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By Ryan Leggio | 06-21-2010 01:49 PM

Thacker: No End in Sight to Apple Halo Effect

Given its strong growth, Apple is a less expensive stock today than it was two to four years ago, says RS Growth's Allison Thacker.

Ryan Leggio: Switching gears a little bit to maybe a different type of consumer, and that is the tech consumer, Apple, which is the largest holding in RS Growth, the large-cap fund you help run, has been in the news not just because of iPhone, but also the iPad.

And I read an interesting statistic, which I wanted to get your reaction on, and that was, within two months of the April 3 release, Apple sold 2 million iPads more than IDC expected for the entire tablet industry for all of 2010.

And I guess the question there for even large-growth companies, like an Apple, how hard is it to model in growth expectations for a firm when there is such a wide range of outcomes and really what does that do to the valuation and the 2-to-1 risk reward requirement that you require?

Allison Thacker: Well, I mean Apple has been a phenomenal success, and it's one of these relatively rare large-cap companies where they are a true innovator and secular grower. It's been amazing to watch Apple over the last five to seven years basically creating whole new categories, taking a static cell phone industry that was a walled garden environment where the carrier completely controlled your experience, and watching Apple through – appealing to the consumer basically to break the walls down, and effectively the cell phones are all moving towards an open platform. And I think the iPad is another great example of them coming up with a product, which was almost inconceivable 12 months ago.

I think people are still trying to figure out where does this product fit. Is it a notebook replacement, is it an entertainment device, is it going to be somewhat of where smartphones are headed? And I guess what the 2 million in sales number tells you is that consumers find this compelling and that maybe this is a whole new category. I think mostly we view this as likely to be an incremental device at this point. It's somewhat more entertainment-oriented. It certainly can't replace a business PC.

So, Apple has been a long-term holding in our fund. We started investing in it significantly with the start of the iPod. And our view had been, wow, Apple has launched a very innovative product at a low price point where they can get a lot of people to try it, and there will be knock-on benefits to their Mac sales. So their market share can go up within their core PC business, which has basically been exactly what's happened over time. And so, the very interesting thing is it's not only the 2 million iPads you sell, but it's the people you get interested in the iPhone and the MacBook and the desktops.

And so, we don't see any end in sight to the halo effect that Apple is generating off of this, and the iPad is definitely something we're watching. You mentioned we're based in San Francisco, and I do think that that's been one of the advantages, geographically being located close to all this innovation, because in addition to investing in Apple and the fund, across all of our funds we are able to find other investments which are benefiting from Apple's innovation as well maybe they sell products or services on the iPad.

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