Apple (AAPL) At $200: The Madness Of Crowds

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This holiday, the press is replete with stories of sales of Macs on the Amazon (AMZN) website and the transcendent experience of shopping at an Apple store. Perhaps all of those consumers also bought a share of Apple, or maybe Wall St. has just fallen in love with the stock.

Yesterday, the shares moved above $200. Twenty months ago, they traded just above $50.

What investors don’t want to be told is that the barriers to Apple moving higher have become tremendous. In the fiscal year ending September 29, iPod sales rose 31% to 51.63 million units, according to the company’s 10-K. That is a large increase, but the growth rate is slowing, and year-over-year comparisons are going to be less spectacular as time passes.

The iPhone may well hit its goal of selling 10 million units by the end of 2008. The global handset market is now over one billion units a year. But, the smartphone end of that market is getting crowded and most of the competition comes from companies who know what they are doing–Research In Motion (RIMM), Nokia (NOK) and Sony Ericsson. Getting the next 10 million units is going to be harder for Apple. Competitors are likely to be willing to cut more financially liberal deals with carriers than Apple is. Until proved otherwise, the iPhone is a niche product and the niche is filled by several companies.

Much of the company’s success rests with the Mac. In the last year, the computers were almost half of Apple’s revenue, and Mac revenue rose 40% over the previous year.

But, PC companies are digging in and building computers which are more competitive. Dell (DELL) has just launched a product aimed directly at the Apple machine. Hewlett-Packard (HPQ) is still by far the largest PC company in the world. and it is likely that it will use a mix of price and product features to keep Apple’s share small. Unlike its place in the portable media player space. Apple is fighting from behind to try to pick up sales in the computer market, and each PC company is aided by Microsoft (MSFT) and its goal of increasing revenue from Vista.

The things that helped Apple’s stock may no longer be present. It entered the media player market when the use of digital media was still in its early stages. That made growth a bit easier to come by. Apple’s share of the computer market is still small, but its larger rivals want to keep it that way. The same holds true in handsets.

The air will be much thinner for the rest of Apple’s climb.

Douglas A. McIntyre

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