Apple’s iSlate overflows with expectations

January 6, 2010

What’s the iSlate worth? It’s not an easy question to answer, as Apple isn’t even confirming it’s got a tablet computer gadget in the works. But the market gives a rough guide to what Wall Street expects from the new device. Investors seem to be slapping an “iSlate premium” of some $25 billion on Apple’s value. Though Apple boss Steve Jobs’ skill at launching new products is unparalleled, meeting these hopes will be a tall order.

Since July, Apple’s market cap has jumped by $64 billion to $193 billion. The bulls have been stampeding over that time, but the tech company’s performance has been more than double that of the broader market. On that basis, Apple has added some $35 billion more value than it would have if it had paced the market.

Some of that has to be attributed to the iPhone’s success. But Apple currently trades at almost 23 times next fiscal year’s earnings while Research in Motion, the maker of Blackberry handsets, trades at 13 times even though their respective earnings are expected to grow at the same rate.

True, Apple routinely – some would argue deliberately – low-balls its own forecasts. And RIM has missed its projections multiple times. But even if Apple deserves to trade at, say, a 50 percent price-to-earnings premium, that leaves some $25 billion of value unaccounted for. Call this the iSlate premium.

While there’s clear interest in the device, growth will probably follow the path of the iPod rather than the iPhone. Handsets are close to a necessity, while content players – such as Amazon’s Kindle – are more luxuries. Still, assume Apple’s consumer halo translates into a 25 percent faster adoption rate than the iPod achieved.

That would imply sales of about 62 million tablets after five years. At Apple’s typical profit margins, the present value of these sales would be perhaps $22 billion, according to a study from Southridge Research. On that basis, Apple’s current market cap is just about warranted. But beware – this is not just a rosy assumption. IT doesn’t take into account the potential cannibalization of other Apple products.

Betting against Mr. Jobs is rarely smart. Few technology executives have a better grasp of where computing is heading and what consumers want. But should this be a rare misstep, it could leave a $25 billion lump in Apple’s investors’ throats.

Comments

you need job growth to keep the volume of buying these expensive gadgets and it ain’t there. Read a bizarre job hunting story at http://storyburn.com

Posted by voomies | Report as abusive
 

Do not underestimate the Master.
The Force is with him.
Microsoft turned out to be like GM.
Apple is more like Audi.
People like cool stuff that works.

Posted by Ultramayan | Report as abusive
 

How do you compare PEs between one-trick ponies like RIM and multiple product manufacturers like Apple? Do you really see ‘berries evolving into anything mainstream? I was in Mexico and I was amazed at the iPod penetration. Never saw a ‘berry until I was at the airport. The iPhone (I’m not an owner) has been out for more than two years. Have you seen a revolutionary change in the ‘berry that was not a copy of iPhone features? I admit I did not buy Apple at 12$ when the iMac was introduced and I still don’t own Apple. But I also admit I am stupid.

Posted by instanton | Report as abusive
 

two devices. the market is betting on two devices, ereader and a smartbook. also this article doesn’t mention growing sales in the macbook line, nor the fact that if the company’s overvalued, why analysts are still pegging the company’s values at numbers over $250.

Posted by theinfamoushw6 | Report as abusive
 

I just gave my two college age kids iPhones for Christmas to add to their collection of iPods and iMacs. They love Apple as do all their friends. The Apple line is growing in popularity daily with the college age group. My bet is on Apple growing its share in ALL product categories! It quite simply leads in innovation and builds the best products!

Posted by waveonshore | Report as abusive
 

Just waiting for all you fanboys to start telling the world Jobs invented the tablet because he called it a slate rather than a tablet. If by innovation you mean take someone else’s Idea gut half of the useful features but make it look real pretty, then figure out how to make it with the cheapest possible parts innovate in a little planned obsolesce and lack of upgradability, I agree. Soon you have something that is well worth the Apple name. Because if it looks pretty and a toddler can use it the Apple Army will buy it for twice the cost and replace it twice as frequently. Apple fans think Jobs innovates because he takes products and ideas they never new already existed; which is not surprising given their remedial technical sophistication, and gives then a facelift. Then he calls it innovation.

Not that this is a bad think, but be honest about it. Apple doesn’t innovate they makes good looking, overprice, feature limited devices that perform their limited functions very well for an audience that otherwise would not be able to figure them out.

Posted by maclove | Report as abusive
 

@instanton. What a pity. You probably had countless opportunities from $12 to $200 to get back into Apple stock but each time I presume you were faced with the same issues. The real pity in all these mobile developments is where Windows Mobile is and where the Blackberry is going. Both have been around a very very long time but were very focussed on catering to the enterprise sector. Their innovations, etc were really driven by what the IT managers wanted for their own security and network related needs. They do not care about the long term business model like creating an ecosystem”, building bridges to the consumer market etc. Bottom line, Blackberry just wanted to sell hardware, and MSfT wanted to sell software, both to enterprise.

Posted by TheBoots | Report as abusive
 

@maclove. Whether or not Apple is deemed to be innovating really depends on whose opinion you ask. But it is fair to say that one measure of success is how the market responds to the products in both sales and share value. If a product is overpriced relative to its features, form factor, ergonomics, design etc. then it cannot last long in the market place. The Zune truly looks quite nice and has decent features and has a very affordable price point. Has it been considered a success in sales? Or are the consumers who failed to buy the Zune but bought the say iPods instead are deemed to be brainless?

Posted by TheBoots | Report as abusive
 

What would be revolutionary is if Apple were to introduce a device that does what people actually want, not what Apple tells them they want, at a retail price that isn’t through-the-roof, with no back-end downside like being enslaved to AT&T or needing a raft of overpriced apps to make it halfways rock out, half the time.

Whether Apple has it in them, or not, real revolution will not be overmonetized.

Posted by HBC | Report as abusive
 

I love the Apple products. I’ve owned many an iPod and wish my cell carrier had the iPhone. As for now, the prices on those phones are ridiculous but as a consumer, the want sometimes out weighs the need. And I agree, Apple does need to introduce a line of devices the does what people want and not what their paid aps want US to do. When Steve figures that out, I’ll be a happy camper. But for now, I’ll sit on the sidelines and watch others with their iPhones and iSlates (or whatever) and wonder when Apple will become affordable to common Joes like me.

Posted by SurferRob1 | Report as abusive
 

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This post was mentioned on Twitter by iSlateMate: Apple’s iSlate overflows with expectations – Reuters (press release) (blog) http://bit.ly/6AdSYQ…

 

[...] What’s the iSlate worth? It’s not an easy question to answer, as Apple isn’t even confirming it’s got a tablet computer gadget in the works. But the market gives a rough guide to what Wall Street expects from the new device. Investors seem to be slapping an “iSlate premium” of some $25 billion on Apple’s value. Though Apple boss Steve Jobs’ skill at launching new products is unparalleled, meeting these hopes will be a tall order. full story [...]

 

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