The Apple DeathStar: How the Rise of Apple Has Created a Bull Market in Declining Companies

My first cell phone was a Motorola StarTAC. An early flip-phone (and now geek chic on Ebay), the StarTAC is long gone, and so, suddenly, is Motorola, with more companies to follow.

What happened? What happened is Apple's DeathStar.

To understand why, it helps to take a quick look at Apple's numbers. Since launching its iPhone in 2007 Apple has grown sales 413 percent. That is astonishing for any company, but it is unprecedented for a company Apple's size. It is now $108-billion in annual sales, up from $24-billion in 2007.

Let's put that in context. In four years, Apple has added $84-billion in revenues, mostly from iPad and iPhone. That is the equivalent to growing one new Procter & Gamble in four years. Or almost an entire Sony.

Apple's IOS revenues (iPhone, iPad, etc.) are now larger than all of Microsoft's products combined. Is it any wonder that the markets now value Apple more than Microsoft, like $150-billion more? And recall: Apple only passed Microsoft in market value in March of last year.

All of that money has to come from somewhere. Sure, consumers can spend more, or even take on debt. But remind yourself of the period when all this hyper-growth occurred: Apple did it during the worst economic downturn since the Great Depression. It grew when the economy was shrinking, when consumers were pulling back and people were generally feeling terrible about new spending. That is, in a word, astonishing.

But let's get back to that $84-billion figure. It had to come from somewhere, and it couldn't have come from consumers simply spending more, in part for the reason I just described -- the economy was dreadful.

So where did it come from? It came from other companies, of course. Apple gutted a host of firms, all of which were reliant on the same customers. Which companies? They include well-known ones like Research in Motion, maker of the Blackberry products, and others, like Nokia, Motorola and Palm. It happened so fast it mustn't have seemed real, like watching the ocean go from ten feet deep to receding beyond the horizon in a few minutes flat.

That sort of thing with tides usually precedes a tsunami. And that is more or less what has happened in technology markets. For example, after being a darling of investors for a decade, Research in Motion has seen its stock fall by more than half in the last year. And it continues to tumble. And others have disappeared entirely, like Palm, which is bust, and Motorola Mobility which was dumpster-dived for its patents by Google.

The comparison is most stark when you bring Apple back into the mix. So far this year Apple's stock is up 25 percent, which is highly impressive, doubly so when you consider that the S&P 500 is only a little better than flat for the year. But a basket of the companies that Apple is gutting has outdone Apple to the down side, with the gutted group off more like 45 percent. Not to get all trader-y, but you could have made more money in 2011 shorting the companies Apple was hurting than being long on Apple. That is ... remarkable.

I call this the Apple Deathstar. Like its Star Wars counterpart, Apple has created a kind of interplanetary weapon that has the capacity to quickly raze entire planets, or at least entire companies.

Young companies constantly forget this. While it's nice to imagine creating whole new markets, most new markets come from old markets. The money has to come from somewhere. It is why one of the most compelling pitches I can hear -- venture capitalist hat on -- is how some hot young company is going to grow by shrinking another market. That's the way it works, not money from off-planet.

With Apple founder Steve Jobs no longer with us, leaving predecessors at the helm of his Apple Deathstar, we should all be asking where it will turn its sights next. The new Steve Jobs biography gives us a pretty good idea. In it, author Walter Isaacson says that Jobs told him he had finally "cracked" television. That is almost certainly Apple's next target, another multi-billion dollar market populated by companies that are almost certainly set to shrink in the coming years. It will be fun to watch.