Apple Domination Part Two: The Dollar Factor

Just last week I announced that Apple will be a leading tech player, whether you like it or not because of their consumer market dominance in the personal computer and media delivery channels. Today there is a confirmation in that coming from HP as they announced earnings. What is the link between the two companies?

Apple [AAPL] Domination: Part Two…

The link is overseas sales. Simply put demand overseas for services and equipment, often priced in dollars or the local currency, nets great margins for US companies. This trend will be a key to many companies dominating the world markets in 2008, and growth of their income.

For many companies the costs associated with production were fixed many months or even years ago. The element that was a variable was the selling price of goods and services, which are set in current prices, giving the benefit of monetary conversions to the dollar producers. That trend is reaping great dividends for American companies that are selling overseas.

Of course, this is what the market is suppose to do –the buyers head to where things are found at a lower cost. Currently, that is often from the USA. However, from Apple’s perspective there is another rather huge advantage. Apple sells their products at a premium margin often pricing products at the same number –regardless of it being in Dollars or Euros.

So, at the end of the day, a company with 20% margins will nearly double that, selling in an expensive currency like the Euro.

You’ll start seeing the effect of these pricing moves in the coming quarters as sales in the USA stabilize or even decrease. Sales in countries that are unaffected by recessionary pressures will continue to have outstanding sales. Moreover, when those sales are reflected in Dollar terms, at the end of the day, the currency exchange will yield a bonanza on balance sheets.

Apple is thus a buy with a price target by mid year of $160 per share. I have a year-end target of $200, when it will return to it’s original high set late last year. Apple is part of my portfolio and it’s a recommended stock for my consulting work.

Carpe Diem, Rich Sage