A new report from Credit Suisse Group AG (NYSE:CS) detailing the current state of the tech industry has brought to light some startling information about Apple Inc. (NASDAQ:AAPL) dominance in space.
Since the last peak of the S&P 500Total Returns Index in October 2007, market capitalization growth in the tech industry has grown from 16.9% to 20.6%, an increase of almost a fifth. Excluding Apple Inc. (NASDAQ:AAPL) from the metric reveals that in the period the total market cap of technology companies increased from 16.2% to just 16.7%.
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The numbers are not exactly unexpected. In October of 2007 analysts were still wondering about the future of Apple’s iPhone. The product had been released the previous January. Apple Inc. (NASDAQ:AAPL) opened in October of that year at less than 25% of its current share price.
What is startling is how much of the current “tech revolution” in the stock market has relied on the Cupertino company. In Credit Suisse’s Technology Index, the CSTI, Apple Inc. (NASDAQ:AAPL) led the hardware sector of the market, which increased by 837 basis points in the period. Excluding Apple the hardware portion of that index declined by 477 basis points.
It is clear from the figures that not only is Apple growing at a prestigious rate, it is also cannibalizing the growth of other tech companies along the way.The hardware sector saw declines in some of its formerly large constituents, including Hewlett-Packard Company (NYSE:HPQ), Research In Motion Limited (NASDAQ:RIMM), and Nokia Corporation (NYSE:NOK)
It appears, in reports from analysts and the financial press, that the tech industry is leading America’s economic growth. The sector has been the best performing in the last five years. From the Credit Suisse Group AG (NYSE:CS) report, it appears that that assessment is wrong. It is Apple Inc. (NASDAQ:AAPL) that is not just leading the charge, Apple is the charge.
Hardware now dominates the CSTI at 31.1%, hardware ex Apple stands at just 14.3% of the index. Apple’s dominance of the tech industry’s total market capitalization demonstrates clearly the sway the company holds over the world economy.
Among the other sectors of the CSTI, Telecom equipment firms lost 1091 bps, Semiconductors declined 379 bps, and Software increased marginally by 91 bps. IT services and Internet companies were the only ex Apple significant growers, increasing their share of the index by 218 bps and 321 bps respectively.
S&P Sectors As % Market Cap. Now Vs. October 2007
Across the entire economy tech growth is still leading the charge in S&P 500 growth. Financial companies have performed poorly in the last five years, declining in S&P 500 total market cap by 407 bps to 14.8%. The Industrial market cap has fallen by 176 bps, while Energy, Telecom Services and Materials have declined by 53 bps, 41 bps and 9 bps respectively.
Growth in the market, apart from the tech industry, has come from Consumer Staples, which saw an increase of 200 bps, Consumer Discretionary, Utilities and Healthcare increased by 60 bps, 8 bps, and 53 bps respectively.
Semiconductors, the sector that the report is generally concentrated upon, fared very poorly in the last five years. Despite laying the entire basis of Apple and other companies operations, the sector, as measured by the Philadelphia Stock Exchange’s SOX index, has become increasingly less correlated with S&P 500 growth, while remaining somewhat tightly correlated to its declines.
This measure demonstrates the declining importance of companies such as Intel Corporation (NASDAQ:INTC), Quallcomm Inc. (NASDAQ:QCOM), and Nvidia Corporation (NASDAQ:NVDA) even as those firms continue to increase the quality of their products in what is almost golden age of Semiconductor production.
Part of the decline in the importance of these firms and part of the decline in the telecommunications industry is again down to Apple. The firm’s suply chain management and the pressure it put on Telecommunications companies like Verizon Communications Inc. (NYSE:VZ), and AT&T Inc. (NYSE:T).
Apples has undergone an unprecedented expansion in a period when Americans, and people around the world, saw little, if any, rise in income. Across Europe austerity measures have taken money out of pockets while in the United States persistent high unemployment and lackluster growth have not given Americans anything extra to spend.
A great deal of Apple’s growth has come at the expense of other firms, first other handset manufacturers like Nokia Corporation (NYSE:NOK), and Research In Motion Limited (NASDAQ:RIMM), and then wireless carriers like Verizon Communications (NYSE:VZ), AT&T Inc. (NYSE:T) and Sprint Nextel Corporation (NYSE:S).
Since the launch of the iPad, the company has begun to feed off of the revenues of hardware manufacturers like Hewlett Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), as well as processor manufacturers like Intel Corporation (NASDAQ:INTC), and software companies such as Microsoft Corporation (NASDAQ:MSFT).
Apple Inc. (NASDAQ:AAPL) has done an excellent job of pulling revenue not only from consumers but from the bottom lines of its competitors, and even the bottom lines of companies it works with. The emulation currently underway by Google Inc (NASDAQ:GOOG) and Microsoft, secures a model where service sectors in the tech industry will see lower margins from now on.