Asking Questions on Apple's iPhone

The incremental short-term rise of $15 billion in Apple's market capitalization represents 35% of the $43.5 billion equity capitalization of Motorola(MOT Quote), which not only already has a 20% share of the global cell-phone market but also includes much more valuable non-handset businesses.

The incremental short-term rise in $15 billion in market cap represents 80% of Apple's 12-month trailing revenue. Handset makers Motorola and Nokia (NOK Quote) trade at 1.03 times and 1.49 times sales, while personal computer makers Hewlett- Packard (HPQ Quote) and Dell (DELL Quote) trade at 1.27 times and 1.04 times sales, respectively.

This raises the question: How long will it take for Apple to produce annualized iPhone sales that are supportive of the recent price appreciation? Put another way, how much value does Apple hold when it already trades at a price-to-sales ratio of 4.25 times?

Expectations Baked In

Even with the iPhone, analysts are projecting a five-year secular growth rate in earnings of 20% for Apple, compared with 10% to 12% for Motorola, Nokia, Hewlett-Packard and Dell. Even if these figures are achieved at Apple, isn't the elevated price-to-sales ratio of 4.25 times -- or nearly four times that of its competitors -- incorporated in expectations of growth?

History shows that the "oohs and aahs" of analyst day are not necessarily an indication of future successes. Consider, for example, the initial "wow factor" associated with the introduction of Motorola's Motofone, which was expected to be the ne plus ultra in the low-end handset market. Or the Krazor, which followed the Razr. Both produced disappointing results and failed to buoy profits or margins.