Tag Archives: netbooks

tax rate, earnings per share, dividends and cash…: (II)

April 28, 2010 By in Current Market Thoughts, emerging markets, Industry Analysis, internet, Stock ideas, Technology, Wireless Tags: , , , , , , , , , , , , , , 1 Comment

lots of cash

A few days ago the Financial Times ran an article pointing out the huge amounts of cash that IT companies have been piling up over the past year.  According to the newspaper, the top ten public firms in technology have added $65 billion to their cash holdings since the market bottom last March.  Together they have about a quarter-trillion dollars on their balance sheets.  The FT points to the lack of anticipated merger and acquisition activity (anti-trust?) as one reason for the accumulation, and suggests that the industry will soon begin to buy back shares to reduce the size of their holdings.

Not all the big ten are as flush as the FT makes them seem, however.  EMC, IBM and ORCL have long-term debt that pretty much offsets the cash they have.  DELL, and to a lesser extent, AMZN, are negative working capital companies.  That is, they collect money from their customers before they have to pay their suppliers.  So they enjoy a kind of “float,” the same way that a restaurant or a hotel does.  There is at least some risk to the cash that appears on the balance sheet for this reason.  If the business slows, the cash begins to disappear as suppliers are paid.

Nevertheless, there are a number of tech firms with staggering amounts of cash and little or no debt.  They include:  AAPL, GOOG, INTC, MSFT and QCOM.

an important question:  where is the money?

As I suggested in yesterday’s post, at least some of the cash is overseas.  How much, no outside observer knows.

Oddly, as I was researching the 2004 amnesty that allowed firms to repatriate money to the US without paying much tax, I found an article that suggests that six years ago, some of the companies themselves, despite their financial control software, didn’t know where the money was, either.  And some had to postpone repatriation while they upgraded their treasury departments to create a mechanism to start the process and handle the incoming money.

Would companies like another amnesty?  An academic study that I also cited yesterday suggests they would.  Professors from Duke, Michigan and Washington conducted an internet survey on this topic.  Two-thirds of respondents said they would like a repeat of the 2004 amnesty.  The median amount anticipated to be repatriated was half of current foreign cash holdings.  Most of the money sent to headquarters would come from cash balances, though some would come from added foreign borrowing. (In the next few days, I’ll post on the limits to the confidence one can have in surveying in today’s world, and in internet surveying in particular.)

Other academic research suggests that the requirement to pay income tax on repatriated earnings does motivate companies to keep large foreign balances, and even to invest the funds in projects that will not be as lucrative as competing investments in the US.

stock buybacks

I’m not a big fan.  Maybe it’s age, but I’d prefer dividend increases.  It may be more tax efficient to buy back stock.  My objection, though, is I think every company has a compensation plan that features a policy of shifting a set percentage, say, 1% a year (but a lot more for small, fast-growing firms), of the ownership of the enterprise away from its shareholders and to its management.  I’m not sure the ordinary shareholder realizes this.  And it seems to me that most stock buyback plans retire just enough stock to offset dilution from stock options–thereby keeping this part of the compensation process from becoming evident through an ever-increasing share count.

looking at the numbers

The table below lists the big tech companies with the largest amounts of net cash (= cash and marketable securities minus long-term debt).  Although, as I mentioned above, there’s no good way to tell the location of a company’s cash, the lower the tax rate the more foreign earnings–and, I think, the larger the amount of cash parked abroad.  Note that I didn’t factor in long-term investment securities.  (You have to draw the line somewhere, and I decided I wasn’t comfortable deciding about the liquidity of firms’ non-current investments.)  You may want to do this differently, and the company financials are easily available on the Edgar site.

I also show the dividend yield, if any.  The following column shows dividend payments as a percentage of free cash flow ( = cash flow minus capital spending needs).  It gives mostly “negative” information.  That is, if the percentage is high, the company has little scope to increase the dividend, or even support the current payout in bad times.  A low percentage would be a good thing for dividend seekers, if we knew the location of the cash–i.e., whether the cash is available to be paid out.

The next-to-last column shows the stock’s pe based on consensus estimates of earnings to be reported in calendar 2010.  The final column shows what the pe would be if all the foreign-generated cash were to be repatriated and tax paid in the US.

