Apple Stock Sinks as Profits and Products Are Questioned
nytimes.com
nytimes.com
Incidentally, I think this was a key reason Scott Forstall was let go. His slip ups on Siri and Maps (particularly) annoyed enough customers to the point where brand loyalty was damaged. See how much Jobs stressed the importance of the brand (http://www.youtube.com/watch?v=ugqcXqTEVMA).
This weakness is a great opportunity for other companies, but Microsoft seems to have fumbled a bit with Surface so far (judging by the reviews). Android manufacturers, as usual, release a dozen or so mediocre phones each year alongside their high quality flagship models, which doesn't do much to improve their image. "More wood behind fewer arrows" would certainly mean much stiffer competition for Apple.
Google is eating Apple's lunch as we speak.
Microsoft is about to take a bite of their pie as well.
Another big problem is - Apple hasn't invented anything in a while. They are riding the old wave, doing only incremental changes. Their OS is super stale and is sooo far behind Android.
They did increase the resolution of the tablets/phones, but they don't manufacture the screens, and so now everyone has high resolution displays.
From my perspective, Apple is done, unless they come up with something new and exciting. They understand it too. That's why we see lawsuits instead of innovation.
Also, your line about Apple not having invented anything makes it pretty obvious that you know next to nothing about Apple’s modus operandi during the last decade. Apple does something really new every five years or so and spends the rest of the time polishing (i.e. making incremental changes).
Apple was also always litigious. The lawsuits don’t have anything to do with anything.
At the moment Apple’s biggest problem is that they can’t make as many iPhone 5s as the market demands. They let massive amounts of money on the table. That’s a problem, however not one that usually indicates a company being doomed.
On another note, I admire how you avoided the (too) easy plays on words here around eating / taking a bite of the apple. "Google is eating Apple's lunch as we speak." "Microsoft is about to take a bite of their pie as well."
> Another big problem is - Apple hasn't invented
> anything in a while.
> Their OS is super stale and is sooo far behind Android.
> but they don't manufacture the screens,
> and so now everyone has high resolution displays.
> From my perspective, Apple is done
It's true that Android has caught up and has advantages in some key areas, but they are selling on such razor thin margins to compete with Apple and even with much cheaper prices it doesn't seem to be hurting Apple's sales much (more like extending into the feature-phone market). Windows tablets? Well, Windows 8 is not exactly lighting the world on fire yet, it remains to be seen what kind of traction Microsoft is going to get and how long they'll have to hammer away at it for an XBox-style success.
Despite Apple looking relatively more assailable, they continue to push an impressive product line forward. It's a lot harder to invent a blockbuster new product when have a suite of computing devices that already cover the range of use cases covered by Macs, iPhones and iPads. I don't understand what people expect from Apple.
Very few companies invent anything, they mostly work off existing concepts and bring them to market. Then make them better incrementally.
A company getting ultra-high resolution laptops out to consumers? That's exciting. That'll push the state of the art forward. Everyone seems to go "They've not made any changes in the iPhone for AGES! BORING!", but they've got a pretty diverse portfolio of products that get very strong refreshes cyclically.
I think there is a lot of truth in this argument, and you didn't persuade me otherwise. Many (perhaps most?) of Apple's customers buy their products for lifestyle reasons: because they're "cool" and its fashionable to have them. Such customers are often fickle and easily influenced, and the herd can move on to the next shiny thing very quickly. If Android became the fashionable choice then it would be just as vulnerable.
I'm not saying that all Apple users are fashion victims. Apple make some good products and deserve their success. If you're developing with ruby/java/etc and want a high build quality laptop running Unix then a mac is a good choice, for example, but that's not why most people buy macs.
I think that Apple's near future will look like the recent past of Nokia and RIM.
My view is that if you live within travelling distance of an Apple Store with a genius bar then the support is excellent. Otherwise, its not significantly better than Google's (poor) support, and adds little to the strength of their brand. Most people don't live near an Apple Store [1].
Those companies were rendered irrelevant by radically new products they couldn't compete with. I can't see that happening to Apple. Even if Android or Windows devices achieved quality and feature parity, or even pushed past Apple's devices, Apple still have oceans of room to compete on price to retain market share. That combined with their best-in-class supply chain management would keep them competitive for years to come.
So IMHO the worst case is they become just another device manufacturer in terms of profitability and their design and software chops contribute nothing to their ability to compete. That seems unlikely.
True for Nokia, but not RIM. There was nothing "radically new" about the original iPhone compared to the Blackberry devices that existed at the time. The iPhone is better designed and more attractive, but RIM had good hardware with a rudimentary app store and integrated services (messaging) long before Apple. Blackberry was the default choice for business, then for a while became the fashionable choice (the "crackberry" period). Then their non-business customers moved on to the next new thing. And the reasons for this have everything to do with fashion and popular culture, and nothing to do with quality or features (even though the iPhone is better in those respects).
