Tuesday, October 23, 2007

McIntyre: Apple (AAPL) is Not Google (GOOG)

Douglas McIntyre is the CEO of 24/7 Wall St, a New York-based financial media company.  He argues here that the market's wild enthusiasm about Apple's stock and PC market share gains is misplaced.

With Apple's most impressive quarter behind it and with a forecast of a $9.2 billion quarter ahead, it would appear that Jobs & Co. cannot be stopped. They will continue to rule the portable and digital music industries. Their assault on the handset business s a smashing success. The Mac is finally getting the kind of adoption that its advocates were certain it would.

Price targets for Apple are now above $200 matching the kind of optimism that $800 price targets hold for Google.

Over the last year, Google's shares are only up 40%. Apple's are up well over 100%. Apple's price to sales is about 7x while Google's is 15x. Many would argue that is because Apple is a hardware company and can never have Google's margins.

But, the analysis is more complex than that. Google is really only in one market, which is search. It plays around in other businesses but they don't create any revenue. Google is first in search, by a wide margin.

Apple is in three businesses. In the iPod/iTune segment, it stands as No.1 and no other company is likely to catch it there. In the handset business, the iPhone may be a success, but, even if its sells 10 million units next year, it is up against companies like Nokia (NOK) which sells closer to 400 million units in a good twelve month period.

Apple's problem is even worse in the PC market. Worldwide, its share may be close to 6% and better than that in the US. But, Hewlett-Packard's (HPQ) sales are moving up twice as fast as the overall PC market, even though it is the No.1 company in the industry, Acer's growth rate is four times the industry average.

In other words, the idea that the Mac is growing faster than all other PC brands is something of a myth.

Apple is not Google because it is so far behind the competition in two of its three markets. The market sees that risk, and it means the level of concern about AAPL's share price will only grow.