—–stock price–cash/share—–tax rate——-divd—–divd/fcf—–pe—-pe”normal”tax

AAPL      $262            $27           27%        none         n/a           19x             21x

CSCO      $27.01        $4.20        19%         none        n/a           19x             24x

GOOG      $529           $78          22%         none        n/a            21x            25x

INTC        $23.35        $2.50        30%         2.9%      35%         12.6x         13.6x

MSFT      $30.84        $3.70       26%         1.7%       33%            14x            16x

QCOM     $37.92        $7.15        17%         2.0%      38%           18x            23x

my observations

1.  The absolute amounts of cash are huge.  They were astoundingly high percentages of the firms’ stock market capitalizations at the market bottom.  But they no longer are big enough to be a primary feature of the stocks as investments, in my opinion.

2.  The group divides into two camps:  fast growers–AAPL and GOOG; and more mature companies–INTC, MSFT and QCOM.    QCOM is somewhat of an anomaly.  The other stocks declare their growth characteristics through their pes and the presence/absence of a dividend.  QCOM hasn’t expanded much during the last half-decade and pays a dividend, yet has a higher pe than either INTC or MSFT.  This is probably due to its smaller size and its focus on mobile.

3.  GOOG seems to still be a more expensive stock than AAPL, despite the year-to-date outperformance of the latter over the former by about 40 percentage points.  AAPL’s pe is lower and its growth rate higher.  GOOG’s lower tax rate suggests more earning power outside the US, but also the potential issue (perhaps non-issue to everyone except me) of tapping overseas cash.

4.  The INTC/MSFT comparison is also interesting.  They are the two stalwarts of the “Wintel alliance” of the pc era, one the hardware genius, the other the software guru.  The market worries that time has passed both firms by.

INTC has a higher dividend yield and a lower pe, which I think expresses the market’s logical preference for a software company over its more capital-intensive hardware analogue.  Wall Street also believes, I think, that MSFT has an easier migration path away from the pc to more compact internet-centric devices than INTC, which has an obvious rival in ARM Holdings plc.  On the other hand, (I think) INTC has a much stronger management than MSFT.

INTC is paying a higher portion of its free cash flow in dividends than MSFT is, but the difference is slight.  INTC also has a much higher tax rate, indicating higher potential to tap offshore cash.

I don’t own either.  If I had to buy one, I’d pick INTC–but I would also watch very closely developments with the company’s Atom chip line and how it is faring against ARM offerings.

MSFT’s March 2010 quarter

April 25, 2010 By in Current Market Thoughts, earnings conference calls, Industry Analysis, internet, Stock ideas, Technology, Video games, Wireless Tags: , , , , , , , Leave a comment

MSFT reported its fiscal third (ending 31 March) quarter earnings results on April 22.  This is what I thought was interesting from the numbers themselves and the related company conference call.

the results

Revenue, factoring back in sales that are deferred under GAAP, was up 8% year over year.   Operating earnings were up 17%.  The operating leverage is due partly to the fact that incremental copies of software cost virtually nothing to make, and are therefore almost pure profit.  It also comes from continuing strong cost control.

Operating income benefitted a bit from the absence of severance charges ($290 million in the year-ago quarter), but that was offset by higher legal expense and the costs from the search agreement recently concluded with Yahoo and okayed by government regulators in February.

Net income was up by a much larger percentage, around 36%.  Although MSFT didn’t highlight this on the call, the most important reason the number was in the thirties rather than the teens was a $589 million swing from loss a year ago to profit this March on selling investment securities.  A lower tax rate helped a bit as well.

the reasons

Windows 7 adoption has been the fastest of any Microsoft OS, with 10% of personal computers worldwide now running it. (As a frustrated former Vista user writing this on a Mac, I’m tempted to analyze this as more a comment on Vista than on Windows 7.  But I have to acknowledge that W7 seems to have stemmed customer defections.  So it must be good.)

Sales in emerging markets were up by 20%+ year on year, with sales in developed markets advancing around 5%.  MSFT has begun to notice small- and medium-sized businesses upgrading their software, with revenues in this segment up 15%+.

Piracy is down.  Part of this is MSFT’s litigation efforts to enforce its intellectual property rights abroad.  Part is the increasing market share of global branded computer manufacturers vs. independent no-name “white box” makers, where software piracy is more prone to occur.

Worldwide PC sales are up 25% year on year.  MSFT estimates that consumer purchases are up 30%- and business buys up 15$.  Netbooks, where unit revenues are lower but where MSFT currently has almost all the market, are about 10% of the total.  MSFT unit sales are outpacing market growth.

upcoming quarters

Office 2010, the new Office suite, and a number of server software upgrades launch in the June quarter.  They should provide a steady boost to revenues over the next year or two.

