Apple continues to innovate

On Wednesday I joined millions of people in downloading Apple's new and greatly improved operating system for mobile devices, iOS 7. After playing with it for awhile, I can say I'm delighted. It's like having a brand new phone. And it's not just me; in just two days, a significant portion of Apple's installed base has upgraded to iOS 7. A much greater percentage of Apple phones are now running the newest software than is the case with Android-based phones. It is reasonable to expect that, as Apple claims, iOS 7 will be the most popular mobile software in the world before too long, because the vast majority of iPhones and iPads being used today are eligible for the upgrade, and it is relatively easy to do. The same is not true of Android phones, only a fraction of which can use the latest version of Android.

The new software represents a complete overhaul, adding hundreds of new features and capabilities, all with a fresh new look. One new feature, Activation Lock, means a stolen iPhone becomes useless; the phone cannot be reactivated without a user's Apple ID and password, and Apple requires all passwords to be relatively complex. The camera software is now easier to use, with added editing features. Font sizes can be increased or decreased. Developers now have 1,500 new APIs to play with, opening the door to even more innovation.

Meanwhile, Apple's new iPhone 5S comes with a 64-bit processor (a first for the smartphone market), and a fingerprint scanner, both of which will be hard for competitors to copy in a short time frame. Plus, a new camera sports a bigger aperture, larger pixels, a new dual flash, and software capabilities not found in any camera. Reviewers almost universally consider the 5S to be the best smartphone on the market. Initial reports suggest the iPhone 5S is selling like hotcakes. The cheaper 5C is likely to do very well in overseas markets.

Within the next month or so, Apple is likely to introduce a new generation of iPads, and Apple already dominates the tablet market. Tablets are replacing laptops and desktops all over the world.

Apple has over $100 billion in cash, equivalent to more than $110 per share, and it pays a 2.6% annual dividend—which represents only 10% of its current cash holdings. Backing out the cash, AAPL trades with a trailing PE of 9 and a forward PE of 9.2, which means that the market is pretty confident that Apple's best days are behind it, and there is little chance that earnings will continue to grow. That's a pretty pessimistic assessment of a company that has revolutionized and created entire industries (e.g., smartphones and tablets), and that continues to deliver high quality and innovative products to a global market with significant growth potential.

You don't have to be a wild-eyed optimist to like this stock.

Full disclosure: I am long AAPL at the time of this writing.

UPDATE: (based on my comments posted 9/23)

Just received my new iPhone 5S from Fedex. Took only a few minutes to set up, then about 30-45 minutes to load in all my settings and apps from iCloud. It's everything it was advertised to be, and the fingerprint ID works like a charm, obviating the need to swipe. I chose the "silver" model, which is identical in outward appearance to the "white" iPhone 5, except for the silver ring around the home button. It then took a few minutes to erase everything from my old phone, which is now in pristine condition and ready to be sold or transferred to another party. I'm somewhat surprised that Apple sold 9 million new phones over the weekend. I knew it would be a hit, just not this big of a hit. I tried the slo-mo video and it's great. I now look forward to seeing how much better the phone is in low light and with the new flash. As with the iPhone 5, the fit and finish on this new phone is simply fantastic, a work of industrial art.

I played around with the slo-mo video some more, and it's not just great, it's astoundingly great. High-def slo-mo video is now available to the masses, and it will be used and consumed. The quality is exceptional, and it's so easy to edit! Plus, photos taken in low light and with the flash are now orders of magnitude better than with the camera on the iPhone 5, and that was an order of magnitude better than the 4S. I'm astonished at how much better it is. The camera alone is more than enough reason to get the 5S.

The news of 9 million phones sold over the weekend was eclipsed by the news that more than 200 million iOS devices have upgraded to iOS 7 in the past 4-5 days, making it the fastest software upgrade in history. Apple users are extremely interested in how their devices function, and the vast majority will soon have the benefit of exciting new software features. Because of its extensive fragmentation (there are thousands of different models of Android phones out there), this will never be the case for users of Android devices.