The Breakdown

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Why Apple won't become a $1,000-per-share company

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Apple finished up the day at $545 a share. So it's almost halfway to being a $600-a-share company. Which would put it $400 from being a $1,000-a-share company. And there's a raging debate right now in the financial world about whether Apple can make it across that finish line and become the first-ever $1 trillion market cap company. 

For perspective, no one has even even gotten close. And $1 trillion is about as much money as has been made on the Internet in its entire history so far. Big number. Very, very, very big.

At Business Insider, former tech stock analyst (and BI CEO) Henry Blodget makes what I think is the best case against Apple getting to $1,000 a share:

The most extraordinary aspect of Apple's business right now is not its revenue growth, which is plenty extraordinary. It's its profit margin.

In fiscal 2011, Apple had a mind-blowing 24 percent net profit margin.

Why is that mind-blowing?

It's mind-blowing because hardware companies just don't have profit margins like that. Even software companies don't usually have profit margins like that.

The hardware business is generally a cut-throat commodity business with razor-thin profit margins.

Dell, for example, which used to be considered a talented hardware manufacturer, has a 4 percent profit margin. HP, which sells hardware and software, has a 6 percent margin. IBM, which sells hardware, software, and services, has a 15 percent margin.

So you can understand why Apple's profit margin is mind-blowing.

And—here's the important point—Apple's mind-blowing profit margin may well be a temporary aberration.

Actually, Apple's been able to sustain the mind-blowing margin in large part because its Asian contractors, notably Foxconn, have been willing to cut their margins to keep Apple's business. So really what Apple is doing is using global competition to export the need to cut its margins. Somebody else will endure the pain.

Blodget argues that Apple's margin may begin to get slowly disrupted. I think this is entirely plausible, given that Apple has moved on from being a company that has relied on cyclical innovation to being one that must defend its pricing model at all costs. That pricing model can be expressed in one phrase: "higher than everybody else."

Is Apple living on borrowed time? Not if it can keep overpricing its stuff. But if viable alternatives come along, like a sub-$100 tablet, the Apple $1,000 party could be ruined.

Follow Matthew DeBord and the DeBord Report on Twitter.

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