In MSFT’s mind (and who would know better?), large corporations worldwide are clearly preparing for a major refresh/upgrade of their computer systems.  Most have pilot or prelaunch Windows 7 efforts under way now.  They’re planning to deploy W7 as quickly as they can, on the server infrastructure they have today.

Why the holdup?  I presume it’s the usual– IT chiefs want to be sure all the major bugs have been worked out of software before risk the firm’s information backbone by using it.  That takes time.

MSFT also has a large “cloud computing” business, its Online Services Division, which looks like it will report full-year operating losses of more than $2 billion.  At some point–I have no guess as to when–those losses will likely begin to diminish and eventually turn to profit.

What does MSFT do for an encore?

This is the (perhaps cruel or ungrateful) question Wall Street will eventually ask about MSFT.  The company generates enormous cash flow, has negligible debt and is in the midst of an extra-profitable period of upgrades to its basic products—the PC operating system/user interface and the collection of Office-brand business applications.

But the consumer portion of this transition, which is bigger than the business side, is quickly closing on its peak.  And since the market lows in March 2009, MSFT’s stock has doubled.  It has outperformed the S&P 500 by about 20 percentage points over this span, which already discounts at least some of the current good news.

my thoughts

I see two striking features of MSFT:  its enormous cash flow, and how that cash flow is deployed.

On the conference call, MSFT displayed justifiable pride in the fact that March quarter cash flow was a stunning $7.4 billion.  The total for the first nine months of the fiscal year was $18.5 billion.

What is MSFT doing with this money?

stock repurchases          $7.4 billion

additions to cash          $5.5 billion

dividends to shareholders          $3.5 billion

capital spending           $1.2 billion.

If I’ve read the balance sheet numbers correctly, about half of the stock repurchases go to offset the issuance of new stock to employees who are exercising stock options.  But about $3.5 billion has been used to shrink the number of shares outstanding by about half a percent.

MSFT already has about $40 billion in cash and short-term investments on the balance sheet?  Does it need more?  I don’t think so.

Anyway, it seems to me that MSFT could easily double its current dividend (not necessarily all at once; a steady increase over a year or more would be ok), which would produce a yield of 3.5%.  To do this would require a courageous further recognition by the company’s management of the firm’s maturity–a judgment Wall Street has long since made.  My guess is that it would do wonders for the stock’s price, even from here.

My initial reaction is that chances aren’t good.  But we can watch for signs.

By the way, I tried using Firefox to access the conference call and download the 10-Q, because I knew that MSFT doesn’t like Safari.  But the 10-Q wouldn’t download, the conference call narrative broke down twice and the timeline bar to skip/rehear portions appeared only intermittently and didn’t work.  I’m sure Redmond residents find this mirthful, but the humor doesn’t travel.


AAPL’s March 2010 quarter: strong non-US iPhone sales

April 22, 2010 By in Current Market Thoughts, e-readers, earnings conference calls, Entertainment, Industry Analysis, internet, Publishing, Stock ideas, Technology, Wireless Tags: , , , , , Leave a comment

The AAPL quarter

I listened to the AAPL March quarter conference call yesterday and looked at the financials.

the numbers–really good

“CUPERTINO, California—April 20, 2010—Apple® today announced financial results for its fiscal 2010 second quarter ended March 27, 2010. The Company posted revenue of $13.50 billion and net quarterly profit of $3.07 billion, or $3.33 per diluted share. These results compare to revenue of $9.08 billion and net quarterly profit of $1.62 billion, or $1.79 per diluted share, in the year-ago quarter. Gross margin was 41.7 percent, up from 39.9 percent in the year-ago quarter. International sales accounted for 58 percent of the quarter’s revenue.”

the highlights

It was reassuring to hear that, as usual,  AAPL executives are “thrilled” over just about everything and customers of all products in all countries are, like the McDonalds ads say, “lovin’ it.”

But it was an outstanding quarter, AAPL’s best non-holiday three months ever, featuring an all-time high for iPhone sales.  The company sales highlights:

–2.9 million Macs sold during the quarter, up 33% year on year vs. 24% growth for the PC industry.  50% of Mac buyers are still first-time users.  The company didn’t exactly answer the question put to it, but it sounds like the “halo effect” of the iPod and iPhone on Mac sales is a global phenomenon, not just a US one.

