The hard(ware) and soft(ware) of it

Apple Inc, is involved in lawsuits relating to the use of its operating system software on computers with PC hardware. According to this article "German Mac clone maker claims immunity from Apple" is selling Intel loaded computers with Mac OS X operating system software pre-installed. An entry-level computer sells for about $643, relative to the entry-level iMac selling at $1199. The issue is that the end user license agreement (EULA) for the operating system 'forbids' the user from installing the software on non-Mac hardware.

But for Apple's valuation, we have a bigger issue in play, what happens if the anti-trust lawsuits prevent Apple from 'forbidding' the installation of their software on non-Mac hardware? Is the EULA an effective barrier to entry?

Clearly, Apple's strategy is likely to remain the same - product differentiation - rather than them trying to compete in low cost alternatives. Does this news, however, change your expectations of future ROE for Apple? How would you expect the profit margin and asset turnover ratios to change in the next few years? How would this affect your forecasts?

Is Apple ripe?

I couldn't help partially stealing the title of this article: "BUY OR SELL - Are Apple shares ripe for buying?" the article is essentially discussing whether the market is too heavily discounting Apple shares following the news of Steve Jobs (Apple's CEO) taking leave for health reasons.

As I have mentioned in class a few times now, market prices in the current market suggest to me that we are currently in a buyer's market.

Let's consider Apple's price at around $83 per share (at the time of writing). That's about a PE (price to earnings) ratio of under 16.5, the lowest PE ratio for Apple in the last 5 years is about 15.9 (note that the forward PE ratio, that is when the earnings are the expected earnings for this year and not last year's, the ratio drops to around 11). With an ROE (return on equity) of about 27 and sales growth in excess of 20% how can we reconcile the apparent strength of the company's financials with their PE ratio?

If we think about our model of value, what does this suggest that the market "feels" about the earnings of Apple? For example, does it seem like the pricing is reflecting a low sustainability (or persistence) of this past performance?

Does it appear that the sustainability of their earnings is low?

Does one individual make that much of a difference to the strategy of the company?

Or maybe, it's being undervalued due to speculation...?