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TechApple

Two guys who get Apple

By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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October 14, 2015, 9:18 AM ET
An Apple Computer Inc. logo hangs in the center of a clear g
An Apple Computer Inc. logo hangs in the center of a clear glass cube marking the entrance to the new Apple Store in New York, Thursday, May 18, 2006.Photograph by Bloomberg via Getty Images

If you think Apple is doomed, over-valued, a hits-driven company one false move from failure, I’d like to recommend a pair of recent articles that several readers have suggested to me.

— Greg Rosenberg’s Apple: A Misunderstood Giant
— Steve Cheney’s On Apple’s Insurmountable Platform Advantage

The two pieces approach Apple (AAPL) from opposite angles but come to the same conclusion: That the company is profoundly misunderstood, both by its critics and by investors.

Cheney looks under the hood at the advantages that have accrued to Apple from designing its own silicon:

“It is—in fact—these chip making capabilities, which Jobs brought in-house shortly after the launch of the original iPhone, that have helped Apple create a massive moat between itself and an entire industry.”

Rosenberg takes a behavioral approach. He compares the experience of using Apple products to an addiction, like smoking.

“The frequent and ritualized experiences people have with and through Apple’s software are brain shaping, in an expectation setting, habit forming, and addictive sort of way.”

Neither of these advantages are apparent on the surface: What you see is not all there is.

From the outside, writes Rosenberg, “The company gives investors the appearance of being a risky consumer electronics company selling sexy gadgets, rather than an infrastructure company selling addictive interactions.”

Cheney, working from the bottom up, says essentially the same thing. “How Apple produces superior products isn’t superficially visible,” he writes. “This is always the case with the silicon inside of computers.”

His conclusion works for both of approaches:

“Apple—as a platform company—is so far above the competition it’s hard to fully grasp.”

For a sense of how hard it is for Wall Street to grasp, you need only look at the stock’s valuation: Somewhere in the back of the pack of the S&P 500, with a trailing PE ratio of 11.42 to the S&P’s 20.19.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple (AAPL) coverage at fortune.com/ped or subscribe via his RSS feed.

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About the Author
By Philip Elmer-DeWitt
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