–10.9 million iPods sold vs. 11 million in the year-ago period.  But iPod Touch showed 63% year on year growth, creating a 12% revenue gain for this product line.

–8.75 million iPhones sold vs. 3.8 million in the march quarter of last year.  This is 133% growth, or 4x the rate of market expansion.

–AAPL is “shocked” by high demand for the iPad in the US, so much so that AAPL had to postpone the foreign launch of the product so that it would have enough manufacturing capacity to roll out the 3G version of the device on time in the US.  What was the problem?  Other than DRAM, components are easy to get on short notice at reasonable prices.  And there’s lots of AAPL-quality contract manufacturing capacity available.  But it takes a period of weeks to get everything lined up–and more time to get the finished goods into stores.

It sounds as if AAPL has already ramped expanded production up, so it looks like an unrestricted flow of iPads will be coming from the company for the June quarter.

AAPL responded to questions about possible cannibalization of other AAPL offerings by saying that it’s too soon to tell–which it is (and Macs and iPod Touches are the only areas where you might be able to notice)–but that there’s no evidence of it to date.

what I thought was interesting

the geographical breakdown of operating income (in $millions)

US          $1674       up 20% year on year

Europe     $1661         up 102%

Asia-Pacific   $892     up 320%

Japan      $441       up 80%

Only about a third of operating profits, not counting retailing income from the Apple stores, are coming from the US.

AAPL said on the conference call that first-half revenues from “greater China,” that is, the mainland + Taiwan + Hong Kong were up 9x year on year, at $1.3 billion.  This is presumably the introduction of the iPhone there.

the iPhone

If we figure that AAPL gets $600 for each iPhone it sells to a carrier, that amounts to $5.25 billion in sales for the quarter, or close to 40% of the company total.  That number understated the importance of the iPhone to AAPL, because it doesn’t include the share of revenue from carriers that AAPL also gets.

You may remember that AAPL recently changed the way it accounts for the carrier revenue.  It used to show this money more or less as it came in, over a two-year contract period.  Now it does a present value calculation and recognizes it all when the contract is signed.  (I think the new way is the better accounting method, but AAPL actually provided more information under the old method, when it also gave the new method results in footnotes.  Oh, the exciting life of an analyst!!!)

This time last year, AAPL was using the old method.  This year’s financials restate those results.  The restated number show a gross profit that’s $656 million higher than what was originally reported.  If we assume that’s all the present value of carrier contracts, and that present contracts have the same profitability, then the comparable number for carrier payments for the March 2010 quarter is a gross profit of $1.5 billion.  If AAPL takes the same manufacturing markup on iPhones as on other products, then the iPhone is producing 55% of AAPL’s gross income.  You can do more refining that would imply that the “real” percentage is actually higher, but the point would remain the same–AAPL has transformed itself in just a couple of years into a smartphone company that happens to do other stuff.  This is an almost unbelievable achievement.

the tax rate (a minor point, but an accounting thrill)

AAPL estimated three months ago that its full-year tax rate would be 29%, based on its forecast of the geographical composition of revenues.  Now it realizes it wildly underestimated foreign sales, presumably in the Pacific.   Its new estimate for the year is 27%.  To offset the first quarter tax rate being too high, AAPL had to make the second quarter rate low enough (at 24%) so that the first half as a whole was back on track.  This had the effect of shifting some profit recognition from the first quarter to the second.

the iPad

AAPL believes that the market potential for the iPad is huge. As a result, it says, it is pricing the iPad in an “extremely aggressive” manner.   Even so, it was caught by surprise by the high level of demand for the device in the US.

AAPL expects sales of the iPad to depress gross margins in the June quarter by 1.5%, or 25% of the gross margin drop from 41% to 35% that it is guiding analysts to expect for the next three months.

Question:  how many iPads do you have to sell, and at what sub-par markup to make such a big dent in gross margins for a firm as big as AAPL?

AAPL’s answer:  we’re not saying.

What I think:  if AAPL marks up the iPad by a third over its manufacturing cost–remember, there are a lot of marketing expenses for a new product–then it has to sell about 2 million in the June quarter to move the gross margin down that much.  Depending on the model chosen, that could end up being $1.5 billion in sales.  Wow!

other stuff (not on the conference call)

The iPad is banned in Israel, because it uses too much mobile bandwidth.  Tourists have to leave them at the border.

