Apple's Last Hurrah?

Is Apple peaking? Say it isn't so.
Truth is, Apple's earnings are vulnerable.
Check the math.

Revenue 2003: $6.2B
Revenue 2004: $8.3B
Revenue 2005: $13.9B

Earnings 2004: $276M
Earnings 2005: $1.3B

The iPOD has driven sales from ~34% to 67%
Earnings have grown ~5x

But these numbers are hugely misleading. Apple's growth is actually almost flat.
FOR THE LAST 3 QUARTERS, APPLE'S REVENUE HAS BEEN A FLAT $3.4B per quarter.
The growth comes from a much lower sales in 2004, which makes the annual growth look phenomenal. But that growth is over. Sure, next quarter will rock because of holiday sales, but then what? If the market for $400 iPods is 100 Million users, we are talking saturation in under 3 years.

1. iPod sales flattening out - the Nano is filling a much needed product portfolio void: a cheaper iPod. It expanded the market for Apple because a $400 Walkman is a bit much.
2. Flat revenue - How do you justify a 40 P/E when growth and sales move back to low double digits? In order for Apple to show 20% sales growth and 20% earnings growth, the next quarter must show $700M sales growth. Meanwhile, sales have been flat for 3 quarters. That means, Apple must increase iPod sales from ~6M per quarter to 8M. And keep it there! Oh, and earnings must grow $70M. Guess what: total earnings growth for the last 3 quarters was $20M. And that's for a mediocre 20% sales growth. To keep a 40 P/E Apple must deliver much better than that.
3. Not the golden touch - iTunes Cell phone was a dud; the fabled ability of Apple to add products is not there. The Motorola iTunes phone crashed at take off.
4. Video iPod: don't get your hopes up too high - WIll this catch on? No doubt. Many people will toss their old iPod for a video version. It could be the photo album of the future. But the shortcomings will hurt. To begin with, battery life will be measured in minutes, not hours. Anyone with a digital camera knows the limits of battery life and LCD screens. And the screen will be tiny. A neat gadget, but not an iPod killer. Not a portable DVD substitute either.

Apple needs major new revenue streams. iTunes will help. It's growing.
But what happens when Apple returns to the old ways - mediocre growth in Macs and iPods. Answer: P/E of 20, which makes Apple waaaay overvalued.

Besides, the shock of the low growth will inject som emuch needed reality into the stock price. Get ready to short.