Apple's Shelf Life is Finite!

iPad and the euphoria surrounding a new category ( or is it a category Killer?) is still warm and flowing!

Apple ended the week with a Strong & ambitious statement of limiting 2 iPads per order for an upcoming release which is a couple of weeks out.

The stock finished with week a with a strong push towards being the most valuable company in America - a shade behind Microsoft and Exxon!

Apple announced - for the first time - a headline grabbing Bonus for its Number 2 man - Mr Cook $22 Million for the most admired company on a winning streak is pittens compared to Silicon Valley & Wall Street bonuses by a mile of not more. What strikes as more alarming is the reason given - shoeing in for Jobs during his absence!!

Apple finished the previous quarter with a $50 Billion run rate and Mr Jobs was vocal in claiming the number one pot in Wireless category!

Apple keeps gaining leadership role and position in every category it enters- from mobile smart phone to digitized music.

With over $40 Billion in cash and piling ton of it from every category every month - may be only Goldman , Exxon and Microsoft ahead of it , Mr Jobs made a bold may be borderline arrogance style - no cash for shareholders now when asked bout buy back or dividends!

Every one of these are enviable and proud at the same time.

Looking at the past - historic behaviors of companies and leaders - one thing that is evident is - these are symptoms of hitting the top and Apple might have reached similar stage in its flashy and admirable life.

Not for its innovation and potential to growth - but for maintaining a ring around its head!

Symptoms of what could go against the grain:

Smart Phone and iPhone is still a growing segment - however a very very small portion of the mobile market. iPhone and American consumers are enjoying the benefits of Apple's innovation at the expense of ATT. The cost of using iPhone is 3 - 4 times more than an average mobile user and ever 10 times compared to a global mobile user. Sooner or later that will be normalised and the subsidy will vanish compressing the sky high margins for Apple.

iPad - headed in the same direction with adding expensive mobile access for an Internet access - which has a very limited user base as most of the user base will be existing Apple users - and it will add a huge burden to their already burgeoning iPhone bills- without the equipment subsidy - beyond the initial fancy demand coming from Mac-heads that are proud have white cords dangling from their neck while walking - it should find a place next to iTV! Unless ofcourse Apple finds another carrier to subsidize the device and hide the access under a different category - which it can and could extend its capability to make money!

iMusic - looking at the lack of innovation and new category or a meg star - the initial conversion of analogue to digital music market will reach a stable and mature state faster than the initial Numbers suggest bringing a thud to the growth.

Some of the leader's arrogant move from Mr Jobs and Apple in the last few quarter's also suggest that Apple might be fumbling into its origin - making the same mistakes which made Apple 1.0 not so successful and lost a decade before Jobs 2.0 and Apple 2.0 bulldozed the innovation machine beyond Imagination into reality and success.

Some mistakes which could turn out costly for Apple are -

1. Telling consumers what they NEED vs offering what they WANT

2. Relying more on third party subsidy for margins and growth

3. Bullying industries and shareholders alike.

Some symptoms and actions are:

Blatantly keeping Adobe and their products out of their popular offerings and making arrogant statements about them.

Forcing its leadership mach to bump the eBooks pricing by over 40% forcing a price increase to a rapidly growing eReadership

Forcing proprietary technology on third party developers at the same time marginalizing the software margins and taking the pricing power from the developers

Looking at the current capitalization - it appears quite reasonable at 3x Sales and even more attractive PE ratio compared to its growth rate. However f we remove the subsidy premium built into the revenue and profit - it looks alarmingly high and shocking.

It is obviously a mistake to count Mr Jobs and Apple out of anything and betting against them - however given where the company is and how far it can go - if they do not make changes to it business practices apple 3.0 might have to wait for Apple 4.0!