How can Apple keep growing?

Apple sees the kind of sales and profit growth that's usually reserved for smaller companies.

By Kim Peterson Jul 13, 2010 1:32PM
Credit: (© Paul Sakuma/AP)
Caption: Apple CEO Steve Jobs holds the new iPhone 4Apple (AAPL) is the second-largest company in the U.S., with a market value of $228 billion.

Normally, when you get that big, it's hard to maintain a high growth rate. But Apple will likely get 50% more sales and 71% more profit this year than last year, writes Andy Zaky at Fortune. If that continues, Apple will beat out Exxon Mobil (XOM) to become the largest company.

How in the world can Apple sustain that kind of momentum? Oh, and by the way, Apple is sitting on a shocking $41 billion in cash.

"That is absolutely stunning when one considers that Apple recorded a whopping $43 billion in revenue during the 2009 reporting period -- almost double the $24 billion it recorded in 2007," Zaky writes.
Let's pick our jaws up from the floor and explore this some more. Zaky has found some good data that show what Apple's doing here.

Keeping costs down. This is extremely crucial. Apple's expenses grow at a far slower rate than its sales. In 2008, Zaky writes, sales grew by nearly 53% while operating costs grew by 30%.

It looks like the company will stay on pace in 2010, as revenue is expected to grow by 48% while operating expenses should only grow by 31%.

Increasing gross margin. Think of this basically as the profit Apple makes on its products once you've subtracted the costs. The company's gross margin has climbed to 42% from 27% four years ago.

It all comes down to one word that is (or should be) the goal for every company: Efficiency. Apple continually figures out how to get more bang for its buck.

Component parts get cheaper. Smart engineers constantly tinker with existing products to bring down costs. Meanwhile, the company relentlessly marches into new areas, developing products that it can charge a premium for.

"It is precisely Apple's ability to accelerate sales while managing expenses that has led to this new Golden Age in earnings," Zaky writes. "There isn't a single identifiable blemish in Apple's income statement."

What does this mean for the stock? Zaky is extremely bullish. "There will be a day within the next few years when investors will be insulted at even the slightest insinuation that Apple should only be worth $350 a share," he writes.


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