Just about every aspect of Apple (NASDAQ: AAPL.US)at the moment lends itself to hyperbole. This is the worlds most valuable company. It has made more profits than any other company in history. It could eventually be the worlds first trillion dollar company. The numbers are just mind-boggling.
The concept behind the worlds leading company is surprisingly simple
And yet, the concept behind Apples success is quite simple: it has made computing and technology more accessible, easy to use and fun than it has ever been. You could say that, ever since the launch of theApple Mac, the companys brand has always been about immediacy and simplicity. So the iPhone was really the culmination of three decades of creativity and thinking differently.
What has surprised many commentators and critics, including myself, is how the firm just keeps growing profits and share price, beyond anything we had imagined possible, letalone likely.
Apples Q1 2015 results showed it had made $18 billion of profit, with revenue of $74.6billion. With increasing sales from products such as theincredibly profitable iPhone, gross margin increased to 39.9% from 37.9%. Earnings per share growth was nearly 50% higher.
Not surprisingly, the companys share price went higher yet, if this level of profitability can be maintained, Apple will still only be on a P/E ratio of around 11. Thus, after all this growth, I still rate Apple a buy.
Analyse the numbers and we start to understand why the company is growing so quickly: overseas markets now make up two-thirds of Apples revenues. Dig deeper, and we can see that Apples resurgence can be explained in one word: China.
China is changing
I often read people say that Chinasrise is over. They seem to gloss over the fact that this is one of the worlds largest economies, and that it is still growing faster that just about any other country on this planet.
The reality is that Chinas growthis not ending, but it is changing. Many commentators have been predicting that Chinas economy will transition from manufacturing to the consumer. Apples growth in Chinashows that this transition is happening right now.
There were many fears that smartphone companies based in China, notably Xaomi and Huawei, would grow at the expense of Apple. After all, their products were similar to Apples, and yet they were considerably cheaper. Why would anyone buy an iPhone?
But people have been underestimating the strength of Apples brand. Apple is now the leading smartphone maker in China. iPhone sales in the Middle Kingdom have now nearly doubled in a year. And, you know, I think sales are still increasing.
This is why China is key to Apples fortunes. And it is key to the fortunes of many other companies, too: think of the growth that Unilever, Prudential,Marks & Spencerand Tesco could enjoy as Chinas hundreds of millions of consumers start to spend.
Many people still think of China as our greatest threat. What Apple is showing us is that it can be our greatest opportunity.
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