Apple will be bigger than IBM
Arguably two of America's best run companies are Apple Inc (NASDAQ: AAPL) and International Business Machines (NYSE: IBM). Both have achieved high levels of success and shareholders have been rewarded along the way. However, both are treading in different waters …
Context & Ripple Effects
This projection lands at a hinge moment for Apple: the FCC cleared the iPhone for sale on May 17, 2007, and the device is due in stores next month, giving the company its first real shot at mass-market scale beyond the Mac and iPod. Days earlier, IBM countered with a headline of its own — the 65nm POWER6 processor running at 4.7GHz — a reminder that its growth engine runs through enterprise servers, a market Apple does not touch.
BloggingStocks frames both firms as among America's best-run companies whose shareholders have been rewarded, but argues they are treading in different waters. Read that way, the size comparison is less a forecast than a bet on which water rises faster: consumer device volume or enterprise hardware contracts.
First-order effects
- Apple's valuation case now hinges on the iPhone, FCC-approved and shipping next month — the first product where its size depends on mass-market volume rather than premium Mac and iPod niches.
- IBM's answer to the same question is silicon: the 4.7GHz POWER6 announcement underscores that its scale story is sold to data centers and enterprises, not consumers.
Second-order effects
- If the bigger-than-IBM thesis gains traction, investors have to price Apple on consumer-device volume instead of niche hardware margins, while IBM's multiple stays tethered to enterprise hardware upgrade cycles.
- Unconfirmed reports that Apple may open the iPhone to prepaid users suggest the company is weighing broader carrier distribution to reach the volumes a comparison with IBM would require.
Third-order effects
- If the pattern holds, market-cap leadership in American tech shifts from companies selling to enterprises to companies selling ecosystems to consumers — a re-ranking by end-user reach rather than contract size.
- The divergence also sets up a structural question for both camps: whether an enterprise incumbent can defend its valuation against a consumer platform whose growth compounds through retail channels IBM has no presence in.
The trend: Consumer device ecosystems are positioned to overtake enterprise IT incumbents in market value, with the iPhone's June 2007 launch serving as the first hard test of that re-ranking.