I’ve already written about the basics of AAPL’s stellar September quarter earnings report.  Reading and listening to investors’ comments, I think there are basic elements to the AAPL story that are not well understood.  Maybe it’s just me, but, for example:

The iPhone is much more important to AAPL than the iPad.  For one thing, there’s the fact that the smartphone market is bigger than the consumer PC market and growing much more rapidly.  AAPL also collects a portion of phone subscription revenue from some network operators and that the iPhone represents half the profits of the company.  But, I think it’s mostly that phones are typically subsidized by carriers eager to have customers sign one- or two-year contracts.  So iPhone aficionados are, like clockwork, going to buy new ones every two years.  Therefore, iPhone hardware has an annuity-like aspect to it.

To me, it’s clear that the iPad is deliberately designed so it doesn’t compete with the iPhone.  To my mind, this makes the device somewhat less attractive than it might be.  It also means that the iPad isn’t supposed to cannibalize the iPhone.  And it hasn’t.  The fact that AAPL is selling iPhone4s as fast as the company can make them is way more important than that it sold “only” 1.3 million iPads per month in the September quarter.  (After all, in April, Wall Street scoffed at the idea that AAPL might sell as man as one million a month.)

It may also be that the same economic weakness that may have hurt sales of low-end consumer PCs during the September also held back sales of the iPad.

Lower margins are here to stay–and that’s good.  Some investors see high margins as a sign of the strength of the intellectual property the firm possesses and worry when they begin to decline.  I don’t think that’s the right way to look at AAPL, but margin decline seems to have been at the top of the list of institutional investors’ worries after AAPL reported this week.

In consumer-oriented businesses, high margins can be a bad thing, since they create a pricing umbrella that invites a competitor to undercut the incumbent.  Apple-speak aside, the iPhone has serious competition for the first time in the Android family.  It would be a terrible mistake for AAPL to allow Android phone makers to sell their products at lower prices.

The same is the case with the iPad, where we are just about to see the first Android competition.

Steve Jobs’ conference call remarks are puzzling.  He basically trashed all his competition.  Maybe that’s just Steve being Steve.  But when a CEO says this stuff, it’s usually a sign of weakness and worry.  His two major points seem to have been, first, that app creators for Android devices have got to deal with a lot of different form factors and app stores, whereas with AAPL the task is a lot simpler.  Second, he thinks competitor tablets with 7-inch screens are too small.  They can fit in your pocket, but that’s not an attribute that customers will want.

AAPL is a growth stock but not priced as one.  As I’ve pointed out elsewhere, as a typical growth stock gains earnings momentum in the way AAPL has over the past few years, the price-earnings ratio typically expands.  The multiple can easily double.  –which creates a problem when the period of very fast growth ends.  At the first earnings disappointment, the stock declines, not only to the extent of the earnings shortfall, but the PE begins to contract as well as the market stats to factor in slower growth in the future.  The stock may be cut in half simply by PE contraction from, say, 40 to 20.

In AAPL’s case, the multiple has already contracted by about a third and isn’t that much higher than the market’s.  In fact, if you factor out the $51 billion (18% of the present market cap) the company has sitting around in cash (in case an acquisition comes along, according to Mr. Jobs), AAPL is already trading at a sub-market multiple.  So, strange as it seems, given the stock’s stellar performance over the past half decade, the multiple seems to give it a considerable amount of downside protection.