar, companies that have a potential edge in the space.)

When I see Apple lose their processing strength, I will begin to seriously question the stock.  Until then, all the other negatives are just cancelled out by record setting sales, and continued proof that Apple will out innovate their competitors.

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