I suspect that Nokia and RIM will hang on with a miserable future as "another device manufacturer", albeit owned by Microsoft or Facebook or $ChineseCorp. In that respect I think your worst case for Apple and my prediction about it amount to the same thing.
I'm pretty sure Google wants Google Maps and Google voice search on the iPhone. I'm pretty sure Apple said no, to retaliate against Google's work on Android. (Yes, there's no turn-by-turn, but that's in Apple's own app using Google data - a Google Map app would probably have the same features as Android). The only reason Google made Android is to have more people run Google Search, and Google Maps, and click on the little blue text ads.
Apple can compete with Android, as long as they don't block good apps. Having a good relationship with Google is a pretty good start. Lots of people will pay a 30% premium for an Apple desktop, despite Windows being the dominant platform. I'm pretty sure they'd pay a premium for an Apple phone / tablet, especially when iOS is the dominant mobile platform.
I can't see iOS remaining as dominant as the iPod was, but I don't see it being an also-ran like OSX.
I had to go to the Apple store today because my iPhone broke after only 5 months (hardware button stopped working). The customer service was pretty average, and I was told to sign myself up to book an appointment with a genius. The store was fairly empty, so I kinda expected the guy I was speaking to to do it for me.
I walked by all the new iPad minis, and iPhone 5s, and I'll admit, I picked up an iPad mini to see how it felt. But beyond that, I had zero interest in any of their products.
Now, if you had shown me a bunch of android devices, I doubt I would have been much more interested (I have a Sony Xperia S).
If you had shown me a Microsoft Surface or Nokia 920, I would probably be more interested.
Of course, I'm only one data point, but Apple had a combination of cool products and apparently customer service (never really experience that myself). If people aren't intrigued and excited about the products, and if everything becomes self-serve like the grocery checkout (how many of us are excited about those monstrosities?) that is where they'll loose.
It isn't about a fad, you've ALWAYS got to be improving your products, not just your bottom line.
It is of course possible that Apple can compensate with greater foreign sales to make up for any such drop, but if the only thing holding US M4 growth up (ie student loans) falls away I can't imagine that US imports of consumer goods will respond positively.
You could argue that Apple is really a levered investment on future consumer spending: if you're bullish about the world economy, you should be even more bullish on Apple & vice versa. This is the price of Apple's huge growth: if you're small, you can grow simply by being excellent. Once you're huge, macro effects start to dominate, no matter how good your products are.
I don't think Wall Street thinks (if any conglomeration of people like "Wall Street" has a single view of course!) that Apple products are a temporary fad, but rather than Apple's massive margins must be temporary. Apple has stunning margins on their products, and the history of technology is that huge margins don't last: eventually competitors come in and work out how to undercut you.
Now, Apple has historically managed to maintain it's huge margins because they not only had the best products that they could sell for a premium price, they also had the most efficient supply chain in existence: look at how no one else could even make a competitor to the iPad or the MacBook Air for years and make any money at the prices Apple was charging when Apple was making a 40% margin on them!
Regardless, the Street view is that 40% margins don't last forever, and the iPad mini is the first real sign of this. If you follow this line of thought, then the fact that Apple is trading at 10x today's earnings is irrelevant: if Apple have to cut their margins in half (which would still probably leave them with bigger margins than all their competitors!) then going forward that share price is 20x earnings (unless they can improve sales), which doesn't look so tempting.
Of course, the Street is often wrong & Apple may maintain their margins & sales, in which case you should load up on Apple stock right now, because it's obviously significantly undervalued! Choose your poison :)
1. Apple cannot compete with their current strategy outside metropolitan areas - and that's most of the world. I'm in rural France at the moment. There is nowhere to buy anything Apple, expect the iPhone - I haven't seen a single Mac computer anywhere - in use or for sale. But you can't move in the supermarkets for Android tablets and PC laptops. And we're not talking 3rd world countries here.
2. Apple's rise has partly been caused by being ahead of the curve on technology, with a blockbuster launch every 4-5 years. iPod (storage, battery life), iPhone (touch screen, UI), iPad (touch screen). There is no evidence of a further blockbuster launch - I am not supportive of an Apple TV.
Coolness has a lifespan. People get bored. I'm bored of the iPhone now. It's viable for me to switch to Android and so I will do so at some point. I don't want to have the same phone for the next 50 years.
Apple is not in control of its manufacturing facilities. If we agree that Steve Jobs was right on a lot of things, then was he right to push for Apple to own and build its own factories?
Out of battery.
> There is no evidence of a further blockbuster launch
There's always room for improvement though. How about devices with no interface at all? Like devices that can read your mind or act on their own.
And this is where I think the fundamental problem of Apple lies. Autonomous devices require a revolution in hardware and algorithms, not just merely building on top of other people's work ... Apple's revolution until now has been nothing more than mere evolution.
Case in point: Google works on cars that can drive by themselves and on smart glasses. Apple doesn't work on anything similar, never did and anybody paying attention knew that Siri is going to be worse than the speech recognition that comes with Android.
