Exceptional growth at Apple is no exception

Graph: AsymcoThe phenomenal growth of Apple in the past four years has been fuelled in the main by iOS devices. The iPad, iPod touch and iPhone account for 65% of sales, three times the value of OS X products which account for 23%. This imbalance and the increasing competitiveness of the smartphone/tablet market is probably the reason Apple is undervalued in comparison with peer companies. The discounted share price indicates that the market does not believe the juggernaut growth of Apple can continue. Horace Dediu begs to differ in this article: When exceptional growth is not an exception.

I’ve read that some of the uncertainty around Apple’s future prospects is driven by the perceived vulnerability of these new blockbuster iOS products. At first glance this growth looks quite unprecedented and hence risky. 65% of sales from iOS did not exist four years ago. If you look at the sector it’s hard to find any company that has doubled its sales in a few years from completely new product lines. Especially a mature company over 40 years in the business. Well, there is one.

Dediu posits that Apple can sustain the rate of growth, pointing out that it has done this once before with the iPod. The proportion of sales now held by iOS devices have largely replaced the sales that used to be held by the iPod, which was itself a product that did not exist four years before the iPhone hit the market.

Exceptional claims require exceptional evidence. But that’s exactly what the investment thesis for Apple should be: Exceptional growth is no exception.