This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Apple Is a Hardware Company; Einhorn Just Doesn't Get It

NEW YORK ( TheStreet) -- Hedge fund superstar David Einhorn has been all over the place lately with an important message. It's the same refrain he recited to the Ira Sohn Conference attendees last month. Einhorn, apparently, is among the chosen few who actually understand Apple (AAPL - Get Report).

Arguing that "The value comes from iOS, the App store, iTunes and iCloud," Einhorn riffs:
AAPL's ability to consistently offer innovative features . . . encourages users to upgrade every couple of years. This provides a recurring revenue stream . . . Rather than view AAPL as a hardware company, we see it as a software company that monetizes its value through the repeated sales of high margin hardware.

That sounds incredibly sophisticated; it's just too bad it bears scant relevance and holds very little meaning in relation to anything substantive for investors.

I must be clear. I am not dogging Einhorn's decision to be bullish AAPL. Even as somebody who tends toward the bearish side, particularly long-term, on the stock, it's difficult to argue with Apple's dominance. I am just as awestruck by it as the next person. It is, however, critically important that we question his assertion.


Because, as TheStreet's Chris Ciaccia contends:
The next six months for Apple are potentially the most important in the company's history, as Tim Cook continues to steward the ship following the death of Steve Jobs. The world will be watching and waiting with bated breath for the latest "one more thing."

And the profound importance associated with the remainder of 2012 does not revolve around Apple's ecosystem. I'll be the first to admit it's a prime ingredient in Apple's success; however, at day's end, it doesn't generate much direct revenue for Apple. Hardware sales take care of that.

It's a bit like public transportation systems in cities such as San Francisco. They actually lose money, but they're public goods. Without them, the city's other systems -- "hardware" such as housing, jobs and retail -- would not hum along quite as efficiently as they do.

A recent assertion made by Spotify director Sean Parker also lends support to Einhorn's case. At last week's All Things Digital conference, Parker made the very believable claim that Apple attempted to block Spotify's move into the U.S. market. If this is true, Apple was clearly concerned that Spotify could hurt iTunes.

As a new Spotify member, I think it's quite clear that Spotify provides a superior interface to iTunes. Not only has Spotify built a sexier platform, but it succeeded wildly in an area where iTunes failed miserably -- social. Spotify has made it so I do not have to nor do I really want to open iTunes again. There's no need.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $117.81 0.00%
FB $105.45 0.00%
GOOG $750.26 0.00%
TSLA $231.61 0.00%
YHOO $32.94 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs