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By Pat Dorsey, CFA | 04-12-2010 11:47 AM

Should Apple Get a Wide Moat Rating?

The iPad and Apple's increasingly dominant mobile platform could be a catalyst for moat upgrade, says Morningstar's Toan Tran--but there's a fly in the ointment.

Securities mentioned in this video
AAPL Apple Inc
MSFT Microsoft Corp

Pat Dorsey: Hi, I'm Pat Dorsey, the director of equity research at Morningstar. As you know, we rate all of the companies we cover at Morningstar with wide, narrow, or no economic moat. We've had Apple for a long time in the narrow-moat bucket for a large number of reasons.

Associate director for technology Toan Tran, who covers Apple, recently said, "Hey, maybe this is a wide-moat business." So I thought we'd open that up for discussion. Thanks for joining me, Toan.

Toan Tran: Thanks for having me, Pat.

Dorsey: People have asked me this for a long time, as if it's self evident that of course Apple is wide-moat, my goodness me. For a long time you've had some reservations about that, but there's a catalyst recently that made you think, well, maybe it's time to upgrade it.

Tran: Yeah, there has been a catalyst and that was the release of the iPad. Thinking about Apple as a wide moat. It's been percolating in my mind for a while. We have Apple at positive moat trends. What Apple is doing, is that they are building a dominant mobile platform. Basically, they're recreating Windows in the mobile space with the iPhone.

What happens there is that as this installed base of iPhones and iPod Touches, and now the iPad grows, it becomes really attractive for developers to come and write programs for those devices, because there's lots of users and, most importantly, you can make money selling apps to these users.

Dorsey: It's a classic network effect.

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