Few people, if any, will argue that Apple (NASDAQ:AAPL) is not a high-end company. From computers to MP3 players, tablets, and phones, Apple has always held a premium over other products on the market. Edward Parker, of Lazard Capital Markets, says that this is a defining difference between Apple and Samsung (SSNLF.PK).
Apple tends to price more based on utility rather than cost, whereas Samsung tends to do just the opposite, pricing its products based on how much they cost to make. In this sense, Apple is more like Coach (NYSE:COH) or EMC (NYSE:EMC), and Samsung runs a model more similar to Seagate (NASDAQ:STX) or Nokia (NYSE:NOK), Parker explains.
“Taking it a step further, could Apple and EMC in certain aspects be more similar to Coach, Coca-Cola (NYSE:KO), and Starbucks (NASDAQ:SBUX) than Samsung, Seagate, and Nokia? These companies spin straw into gold. Coach is able to drive a massive difference in the price of a handbag versus the cost of leather on brand cachet, generating 70 percent gross profit margins along the way,” Parker wrote.
“Starbucks sells a commodity at prices 10 times higher than the cost of that commodity, because it provides the “third home” experience. While other technology companies have seen margins erode quickly at the hands of commoditizing forces, Apple has realized that technology can have pricing power [that is] tantamount to a luxury good,” he continued…
The advantage to this, according to Parker, is that it gives Apple an advantage over Samsung, just like Starbucks has over store bought coffee.
“Not everyone can charge $2.00 for a 12 oz. cup of coffee if one business model rests on attracting customers to sit in a café while another rests on selling coffee beans over the Internet so a customer can make coffee cheaply at home,” he said. “Ask Starbucks. Then ask Folgers (NYSE:SJM). Nor can everyone charge $1.00 per GB of HDD storage capacity if one business model rests on protecting and managing valuable corporate data while another rests on providing storage capacity alone. Ask EMC. Then ask Seagate.”
Parker just started his coverage of Apple from an analyst’s perspective. He rates the stock a Buy, with a $540 price target.
“In sincere hopes of adding to the collective body of knowledge of the company, we propose that Apple is a ‘storage’ company, not only levered to data creation but instrumental in driving data creation in ways its competitors are not,” writes Parker.
“We believe this framework helps to suggest why Apple’s outsized profits are sustainable even as competitors continue to close the gap with respect to device capability and quality.”
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