Apple: Short-Term Very Scary and Long-Term Great

I've written previously on this site questioning whether Apple really is a great company or more hype than reality. I was dead wrong in some of the things that I said earlier. I now believe that Apple's iPhone is a tremendous game changer (I questioned whether they would sell 5 million iPhone before the end of 2008; the number now appears that it will be somewhere between 10 and 15 million). I believe that Apple continues to innovate the iPod and in the process is destroying everyone else who competes with them in this industry (Sandisk, Microsoft). I believe that the IPod with ITunes is like the razor and blade - a fantastic business that is continuing to disintermediate the entire music industry and probably the entire entertainment industry. I also see that they are driving people over to their computers now, and the more than I use Microsoft's Vista, the more I believe that Apple may, on top of everything else, end up controlling the PC market. I also see that in all of these areas, Apple is just getting going internationally (the company has never done well outside the US for some reason).

Thus, I believe that the stock is probably a buy at some point. The question is where?

Apple beat their numbers tonight and reported their best quarter ever (no surprise). But, a look below the numbers is a cause for concern. They missed their iPod estimates, and made up the loss through selling more Touches, IPhones and PCs than were expected. If we are going into a recession, the IPhones and the PCs may not sell so well (these are high end products and high price points). The Touch (also a premium product) is a toy that is selling to teenagers and will only do well for one quarter recession or not. One would expect that the lower priced iPods (which sell at price points between $150 and $250) would hold them together. The fact that these sold so poorly during the holiday season and during the quarter where they were redesigned dramatically does not bode well.

I've changed my mind on Apple and now believe that it has fantastic prospects, but it's immediate prognosis is scary. I'm inclined to hold off buying until I see it down around 115 since I think that it may get completely bashed as this market falls apart.