Our thesis that innovation is alive and well at Apple – a minority position to be sure over the past year – has been vindicated, in our view, given that the Company refreshed their entire suite of hardware and operating software systems in the second half of 2013. Apple (AAPL
) continued to expand its iPhone franchise, selling close to 34 million units during the September quarter, representing a 25% increase over the year ago period. Much of this growth can be attributed to the successful roll-out of the iPhone 5S and 5C, Apple’s most recent updates to this key business line. The Company also continues to upgrade the broad array of services that make up the platform in support of the iPhone (as well as the iPad and Mac), including content (iTunes, App Store, iCloud) and software (iOS). We think Apple’s platform approach drives a differentiated user experience which leads to a “stickier” customer, which in turn drives customer intentions to repurchase Apple products at significantly higher rates –and profits - than their competitors. As smartphones proliferate, we expect consumers will become increasingly critical and demanding of their user experience - a trend that we expect Apple will be able to capitalize upon as competitors continue to maintain their focus on selling an experience that is only “good enough” for smartphone newbies. We expect the Company to generate renewed earnings growth over the course of calendar 2014 approaching $50 per share. Even after the +45% advance in the stock from past summer, we view the current risk/reward in the shares (and in consideration of the cash build on the balance sheet) quite favorable.
From David Rolfe
)’s Wedgewood Partners Fourth Quarter 2013 Commentary