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Tuesday, May 22, 2012, 02:50 pm PT (05:50 pm ET)

Apple's mammoth size said to dictate tech investment strategies

The sheer size and reach that Apple has come to enjoy over the past few years has forced some analysts to assess tech companies not only based on merits, but how they line up with the iPad maker's current and future plans.

In a note to investors on Tuesday, Barclays Equity Research outlined a new way of dissecting the global technology market by basing investment options on how a given company's operations jibe with Apple's.

The Cupertino-based company is now the largest in the world by market capitalization, and continues to innovate in the consumer technology space, especially with portable devices like the iPhone and iPad. With record-breaking revenues of $46 billion during the first fiscal quarter of 2012, analysts believe that the company could have an $80 billion revenue quarter within the next three years. This is contingent on innovation, demand and the market, however Apple's sheer size sways current trading and can theoretically make or break certain publicly traded tech entities.

To make a more tangible reference tool, Barclays Global Technology Outlook introduced "3 columns of tech investing," which directly examines how a given company's products and services line up with Apple's current offerings and annual refresh cycles.

The first two of the so-called "columns" use straightforward contrast and comparison techniques to decipher which companies are being helped or hurt by Apple's dominating presence in the mobility sector. Added to this equation is market-leader Samsung as the two companies combine to make up over half of worldwide smartphone shipments.

Barclays 3 column

First column companies profit by being aligned with Apple. | Source: Barclays Research


"The first two columns of tech investing are rather simple," explains Barclays analyst Ben Reitzes. "Companies aligned with the sizeable Apple and Samsung product cycles in mobility are set to thrive. Those cannibalized or obsolesced by the rise of smart mobility could see challenges. The sheer size of the upcoming iPhone 5 and iPad cycles, when combined with strong share from Samsung in smartphones, has only increased the importance of identifying these companies."

As noted above, the first column deals with companies that are inline or allied with the momentum created by Apple and Samsung. These corporations can be winning bets if they take advantage of the lumbering giants' progress and astonishing rate of innovation in the mobility sector.

For companies in the second column, Reitzes gives the example of Windows 8 and Intel's Romley server platform, major product launches represent short-term opportunities but have less impact versus past cycles due to the consumer shift toward Apple and Samsung. The second-column corporations will likely face considerable odds as consumer and enterprise spending is not expected to grow significantly outside of Apple's shadow in the next five years. Reitzes notes that the share of capital tied up in the mobility market is too high to let other categories grow significantly.

Barclays 3 column

Second column company profit may be reduced because of Apple's and Samsung's dominating presence in the mobile market.
Source: Barclays Research


The final investing column is reserved for what Reitzes calls "Apple-safe" companies, or those that can't be effectively disrupted by Apple's operations. Examples include cloud and "Big Data" companies and other enterprise-related tech which is currently not an Apple focus.

"Column three is dominated by storage, software and certain services," Reitzes writes. "Outside of those with cloud, Big Data or virtualization exposure, successful companies in this column often include those with strong maintenance streams and a shareholder-friendly cash return policy."

Barclays 3 column

Companies in the third column are unaffected or "Apple safe." | Source: Barclays Research


Overall, the report makes clear that Apple and Samsung are holding court in the mobility market, with the former pushing toward a nearly overwhelming share of the tablet business. The consumerization of IT, as Reitzes calls it, is well underway and Apple is looking to up the ante in the coming months with a rumored next-generation iPhone as well as a new, smaller iPad. Also said to be in the pipeline is an anticipated television which could further extend the company's reach by entering consumers' living rooms.

Barclays' overweight AAPL stock rating remains unchanged with a price target of $750.