Apple’s Reality Distortion Field Relocates to Wall Street

I’m baffled. As an industry observer and analyst who studies this industry and the companies within it, I am baffled by how Wall Street thinks about Apple.

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People walk in front of the Fifth Avenue Apple Store in New York City on Jan. 14, 2013

I’m baffled. As an industry observer and analyst who studies this industry and the companies within it, I am baffled by how Wall Street thinks about Apple.

I do, however, have a theory. It’s called the reality distortion theory. The late Steve Jobs was said to have what was referred to as a reality distortion field, meaning that he sometimes had a view of things not always grounded in reality. My theory is that for the foreseeable future, there will always be a reality distortion field surrounding Apple. The only difference from then to now is that the so-called reality distortion field has moved outside out of Apple and now is alive and well with Wall Street analysts and the headline-seeking mainstream media.

I study this industry for a living. I study markets, trends, the companies that comprise it, and the business strategies being employed. I see dysfunction and unhealthiness running rampant throughout the industry. I see once-dominating hardware and software companies now struggling to make money. I see those same companies struggling to differentiate their products amidst a growing sea of sameness. I see operators, MSOs, and other service providers all struggling to keep happy loyal customers and profit off them. From a business standpoint, a product strategy standpoint, and a market awareness standpoint, many companies face a gamut of problems.

Then we come to Apple. Apple’s main problem is that it can’t make enough tablets and smartphones to meet demand. In the last quarter, Apple made more profit than anyone by a healthy margin. In fact, at last week’s shareholder meeting, Apple CEO Tim Cook stated that Apple’s revenue grew by about $48 billion dollars, which happens to be more revenue growth than Google, Microsoft, Dell, HP, RIM, and Nokia combined. Then a few days ago, Fortune released its list of most admired companies, as voted by executives and directors from corporate America, and Apple was number one in four major categories. Apple was voted by its peers in corporate America as the most admired company in the world. In essence, Apple’s industry peers voted it the MVP.

So to recap: Apple is the most profitable company, can’t make enough products to meet demand and is the most admired by its peers. Yet Wall Street and media fanatics are claiming Apple is doomed. The reality distortion field is in full effect.

Apple has a lower P/E ratio than Amazon, Facebook, Google, Microsoft and now Dell, to name a few. I find this baffling and I would challenge any analyst to articulate to me how Apple is not healthier and stronger, competitively, in the long-term than many of those companies.

What is truly unfortunate about this is the effect this reality distortion field is having on Apple’s investors. There are many wise investors who have done the analysis and come to many of the same conclusions I have: Apple is highly differentiated in the market, Apple’s products are found valuable by the mass market (meaning Apple doesn’t need to compete on price), Apple is strategically positioned for success in both major global growth markets (tablets and smartphones), and Apple continually demonstrates growth and profit. These wise investors who have come to these conclusions and more are being punished for their sound analysis and wise long-term outlook. Too many investors live in the reality distortion field and view Apple more from an emotional standpoint than an analytical one.

This is truly unfortunate because many Apple investors, especially the individual ones who have done the sound analysis and made long-term bets, often depend on these investments for retirement. I don’t own any Apple stock but if I did and saw my retirement funds dropping, I would not be pleased. Those investors are the real losers here, while Wall Street continues to profit at their expense by playing a huge mathematical game.

I understand Wall Street looks at these things competitively as well, but right now Apple’s only competition seems to be Samsung. Apple and Samsung make the majority of the profits from the smartphone space and Apple makes the majority of the profits from the tablet space. So even with this healthy competition, I don’t see how anyone can make the case that Apple’s long term future is not secure while companies whose futures are certainly in question are getting the benefit of the doubt from Wall Street.

Apple, the company, will be fine. It has more cash than anyone, and in my firm’s analytical conclusion, we believe Apple will continue to be competitive, producing products that are competitive and get adopted in large quantities by the mass market. As I pointed out a couple weeks ago, commercializing innovation is one of the most difficult things to do and right now only a few companies can do it. Apple is one of them.

Bajarin is a principal at Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to the Big Picture opinion column that appears here every week.