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Apple: Recession Proof

As the NBER has reported, we have officially been in a recession since December 2007. The financial industry is an over leveraged mess, the American auto industry is on a death march, home values are dropping, the S&P 500 has dropped about 40%, and unemployment is skyrocketing. Apple, though losing about half its stock value since last year, is one of the healthiest companies in America.

First, a few truths:
• Apple has only 14% market share.
• People won’t stop buying phones, computers.
• Mac OS X exclusive to Apple.
• $25 Billion cash in the bank.

Only 9.5% of new computers are Apple
Even if this recession causes consumer spending to decrease 10-20%, there is still vast market share for Apple to gain. Currently, Apple has 14% of the market, compared to Microsoft’s 80%. Mac sales grew 37% in 2007, more than double the industry-wide rate of 15%. With new Macbooks debuted in November, new desktops expected in 2009, all while having the highest rated computers in the industry, Apple growth is not expected to relent.

People won’t stop buying phones, computers
Phones and computers have become increasingly essential to society and consumers will still buy them if the recession turns into a depression.

Cell phones especially have very inelastic demand. Even if someone loses their job, has their house foreclosed on, and loses their life savings in the stock market – their cell phone would be one of the last things they would give up. At $199, the iPhone is more expensive than free phones that come with new service contracts, but inline with most other smart phones. It also adds another $30/month for data, but that is less expensive than most Blackberry plans. The added value of advanced internet browsing, the App store, iTunes, visual voice mail, push email, and highly rated user friendliness goes a long way in making up for the increased price tag. Additionally, cell phones have an average life of one year.

This recession will cause some people to delay new computer purchases, but given the speed technology changes and the limited life of hardware, people will continue to buy new computers. Apple computers are more expensive than low end PC’s and netbooks and this will surely slow the PC-to-Apple adoption rate. But, as said earlier, with Apple currently selling only a tenth of what Windows does, that leaves many potential customers with the money to buy them. Other reason’s for Apple computer sales growth: iPod’s halo effect, the Mac’s popularity in pop culture (Lloyd!!), and 40% of college students plan on buying a Mac.

Mac OS X exclusive to Apple
Mac OS X Leopard is the best operating system you can buy says authoritative Wall Street Journal tech writer, Walt Mossberg. Apple’s user agreement allows you to only have it by purchasing an Apple computer. Psystar, a Florida electronics company, currently sells computers preloaded with with Mac OS, but is currently facing a lawsuit by Apple to shut them down that will go to trial December 2009. Psystar’s countersuit, claiming monopolistic and antitrust behavior by Apple, was thrown out last month. Not to mention, attack of the clones, part two.

$25 Billion cash in the bank
With $25 billion debt-free, Apple has more cash in the bank then giants Microsoft, Intel, Google, Walmart, and General Electric. With credit tightening world wide, Apple doesn’t have to worry about borrowing money. They can increase their R&D budget, advertising, hire more people, get good deals from suppliers by paying cash, build more stores around the world, and buy other companies.