An AAPL employee left a test model of the yet-to-be-released iPhone 4.0 in a bar in Redwood City, California.  Whoever found it sold it to the blog Gizmodo, where you can see an analysis.  Interestingly, just like Mission Impossible, AAPL caused the phone operating system to self-destruct when it discovered it was lost.

AAPL doesn’t like netbooks.  No surprise here.  But the company said on the conference call it “couldn’t think of a single thing a netbook does well.”  I guess we have to wait for ASUS or Acer to release Chrome-compliant models.




Intel’s March 2010 quarter–another good one

April 15, 2010 By in Current Market Thoughts, earnings conference calls, Industry Analysis, Stock ideas, Technology Tags: , , , , , , , , Leave a comment

March quarter earnings

INTC reported march quarter results after the close on Tuesday.  The company earned $.43 a share on record revenues for a first quarter of $10.3 billion.  Sales were down 3% quarter on quarter from the $10.6 billion posted during the December 2009 period, or about a third of the typical seasonal decline.  Nevertheless, laptop-related revenues were at a quarterly all-time high.

The company said demand was “incredible” and raised its guidance for the rest of the year.

Two parts

I’m going to write this post in two sections.  The first will deal with INTC comments that bear on the state of the world economy or the overall technology industry.  The second will deal with INTC-specfic issues.

Part one:  general

–During the quarter, INTC saw the first indications of a pickup in corporate buying of PCs.  For some time, companies have been swapping out older servers for newer, faster, lower operating cost models.  But now they’re starting to replace aging desktops (average age: 5 years) and laptops (4 years).

This isn’t a mass replacement, at least not yet.  That won’t come, if it does, until corporations have done enough testing of Windows 7 that they feel comfortable substituting it for the aging XP operating system that most are still using.  But it does indicate that corporations feel they have more money to spend.

–INTC is also seeing the first signs of life in “transactional volumes,” that is, sales through distributors to small- and medium-sized businesses.

–Demand was strongest for INTC’s newest 32 nanometer chips.  Despite a faster-than-expected rampup of 32nm factories, INTC couldn’t keep up with client orders.

–INTC itself feels good enough that it will be doing net hiring for the first time in five years.

–I think the regional breakdown of sales for the quarter is very revealing.

——————% of total sales       q on q sales change

Asia ex Japan           57%                            -1%

Japan                          11%                          +10%

Americas                     18%                           -9%

Europe                         14%                            -8%

Given INTC’s dominant position in the logic chip business, this chart shows how radically this business depends on Asian demand.  The Americas and Europe now comprise less than a third of the total.  The Pacific was actually up in slaes for the quarter, which typically shows a seasonal decline of 9% vs. Q4.

INTC expects the corporate tax rate to rise as the year progresses, implying that it expects sales from higher tax-rate places like the US to begin to accelerate.

netbooks/tablets

netbooks

With a 19% quarter on quarter drop, sales of Atom chips for netbooks experienced an unusually sharp decline–although that might not be the right word for such a new computer market segment.

INTC says that it sees netbooks as a purely individual consumer phenomenon.  There is no corporate market.  It now comprises about 20% of laptop sales, a figure INTC expects will remain steady.

I see the sales falloff as coming from a combination of several factors:  new firms entering the market, a desire by all participants not to miss the big yearend selling season, and uncertainty about the true size of demand.   Now that we have a better handle on the last item, netbook producers are adjusting their production plans but will presumably begin reordering during the second quarter.

tablets

INTC sees the tablet market as being today where the netbook market was two years ago.  It thinks demand for tablets won’t cut into traditional laptop demand but will, like netbooks, be additive.  The company says lots of Atom-based tablets are going to be introduced shortly, using both Android and Windows 7 operating systems.

Part two:  INTC itself

INTC is surprising itself with the speed and efficiency of its changeover from producing chips with a spacing of 45 nanometers between lines to the newer-smaller-faster 32 nm.  At the same time, customers who want to be the first on the block with cutting-edge PC speed are willing to pay high prices for the privilege.

On top of that, while 2009 was the year of the consumer’s return to buying PCs (China in the first half, Europe and the US in the second), 2010 is giving every indication of being the year when corporates finally upgrade their PCs that in IT years (2.5x dog years?)  are fast approaching decrepitude.

The first factor means higher than expected operating margins; the second means higher revenues.  The two combined are the force behind INTC’s surprisingly good earnings performance in the March quarter.

