Replies to post #113 on Apple Inc (AAPL)

[roni]

In addition,

I think the upgrade cycle will also generate some sales of XServes.

Ron

[langostino]

roni

you must separate "growth" that results from higher cyclical sales to the installed base, from "growth" that results from addition of new customers.

The former is a one-time pop, courtesy primarily of Apple having shifted sales out of the period from 2001 to the first half of 2003, forward into the second half of 2003 and into 2004. That is the practical effect of Apple not having moved to address the Moto problem when it first became apparent.

The reason the market has been willing to afford Apple a seemingly outrageously high p/e for the past year is because it knows current numbers are "depressed" relative to normalized revenues as a result. While the anecdotal evidence does suggest that Apple's installed base has been shrinking, we know (or at least we think we know) it hasn't been shrinking by as much as the decline in market share numbers suggest.

I would imagine most of the pent up backlog for pro desktops will have been "used up" by the first half of 2005. The real question for long term investors is what the true run-rate for unit sales is, and what level of revenues it corresponds to.

Keep in mind that even among Apple users, the replacement rate for old PCs is expanding not contracting. Which means, given no growth in the installed base, Apple could expect to sell fewer computers each year.

The only way Apple exceeds 2000 pro desktop sales in 2005 is via expansion of the installed base. While a shorter term (6 months to 2 years) trade in AAPL can take advantage of the cyclicality in the installed base, the longer term will still boil down to market share.

It is sobering to think Apple will need to increase its market share by roughly 50% just to get back to where it was at the beginning of the Jobs II era. A long-term bet in AAPL is a bet that that will happen and then some.

To me, the easy bet is the one based on the surge in sales we're sure to see in the next 18 months -- virtually irrespective of economic conditions or anything going on in the universe around Apple. It's essentially "locked in." Betting on that being sustained by real market share growth thereafter, rather than seeing it pull back to normalized run-rates is much more speculative.