Apple's Future Is Rosy, With or Without Jobs

Apple's record-shattering first quarter left analysts expecting all good things for Apple's future, despite Jobs' indefinite leave of absence.

Apple's Jan. 18 announcement of its fiscal first quarter 2011 results was summed up nicely by Technology Business Research analyst Ezra Gottheil. In a research note released after Apple's earnings call, Gottheil wrote: "We're running out of superlatives."

Apple posted record revenue and profit, $26.74 billion and $6 billion, respectively; ended the quarter with nearly $60 billion in cash; and sold record numbers of Macs, iPhones and iPads during the quarter. Despite the company's Jan. 17 announcement that CEO Steve Jobs is taking an indefinite medical leave of absence-which while announced on a day that the markets were closed, nonetheless caused Apple's stock to fall but later right itself-analysts were positive about the likelihood of Apple having many more strong quarters ahead.

"TBR believes Apple's trajectory over the next three years will be similar whether or not Steve Jobs is at the helm," wrote Gottheil.

Several factors contribute to this position, and chief among them is the world's continued interest in the iPhone. While Apple has sold as many iPhones as it has been able to make (during the call, COO Tim Cook said Apple was "working around the clock to make more"), demand is expected to increase further with the release of Verizon's CDMA (Code Division Multiple Access) version and infringe on the iPhone's main competitors, smartphones based on Google's Android mobile-operating system.

"One reason for Android's traction is Apple's exclusive deal with AT&T, keeping iPhone out of more than half of the largest smartphone market in the world, the U.S.," wrote Gottheil. "In signing a deal with Verizon, Apple has more than doubled its potential U.S. market, and much more than doubled the part of the U.S. market it has not already penetrated."

Piper Jaffray analysts, in a Jan. 19 note, added, "This was the first quarter that we have seen Apple's vision for itself as a mobile-device company come to fruition. ... We see [Apple] targeting a massive market growth opportunity while being increasingly profitable."

Another factor pointing to Apple's continued success is interest from China. "Several years ago, we identified China as a top priority," Cook said during the earnings call. "We put enormous energy into China, and the results of that have been absolutely staggering."

While revenue from "greater China," which Cook defined as Mainland China, Taiwan and Hong Kong, was $3 billion for all of fiscal 2010, during the first quarter of fiscal 2011 alone, the area chalked up $2.6 billion in revenue.

"Korea has also been an outstanding market for us ... and there are several other Asian companies doing extremely well," Cook added.

And still another factor is growing interest from enterprises. While the iPhone was once cause for much debate, and IT-manager anxiety, within corporations, it's now being added to CIO-approved device lists and adopted as a valued enterprise tool. Apple's iPad is also finding the same treatment.

During the revenue call, Apple CFO Peter Oppenheimer reported that 88 of the Fortune 100 companies are now testing or deploying the iPhone. Additionally, "over 80 percent of the Fortune 100 are already deploying or piloting iPad, up from 65 percent in the September quarter," he said. Among the latter companies are JP Morgan, Wells Fargo, Sears and DuPont.

Contributing to this trend is the increased availability of 4G technology, with T-Mobile and Verizon Wireless rolling out networks in 2010, and AT&T expected to begin deploying one this year.

Looking to Apple's 2011 second quarter, analysts at financial services firm Jefferies & Co. wrote in a Jan. 18 research note: "Longer term, we believe Apple's product leadership, vertical integration, and vast scale mean that it will receive the lion's share of the economic benefit from the two biggest multiyear trends in technology: 4G and tablets."

Ticonderoga Securities analyst Brian White concurred, writing in a Jan. 19 note, "We expect the stock to continue its upward trajectory."