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Updated: October 18, 2010 19:53 IST

Apple in line to become world's most valued firm

Charles Arthur
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Apple is forecast to show revenues of around $19bn for the quarter and $5bn of profit — with the iPhone and iPad, products you could not buy four years ago, generating about $10bn of sales. Photo: AP
Apple is forecast to show revenues of around $19bn for the quarter and $5bn of profit — with the iPhone and iPad, products you could not buy four years ago, generating about $10bn of sales. Photo: AP

As Apple prepares to announce its fourth-quarter results tonight, analysts are forecasting that it will have sold another 5m iPads, and around 12m more of the iPhone 4 it released in June.

If the numbers are good, then it is quite possible that the share price will jump further above the $300 (GBP190) mark that it broke last week — and the company could become the most valuable in the world measured by market capitalisation, surpassing the oil group ExxonMobil. It would cap a remarkable rebirth under the aegis of founder Steve Jobs.

Though at the end of last week the gulf in valuations seemed large — Exxon’s $331bn, against Apple’s $274bn — the gap has been closing for more than a year. Even if tonight’s results are not enough to propel Apple to the top spot, many on Wall Street think it is only a matter of time. Its profits will get another boost in January when Apple will begin selling iPhones through the largest network, Verizon, as well as AT&T, its partner since 2007.

Apple is forecast to show revenues of around $19bn for the quarter and $5bn of profit — with the iPhone and iPad, products you could not buy four years ago, generating about $10bn of sales.

It is a dramatic reversal from May 1997, when Jobs — who had recently rejoined the company after been fired in 1985 — was manoeuvring to take over again as chief executive. The share price put a total value on the company of just $2bn, “reflecting Apple’s loss of market share in an increasingly Windows-dominated world”, as analysts put it. Jobs told a team of software coders at the time: “You’ve got to start with the customer experience and work back to the technology — not the other way around.” He drove out the dead wood, his new recruit from PC-maker Compaq, Tim Cook (now the chief operating officer) streamlined its supply chain, and the company did as Jobs suggested, focusing relentlessly on its customers.

He also set targets — such as surpassing Dell. Asked in October 1997 what he would do in Jobs’s position, Michael Dell retorted: “What would I do? I’d shut it down and give the money back to the shareholders.” Jobs chastised Dell privately — and then celebrated with an email to staff when in January 2006, with a value of $72.1bn, it did finally pass Dell. In May this year, Apple achieved a huge milestone, passing Microsoft in market capitalisation, at GBP222bn against GBP219bn.

Apple’s computer business has steadily improved, coming third behind HP and Dell in the personal computer market in the U.S. in the three months to September, according to research firm Gartner, although it still has a relatively small share of the global market.

But it has been the newer products that have driven growth. Apple took ownership of the MP3 market with the iPod, where the integration of hardware and the iTunes software proved to be a success and baffled those who had expected Microsoft to at some stage overwhelm it with an “iPod killer” — based on software from one company, hardware from a second, and music from a third.

Then in January 2007 Jobs unveiled the iPhone, and Apple began to eat into the smartphone market — previously the sole preserve of Nokia, Research In Motion (with its BlackBerry) and Microsoft, with Windows Mobile. Sales took off again, and Jobs’s comparatively modest target of 10m phones sold by the end of 2008 was easily surpassed, with 13m sold by September of that year.

‘iPad to keep lead in tablet computer segment’

The latest hit is the iPad. Launched in April, analysts think it could sell 25m in 2011. Gartner has made dramatic forecasts for the growth of the tablet computer market, which it said would triple in size next year to 54.8m units. The technology research firm is predicting that the market will grow to 103.4m in 2012 and 154.2m units in 2013. Despite the intensifying competition, Gartner reckons the iPad will keep its lead until then.

Apple’s longtime rival Microsoft (presently still valued at GBP219bn) became the largest company in the world by market capitalisation for two years, in the late 1990s during the PC boom. At the time, Microsoft did not pay dividends, though it does now. Apple still does not pay dividends but if it does reach the top, it might have to find some other way to make its stock look more attractive than simply the chance that it will keep rising in value.

Apple will come under increasing pressure to do something with its enormous cash pile of roughly $50bn, which was a necessary buffer when times were lean, but now looks like wasted opportunity. “Apple needs to do something with all of that capital,” said Toan Tran, an analyst at financial research house Morningstar. “I could understand wanting to have something in reserve, but $50bn is such a ridiculous number that they should seriously consider returning some of it to shareholders in the form of share buybacks.” If Apple does surpass Exxon, it would mark a changing of the guard in the Standard & Poor’s 500, where the top spot has been shared by companies including General Electric, General Motors, AT&T (before it was broken up in a monopoly investigation), and — 20 years ago — by IBM, which was also hit by antitrust investigations.

With suggestions that the world is approaching “peak oil” and increasing concern over the role that fossil fuels play in climate change, Exxon looks set to be replaced by perhaps the most potent symbol of the digital age.

Copyright: Guardian News & Media 2010

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