There’s no reason to think performance won’t get better as the year progresses.  If corporations decide to adopt Windows 7 during the second half–a bit faster than might be typical, but XP is getting long in the tooth (no one adopted Vista)–2010 could be a truly memorable year.  If not, the earnings party will continue well into 2011.

One probably shouldn’t get too carried away with speculation about how good earnings might be in 2010.  Prior to this report, the Wall Street  consensus was that INTC would earn about $1.65 a share this year.  When the latest round of revisions are in, that figure will probably be a lot closer to $1.80.  $2 a share might even be in striking distance, given that INTC’s highly automated factories have a lot of operating leverage.  But that would likely require a 20%+ increase in unit sales.  And, offsetting some of the resulting gross margin gain, the company has already indicated that it will spend $600 million more than planned on R&D and marketing.  That figure would doubtless increase if revenues do.

What really strikes me is how much free cash INTC is currently throwing off.  The company had $16.4 billion of cash and near-cash assets at the end of last year.  It added $2.4 billion to that total in the first quarter.  Absent another dividend increase or an acquisition, INTC is on track to exit the year with a total of $27-$28 billion on the balance sheet.  Even after repaying the company’s $2 billion in long-term debt, that would amount to 20% of INTC’s market capitalization.

As I wrote after INTC’s last quarterly earnings report, the present company management seems to understand that the company is mature and is managing it appropriately.  One should expect a continuation of the steady dividend increases that have been approved by the board since 2003.  Trading at a pe discount to the market and a dividend yield preference as well, INTC seems to me to be part of a group that would include MSFT and WMT (I own this one) that should be very attractive to Baby Boomers.

AAPL vs. GOOG: battle of the titans, and how they stack up financially

April 11, 2010 By in Current Market Thoughts, Entertainment, Industry Analysis, internet, Stock ideas Tags: , , , , , , , , , Leave a comment

Cordial no more

For some time, previously good relations between AAPL and GOOG have been deteriorating, as each expands and reaches the fringes of the other’s core markets.  For example:

moves to date

–a couple of members of the boards of GOOG and AAPL have resigned from the latter’s director group, either because they felt awkward at having access to the trade secrets of both companies, or they were prompted by regulators to consider the potential conflict of interest more seriously than they had,

–GOOG has developed the Android operating system for smartphones, which it is supplying to competitors to the iPhone (which represents half AAPL’s profits).  It will soon launch the Google smartphone, which it is manufacturing and selling itself.

–GOOG is overseeing the manufacture of Android-based netbooks, which will debut in the second half of the year.  Though in a traditional laptop form factor, to my mind, they will compete against the iTouch and the iPad to a considerable degree.

–GOOG has also developed the linux-based Chrome operating system for PCs–which will drive its netbooks.  While this is aimed more directly at Windows, Chrome will also compete against AAPL’s Safari os.

the latest

AAPL has just announced that it intends to sell advertising on the iPhone that will appear in the apps that customers download.  The details, and a bunch of other AAPL stuff, are reported by Barron’s here.

who’s in better financial position for the upcoming conflict?

The answer is that they’re surprisingly evenly matched.  Here’s what I mean:

AAPL          GOOG

cash                     $24.8 bill     $24.5 bill

debt                        none              none

2010 earnings    $11 bill        $8 bill

2010 cash flow   $12 bill       $9.5 bill

growth over past 5 yrs

eps                         90%/yr        96%/yr

cash flow               73%             95%

investment implications

1.  In the early stages of any new market, participants generally ignore each and rush to stake out as much territory for themselves as possible.  The fact that former allies AAPL and GOOG are turning on one another implies they both perceive the best opportunities for growth now lie in taking market share from each other.  This means the market is maturing for both.

2.  Initial losers in this competition will be everybody else.  As the pace of the AAPL-GOOG rivalry picks up, so too will the pace of innovation.  Smaller rivals will likely be left behind in the dust.

3.  Expect slower growth rates from both GOOG and AAPL.

4.  The fact that both have huge financial resources and are of roughly equal size and earning power means there won’t be a clear winner for some time.

5.  No need to panic if you’re an AAPL or GOOG holder.  Year-to-date stock action suggests Wall Street has AAPL as a slight favorite over GOOG.  But the market is fickle.  And both stocks are trading at what I think are reasonably price earnings multiples–mid 20s–of anticipated 2010 earnings.  That’s not a high price for companies expected to be expanding at a 20%+ rate.

6.  Both stocks need to be monitored more carefully, though, to guard against the possibility that one or the other lands a knockout blow.