I live in one of the largest cities in the world, surrounded by Apple and other electronics stores. Yet I still buy things online. I cannot see your point. Brand awareness doesn't come just from b&m presence
Not sure who you are getting your mobile with, but they are the big ones in France.
Zaky does a reasonable job summarizing (http://bullishcross.com/2012/10/apple-1000-why-its-time-to-b...), but the essential point is that 160-180 million iPhones next year (conservative estimate) means $66 eps/share, which with a 15 P/E is $990.
Even if you believe the unbelievably conservative P/E of 10 is appropriate (here's why that's nuts http://www.asymco.com/2012/10/12/what-is-apples-realized-pe-...), you're still making a tidy 18% return over the next year. And if you believe there is any growth coming beyond the next fiscal year...
At the end of the day, consumers will benefit from global tax competition ... as long as they stay healthy and young.
So the cash only retains it's "full" value if the company can profitably invest it outside the US: if you think growth via R+D has peaked, then it's significantly less valuable! So how you choose to value the cash on hand depends very much on what you believe the future growth prospects of these companies via R+D or capital investment outside the US to be.
When you think about the world's most valuable company doubling profit year after year and your return on investment you shouldn't accept a mere 12, you should go for the gold with FB's 190, I mean they'd have to 10x their profit just to get to a PE of 19.
Dumping a stock with a PE of 12.63 on track to double profits because it slid 3.8% is kind of advice you get from expert traders like Jim Cramer, he was so successful at trading that NBC offered him a show and he took it. This guy knows his stuff!
The stock is seriously overvalued if Cramer announces a sell soon and everyone who reads this article dumps it you could be looking at a nice little Christmas present with AAPL at a PE of 9 or 10 just in time for tax loss selling.
Usually my sell-sense starts going off when I hear Jim Cramer and other bozos talking about how hot a stock is. With AAPL I don't think that will ever happen. Furthermore it has never moved in a sane way with respect to the P/E ratio. Totally confounding.
But I don't think that time is now. People will be buying their stuff hand over fist for Christmas and the stock is cheap. Incredibly cheap actually, considering a fifth of their market cap is cash.
On the fundamentals it's a very solid business for now. It's interesting to see them still fair well against Android even with ICS which put Google on par. This to me indicates that the smart phone market is much more about brand than features.
I think they've done a great job creating a moat via their brand in the same way that Coke did vis-a-via Pepsi.
If they can get people to put iDevices in stockings like Coke gets people to drink coke at Christmas then it doesn't matter that their rev isn't recurring, just like Coke. If the perception remains that Android is the knock off then I think they will do well.
After Jobs death, everyone was talking how the company isn't taking any hit from the market. While I was waiting to see two years forward in the future, wondering everyday whether it can come up with new product ideas like Jobs. If it had, then Apple's success was not dependent on Jobs. If it can't then Apple is the new Microsoft-after-Gates.
Right now Apple is increasingly looking like Microsoft.
They could shuffle on as-is for years and still be OK, unless you interest lies only in doubling your money.
Steve didn't have yearly "big things"
It would be healthy for them to stabilise and lower expectations.
Analysts might say Apple is on the wane, but they really don't seem to be at all. And for what it's worth, I can see iPhone/iPad sales staying consistent, because once you invest a reasonable sum into the ecosystem it's not like you're going to be able to walk away.
More importantly for AAPL though is the generational shift, I think. People in their 20s (just), 30s, 40s know about the Apple 'cool' factor but on a recent trip to SE Asia I would guess 60% or more of the teens were using non-iPhones. (And NB smartphone usage in this group in Singapore is probably 90%+). The newspapers had multiple full-page ads every day for Android phones (paid for by the telcos I guess). And needless to say the Androids are far cheaper than the iPhone.
Finally if the iPad mini is "good enough" for most people then it will cannabalise the full iPad sales.
I don't foresee another blockbuster product rollout though I'd love to be surprised.
I used to have some AAPL shares -- I sold at a tidy profit (though not at the peak) and now just observe from the sidelines and sleep better at night :)
I just wish they would improve the working practices in China, or at least pay higher wages and take a bit less in profit.
I can't speak for the rest of Asia, but judging by my extended family, the Apple craze in mainland China is still pretty ferocious. A combination of the materialistic culture and view of Apple as a luxury brand often leads to situations like [1] and [2] popping up in the news.
Of course, each country is different. Was it Indonesia where Blackberry had a 90% market share among the youth?
[1] http://www.chinasmack.com/2012/stories/chinese-freshman-girl... [2] http://www.dailymail.co.uk/news/article-2126172/Chinese-boy-...
> Finally if the iPad mini is "good enough" for most people then it will cannabalise the full iPad sales.
This was the same argument against the iPod mini. As Apple has stated before, they'd much rather cannibalize their own products than have a competitor do it.