All User Takes for Apple Inc.

The Wisdom of the Silicon Valley Engineer: AAPL

I’ve often wondered whether there were better ways to predict the future price of high tech stocks than listening to CEOs spin their stories, or CFOs hedge their bets, or even analysts who move their price targets like a pack of wild dogs.

I’ve found my answer for Silicon Valley tech stocks – it’s the Silicon Valley engineer. You know this engineer - the one no one really talks to, but somehow knows what people are buying, what works, and of course what is cool in technology.

So it’s like the wisdom of crowds – why the many are smarter then the few, but applied to engineers. The things engineers buy and like are a predictor of future stock prices.

Could this work with Apple? In July 2005, I was invited to become CEO of a very stealth start-up and upon arriving at the founders home I noticed that he and his co-founder, both top-notch engineers, grabbed two very sleek silver laptops and left the two clunky black ones in the study – they were each using their new Apple MacBookPro’s running OS X and left the Dell laptops running Microsoft’s Windows unattended. I had never seen this before. Didn’t they know that business applications had to be developed on Windows and Macs were just for the creative types? Well they knew something I didn’t, the age of Apple was beginning and it was a great buy signal for Apple’s stock.

Apple Financials Since 2005
(millions)

Year End Sept 05 Sept 06 Sept 07 Sept 08*
Revenue 13,931 19,315 24,006 32,750
Cost of Revenue 9,888 13,717 15,852 21,644
Gross Margin 4,043 5,598 8,154 11,106
Gross Margin % 29.02% 28.98% 33.97% 33.91%
Operating Inc 1,650 2,453 4,409 6,583
Operating Inc % 11.84% 12.70% 18.37% 20.10%
Stock Price 53.61 76.98 153.47 179.35**

* Based on Average Analysts Expectations
**Based on price predictions from Piqqem.com for Sept 20, 2008

The above chart clearly shows the strong increase in operating income, operating income %, and of course stock price since I saw the first ‘Silicon Valley engineer’ buy signal in 2005.

Ok so Apple has had a great run, but how about today? Analysts’ estimates show an estimated $6.583 Billion in operating income for year end 2008 – an impressive 20.10% of total revenue. But the Silicon Valley Engineer’s buy signal is even stronger. I recently was invited to work with another Silicon Valley start-up, and I saw no less than six Mac Book Pros amongst the Engineering Staff and not a Windows machine in sight. At a recent concert, 30% of the total mobile phones used for photos were iPhones. The trend I saw beginning in 2005 is continuing, and with the number new iPhone 3Gs I’ve already seen in the Silicon Valley coffee houses, the future looks bright for Apple.

So the next time you want to know what stock to buy in Silicon Valley, just ask a Silicon Valley Engineer and you may be surprised, but for now it’s ‘Buy’ Apple.

The Wisdom of the Silicon Valley Engineer: AAPL

I’ve often wondered whether there were better ways to predict the future price of high tech stocks than listening to CEOs spin their stories, or CFOs hedge their bets, or even analysts who move their price targets like a pack of wild dogs.

I’ve found my answer for Silicon Valley tech stocks – it’s the Silicon Valley engineer. You know this engineer - the one no one really talks to, but somehow knows what people are buying, what works, and of course what is cool in technology.

So it’s like the wisdom of crowds – why the many are smarter then the few, but applied to engineers. The things engineers buy and like are a predictor of future stock prices.

Could this work with Apple? In July 2005, I was invited to become CEO of a very stealth start-up and upon arriving at the founders home I noticed that he and his co-founder, both top-notch engineers, grabbed two very sleek silver laptops and left the two clunky black ones in the study – they were each using their new Apple MacBookPro’s running OS X and left the Dell laptops running Microsoft’s Windows unattended. I had never seen this before. Didn’t they know that business applications had to be developed on Windows and Macs were just for the creative types? Well they knew something I didn’t, the age of Apple was beginning and it was a great buy signal for Apple’s stock.