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Apple Inc (‘Apple’) is amongst the largest companies in the world. The company enjoys strong brand recognition globally and extensive market penetration for its flagship products, most notably the iPhone. While speculation around the success of Apple Watch, Apple TV, iPad, or even the likelihood of an Apple Car often captures headlines, we estimate that iPhone and iPhone-related services represented around 70% of Apple’s revenue and 80% of Apple’s gross margin in FY16. Despite its relatively high price, there is strong demand for the iPhone in both developed and emerging markets, with China now contributing 21% of Apple’s total revenue.
Apple’s growth has been driven through its position as a consumer hardware vendor. There are few, if any, examples of consumer hardware vendors which have endured over the long term as the products have typically commoditised over time. However, having built a powerful, enduring ecosystem, we view Apple today as a leading mobile platform and services company with sales of its devices reflecting effectively a “subscription” payment to access its platform and services.
Apple displays several attractive investment characteristics which support our longer-term outlook for the company.