by , 8:25 AM EDT, September 7th, 2004
While the iPod has largely been responsible for Apple's recent revival, especially among investors, Forbes believes the company could be worth more if it were to spin-off its iPod and iTunes operations.
Using a somewhat confusing methodology (breaking Apple down into three parts, but listing "iPod and iTunes" as two of those parts), Forbes predicts that Apple would be a $15.1 billion company today if it spun off its music business, as opposed to the $11.9 billion Wall Street currently values it.
Apple's stock has doubled in the past two years and trades at 37 times projected earnings (compared with 25 times for Dell) as iPod sales have skyrocketed, but "the bet on iPod is a risky one." Apple often faces supply shortages of its iPod and iPod mini, competitors are slowly improving their products to iPod-like standards, and iPod operating margins are said to have declined from 13 percent in December to about 8 percent more recently. Price drops also mean that Apple will have to sell 20 percent more iPods this year to match last year's revenues, although analysts are expecting growth of around 70 percent.
Unlike Dell, which relies on efficient production and economies of scale to capitalize on low margin items, "Apple isn't getting more efficient." In 2000, when sales were 4 percent higher than today, Apple's operating margin was 9 percent. Today its 3 percent. Head count has increased 32 percent since then, dragging down sales per employee from $930,000 to $674,000.
The iPod hasn't driven any significant jump in Mac sales, either, which still account for 64 percent of Apple's revenue.
Forbes concludes its case against the iPod bet by drawing a comparison between the iPod and Apple's position in the 1980s and early 1990s with the Mac.
"Hmmm. Falling prices, a penchant for proprietary design and a raft of new products from big rivals, with most of them running Microsoft software. Somehow, it all sounds awfully familiar."
iTunes in Europe
Another story appearing in Forbes Monday takes a look at Apple and the European online music market, which Apple has taken over since the launch of its UK, French, and German iTunes Music Stores earlier this year. Analysts believe that Apple will continue to corner that market when it launches other European stores next month, but point out the market for music downloads remains extremely small.