Apple's Decade: In Position to Win

Editor's note: This is the first excerpt of an e-book by Jason Schwarz, an analyst at Lone Peak Asset Management in Westlake Village, Calif.

There has never been a company more prepared for a particular generation than Apple ( AAPL) is for the 2010 decade. It was only three years ago that mobile phones were used merely to talk and it was only 15 years ago that we were tethered to a wall by a copper wire.

My purpose in writing this book, Apple Revolution, is to open your eyes to what lies ahead, not just for purposes of investment decision-making but to help you come to grips with the large scale societal changes on the horizon.

When the history books look back on this generation, they will view our progress as we view the Transportation Revolution of the early 1900s and the Industrial Revolution of the 1800s. Who is bringing to market the contemporary steam engine? Who is building vehicles to take advantage of the new roads? Without question it is Steve Jobs.
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Somehow Jobs sees things that nobody else does. Apple is leading our global culture into uncharted technological waters. His most recent contribution has been underappreciated by the media, but its significance has propelled Apple into its current leadership role.

Back in February 2008, just as the fear of economic recession was beginning to take hold, Jobs told Fortune's Betsy Morris the following, "We've had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren't going to lay off people, that we'd taken a tremendous amount of effort to get them into Apple in the first place -- the last things we were going to do is lay them off. And we were going to keep funding.

In fact, we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that's exactly what we did. And it worked. And that's exactly what we'll do this time."

When do you think Apple broke ground on its most recent stores in Paris and New York? First of all, have you actually seen these new stores? The architectural taste defies the typical complacency of retail. These projects along with a host of international expansion, the opening of the App Store, and multiple upgrades to the iPod, iPhone, and Mac lines have all been accomplished during the worst recession in 80 years.

While the rest of the world was running for cover, Jobs had Apple quietly making progress in every aspect of its business. The most amazing thing is that he was able to do this while taking a leave of absence from the company while getting a liver transplant.

The company that he has worked so hard to rebuild was one of the only companies on Wall Street to grow earnings and revenue by double digits in the midst of financial armageddon. The question on everyone's mind is: Why is Apple capable of accomplishing in the recovery?

Let's take a look at the new landscape. Widespread access to a wireless high speed Internet connection is the essential ingredient to jump-start the third wave of the dot-com bonanza, an era that I'm calling the Apple Revolution. There are now approximately 4.1 billion mobile cellular subscribers and 13.4% are operating on a 3G network.
Apple's new store
Apple's new store on New York's Upper West Side.

In the countries where 3G was launched first, Japan and South Korea, 3G penetration is over 70%. According to a study by ABI Research, $18 billion is being poured into long-term 3G infrastructure that will produce 100 Mbps download speeds to mobile devices by 2014. 3G/4G is the networking infrastructure that will allow this revolution to infiltrate every aspect of our lives.

This is where Apple's App Store dominance comes in. The secret to its market share success is the ability to customize the Internet in a way that has never been done before. It's similar to the advent of fast food. Call it Internet on the go.

We live in a world where customization is desired above all else. We want custom homes, we want custom motorcycles, custom cakes, custom software -- custom anything and everything. Apple already did this with the music industry, allowing listeners to purchase their favorite songs instead of entire albums.

Now they're doing it for the entire Internet. Every iPhone is individually tailored to its user. Don't be surprised to see app use surpass Web site use. The apps can be designed in such a way that perfectly fit their intended purpose unlike the one size fits all PC-Web browsing model.

To understand the scope of Apple's opportunity, I will analyze the evolution of tech in general and identify how Apple might capitalize on these eight elements in decade 2010:
  • Transparent performance data
  • A blobal social life
  • Distribution
  • Geographical insignificance
  • The cloud
  • Unlimited educational opportunities
  • All things connected
  • Unity overcomes poverty

Now See: Apple's Decade: Waiting for Tablet >>>

At the time of publication, Schwarz was long AAPL.

Jason Schwarz is an option strategist for Lone Peak Asset Management in Westlake Village, Calif. He is also the founder of the popular investment newsletter available at www.economictiming.com. Over the past few years, Schwarz has gained acclaim for his market calls on the price of oil, Bank of America, Apple, E*Trade, and his precision investing in S&P 500 option LEAPS. His book, The Alpha Hunter, is set to be released by McGraw Hill in December 2009.

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