Reconsidering Apple (AAPL)

For a company which may have the most well-regarded premium brand in the world, Apple’s stock has been certainly been buffeted by unsatisfied investors. The shares have recovered some since the beginning of March, but over the last year they are down more than 25%. When investors are nervous, even the strongest brands get very little consideration.

The concerns about Apple are not different from those regarding any other consumer products company in a recession, but they are more subtle. People stop buying PCs and electronics when the economy is bad, primarily because they can. A two-year old computer will still perform 90% of the tasks required by a business or home user. There is nothing wrong with a two-year old Nokia (NOK) cell phone.

In the PC market consumers are willing to go without a new Dell (DELL). Dell does not have much of a brand anymore. Even though HP (HPQ) is the largest PC company in the world, people do not gush about getting a new HP laptop. It is, more or less, a commodity. But, in the minds of many people, millions of people, the Mac is like a Bentley. It is a sign that some things are still worth having because they are designed better, work better, and make people feel better than the prosaic Brand X PC alternatives.

The same principle holds true for the iPhone. Samsung and Blackberry (RIMM) make products that do most of the same things, and, in some cases are better smart phones. A Blackberry runs rings around an iPhone as a communications device. But, people do not take out their Samsung Instinct smart phones and put them on a table so that others know what they are carrying. iPhone owners may be obnoxious, but at least they paid for the privilege.

It would probably be hard for Apple’s products to sell well in a really harsh economy even on the strength of a powerful brand, especially if there is evidence that all the company’s competitors are being pounded. A brand may be worth a lot, but when almost everyone has less money than they did a year ago, potential owners become aspirants.  Apple products have the potential disadvantage that they are comparatively expensive.

Investors who believe that Apple can still do well got a hand. Smart phone king Research In Motion (RIMM), maker of the Blackberry, posted strong earnings for the last quarter. The company did what Wall St. likes most of all. It did better than expected in the last reporting period and said it would do better than people anticipated in the future.

Now Wall St. gets to re-evaluate Apple. RIMM, which is among the lesser branded competitors in the field, has done fine even in a downturn. Even if the recession has been deepening, businesses and consumers are willing to pay for something that they need, or something that they want very badly. A Blackberry is a status symbol of sorts. It is certainly a device which has utility. The iPhone shares those elements and is also a much more powerful symbol of the owner’s prestige. Gucci with a touchpad.

Apple’s shares will likely run up now. RIMM’s results have given them permission to. The analysts who have said the stock is too expensive because iPhone and Mac sales will falter are now faced with defending their analysis in the face of the success of one of Apple’s “competitors”.

Apple’s shareholders are like its customers. They are zealots and have an unreasonable attachment to the company. Now that they have been given justification for their ardor, they can hit the “buy” button at their online brokerage accounts until carpal tunnel syndrome kicks in.

Douglas A. McIntyre