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Horace Dediu has developed the fundamental insight into Apple's business model which I believe provides a framework for thinking about and valuing Apple's business that is both relevant to reality and accessible to the investment community:
Apple has actually done a very clever thing with the iPhone. It's made it into a service.
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Lately I have begun to wonder if a widespread and fundamental misunderstanding of Apple's business may be at work. I believe it has and is driving the market's conservative valuation of Apple. Jean-Louis Gassée recently summarized analysis by Horace Dediu:
Some folks can’t get past the “fact” that Apple needs hit products to survive because — unlike Amazon, as an example — it doesn’t own a lasting franchise.
This is certainly the view of many industry pundits and Wall Street analysts. If this view is shared by investors it would explain the discount in valuation. What might drive this view of Apple's business?
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