A New Era or End of Line?

Gordon Scott |

Because Apple (AAPL) jumped eight percent in share price after announcing its stellar earnings, the new closing price made it the largest publically-traded company in the world by market capitalization. It surpassed Exxon Mobile Corporation (XOM), the company which held that spot for  five years before.

It is unlikely that Apple will need to advertise iPhones during the Super Bowl since Samsung’s commercials unwittingly do that anyway; but if they did it would be no less timely than the award-winning “1984” spot that put Apple in pop culture to stay.

It is interesting after all how Apple has accomplished this over the last four years. AAPL share prices have tripled while XOM has managed no more than a 10% net gain and the S&P 500 has virtually broken even.

With iPhone sales accelerating, and profit margins widening, some are of the opinion that Apple Computer appears positioned to hold that spot for some time to come. Is there is a hint of manifest destiny in the notion of technology overtaking big oil? Maybe, but then again maybe not.

No Phone is an Island

Some analysts rightly point out that Apple’s meteoric rise will face challenge stiff, if not necessarily immediate challenges. The fact is that the iPhone (and iPad) products cannot exist in a vacuum. The full utility (and attraction) of these devices requires the animating force of a network connection. But if the value proposition is unattractive to the network operators, that could cause a hiccup in Apples unabashed growth trajectory.

Sprint purchased 30 million units of the iPhone 4s but was unable to secure a particularly more attractive pricing model for their would-be customers. At the rate they are selling (or not selling, more accurately), this vehicle will be a clunker before the payments on it are over. That is to say they may not sell enough iPhones before Apple comes out with an iPhone upgrade.

That kind of dilemma could create loose links in Apple’s distribution chain, leave a few extra links in the supply chain, and generate earnings stuck by a ball and chain. One could easily imagine that it might be a couple of quarters before Apple’s new management could figure out how to solve the issues.

Talking ‘bout my generation—and the other generation too

But I have my own evidence (even if less than scientific) for why this will not be so. Earlier this week I had a conversation with a young man who had just purchased an iPhone. He asked if I knew how to accomplish a simple task related to his email settings. He is in his twenties, and I am in my forties (at least for a little while longer). Though it didn’t fit the stereotype, I was able to answer his question. It struck us both as an interesting moment. On further reflection I realized this wasn’t merely a curiosity—but the answer to Apple’s success!

The design and realization of the iPhone and the iPad (which share the same operating system and interface metaphors), have created mechanisms that allow consumers to connect and manipulate the world around them in orders of magnitude not seen since the production of the Model T Ford. Apple’s soaring market capitalization may be a telling announcement by the market that this is the vehicle by which it wants to travel toward a brighter future.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MPLX MPLX LP Representing Limited Partner Interests 32.16 -0.19 -0.59 2,040,619
AAPL Apple Inc. 113.95 1.83 1.63 34,402,627
XOM Exxon Mobil Corporation 89.00 0.68 0.77 8,021,683

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