Over the past eight weeks, Apple Inc. has watched its stock market value soar by more than $100-billion (U.S.), an amount greater than the entire worth of any Canadian company.
This meteoric rise has gilded the performance of the broader market and cast a rosy glow over measures of corporate profitability. Apple’s success, though, is drawing attention away from a U.S. economy where many companies, especially in the tech sector, are struggling for growth.
Apple’s surging stock price helped drive the Nasdaq composite index to the 3,000 mark on Wednesday, its highest level since December, 2000, when the tech-heavy index reflected the runaway optimism of the tech bubble.
Although there are more than 3,000 companies in the Nasdaq composite index, Apple disproportionally affects results because of its huge market value. The company represents 11 per cent of the benchmark, almost double the weighting of the next most important member, Microsoft Corp.
Apple’s performance has been so strong in recent months that it single-handedly rescued an otherwise mediocre earnings season. The companies in the S&P 500 index would have collectively posted a 4 per cent decline in profits in the fourth quarter last year, but thanks to Apple’s blowout results for the period, total S&P 500 earnings actually increased by about 4 per cent, according to Jonathan Golub, the chief U.S. market strategist at UBS AG.
Apple’s good fortunes are masking mixed results within the technology sector, where tight government budgets and a lack of consumer confidence have been eating into sales and profits. Dell Inc. and Hewlett-Packard Co. are just two tech giants that recently reported disappointing results.
Back in December, 2000, when the Nasdaq last touched 3,000, Dell boasted a market value of more than 10 times that of Apple. But today, the Round Rock, Tex.-based company is worth far less than Apple and is scrambling to find new sources of revenue to supplement lacklustre growth in the world of PCs. It recently warned that sales for the current quarter were likely to shrink by 7 per cent.
Meanwhile, HP, the world’s largest PC maker, reported a 44 per cent plunge in revenue last quarter and a 7 per cent decline in profit.
Apple, which recently became only the sixth U.S. company to hit a market capitalization of more than $500-billion – and the only one to be worth that much at current valuations – finds itself in its enviable position for many reasons.
A decade ago, it began to change the way people listen to music with the iPod. With the iPhone and the iPad, it redefined traditional devices such as the phone and computer.
“Apple has brought a quantum change to the way we do things,” says Roger Kay, president of Endpoint Technologies Associates Inc., a market intelligence firm based in Wayland, Mass.
The company is renowned for its products’ simplicity of design and a brand that is incised into the public’s mind. Less well known is its logistical prowess. Across Apple’s product lines, the company boasts one of the most sophisticated manufacturing chains the technology industry has ever seen, tapping an army of cheap, skilled labour through Taiwanese contract manufacturer Foxconn
In the smartphone market, for example, the iPhone has been able to capture the lion’s share of earnings, by some estimates collecting as much as 80 per cent of the sector’s total profits. Thanks largely to the success of its smartphone, Apple reported a profit of $13.1-billion last quarter, beating analysts’ estimates by a staggering $3.5-billion.
“Apple has found a combo that really works,” Mr. Kay says. “It has brought a multiplicity of elements together in an almost perfect way.”
The question is whether the company can keep breaking new ground without its visionary co-founder and leader, the late Steve Jobs. One indication will come next week when the company holds its next product unveiling, widely expected to include the iPad 3.