It Can’t All Be True
daringfireball.net
daringfireball.net
They were the world's most valuable company and they run it like a black box. They do a terrible job of communicating with shareholders. I think that has been responsible for some of the $300 billion in value Apple is missing these days (and the 9 pe ratio).
The market wants to know: what is Apple going to really do about competing with Android / Samsung / Kindle Fire / very low cost, high value smart phones and tablets.
Can Apple retain a healthy ecosystem (apps, music, media) with 5% of the global market? 10%?
Android has become a near monopoly in smart phones, squeezing Apple into an increasingly smaller corner of the market. The same thing is going to happen in tablets, if only due to price / selection alone. Eventually this compression will begin stealing value from the company and not just slowing down their growth rate. Most forecasts are pegging them to declining profits and drastically slowing sales. Is that crazy writing? No, it's a negative view on the company's prospects.
Citation needed, and sensationalist analysts don't count.
"The average earnings estimate among the pros this quarter is $10.01 per share, 19% below last year's $12.30. The indies are looking for $10.55 (down 14% year over year). The median EPS: $10.10 (down 18%)."
http://tech.fortune.cnn.com/2013/04/21/apple-earnings-revenu...
Android's market share is larger than the iPhone, but iPhone's market share is still growing(!), and it is still quite significant.
I think a lot of the negative sentiment comes from the fact that people think that the iPhone (as a platform) was number one at one point, and is now number two in market share. At the same time people think Android is one phone. Neither of these statements are true.
The best selling phones are still iPhones.
Android is not a single device or company but a highly competitive market by itself. It is really really hard to compete on that market, because you need something to stand out of the crowd. It is also really really hard to be innovative, because everyone has access to the latest version of Android OS, and in today's market, pretty much everybody has access to the underlying hardware. The only thing that matters is if you can squeeze your supply chain enough to get a large enough profit. This is where both Samsung and Apple have reputations of being very strong -- For different reasons.
In reality, most customers don't really care that much about megapixel count, number of CPU cores, memory, etc.
So as an Android phone-maker, the only place to really distinguish yourself is by custom "home-screens" and exterior design. Exterior design is difficult.
A couple of months ago Samsung was the only company profiting from Android phones. Apple still takes the majority (more than half) of the smartphone profit. I don't know if either of that has changed in the last quarter (we'll see).
But Android is not a monopoly it is a lot of different manufacturers fighting over around 50-70% of the market share with very similar products. Samsung has the majority of that market.
The currently only major alternative to Android, iPhone, on the other hand is made by one company.
Android is going to take 85%+ of the global smart phone market. There's absolutely nothing that can or will stop that from happening at this point. It's going to be the obnoxious standard that everybody is going to complain about for the next decade.
The iPhone's market share will stop growing this year. Android and the iPhone have squeezed out most of the serious competition, and now their market share lines are going to run head to head. Android will win that battle, and begin pushing the iPhone's market share backwards within four quarters.
Apple's approach was always going to guarantee it got boxed into a corner. It's a +/- to their approach that they can start new markets, and then lose them fairly quickly.
That's my opinion.
Lots of things don't need to be native apps, and aren't/won't be. There isn't as much downside to picking the minority OS anymore.
This is further strengthened by the fact that Apple's hardware is expensive, and people targeting spenders will still (and, imho, always will) do iOS first (and sometimes only). Fred Wilson's famous android-first-because-it-has-the-most-marketshare advice only makes sense if you're a Facebook or a WhatsApp and raw triple-digit millions of users matter to you. If you're e.g. Uber, you don't give two fucks about four fucks for the people buying the inevitable $39 Android tablets of the future. _Which_ users matter a lot more to the vast majority of app devs than _how many_ users.
That said, I think Apple will eventually be found to retain _at least_ 25% of the final size of the market— and the top 25% at that.
I would argue that Apple will lose upwards of half that position in the next two years. China alone will hammer them on market share, as Android will completely dominate the domestic Chinese market via cheap smart phones (particularly as the Chinese are heavily promoting their own vendors).
I think it'll be 80% to 85% Android, 8% to 12% iOS, with most of the remaining going to Windows and Blackberry (if Blackberry survives).
The history of technology markets consolidating toward a single standard (usually in the 65% to 85% market share range), leads me to believe that given the scale + momentum + competitive advantages that Android has, it's likely to creep toward that 80% quasi-monopoly line, and very soon.
China will eventually overtake the US as Apple's largest market, everyone knows this; Cook admitted it, and it wasn't controversial when he said it.
Somehow, the answer is obvious to me. Continue making superior products. Apple creates expensive better desktops and laptops than Win/Linux/Lenovo/Samsung that do it at very low cost. That's how it won that market. That's how it's going to win smartphones/tablets. I switched from iPhone4s to Galaxt S3. Can't wait to switch back. If I can compare the experience to anything it would have to be akin to switching from Mac OS X back to Windows Vista/7/8/whatever. After 4 years of using iPhone I wanted a change. Now I just want a smartphone that doesn't suck. And it's not only me. People will keep buying BMWs even though there are cheap/better alternatives like Toyota. Once you got spoiled by BMW handling or iPhone user interface, you won't simply go back. Unless you're tired of buying product from the same brand all the time, so you will switch, get disappointed (like me!) and then switch back again. Look at S4 sales and reviews. People just wanted the change and Samsung did a great job with marketing S3 and got lucky with timing too. At that point last year people were just tired of iPhone, they wanted something new. They got it. They discovered it sucks. And big news for you - they will go back to Apple. There is now way in the world I'm going to purchase an Android device in the near future. And there is no way I'm going back to Toyota.
But how much market is that? 5% won't facilitate the network scale they need to encourage developers to focus on their app ecosystem. And as the iPod sales continue to evaporate, Apple will lose its music dominance to the smart phone market (which would remove another key moat in their overall ecosystem).
The question in my opinion is, how much of the smart phone market can Apple retain. If it's 5%, they're screwed. If it's 15%, I think that would work.
Again BMW is more profitable than Toyota. And Porsche is more profitable than BMW. Porsche makes on average $20k on each and every car sake they make in Europe. GM in Europe has a loss of nearly $2k on each car they sell. You tell me GM business model is somehow better? S3 is a commodity compared to iPhone and that's Samsung's problem not Apple's.
"Google-Oracle trial: Android revenues revealed"
http://www.guardian.co.uk/technology/2012/apr/26/google-docu...
"..after the costs of sales, marketing, engineering, product management and legal expenses were taken into account, the overall Android division was not expected to become profitable until 2011, by which time it was forecast to generate nearly $500m in adverts."
"Apple's iTunes & accessory sales now greater than every other phone vendor but Samsung"
http://appleinsider.com/articles/13/02/11/apples-itunes-acce...
http://appleinsider.com/articles/13/01/28/apple-now-collecti...
"...For all of fiscal 2011, Apple is now noting that it actually collected...$4.47 billion from accessory sales. "
Microsoft earns a lot more selling Windows and Windows server and surrounding products than all of the Linux vendors make supporting Linux combined (Redhat makes a mere $100m a year in profit for example).
Does that inherently imply anything about Linux? No.
What you're talking about is today (regarding Apple's profits). What I'm interested in is the trend of Android taking most of the market and what that'll mean in five years for Apple and the Android vendors. What it'll mean is: much like PC sales, Android sales will be dominated by 2 or 3 primary companies, with dozens of other vendors attempting to compete.
My opinion is that Apple is about to get hammered as the iPhone's market share collides with Android and loses. I believe within eight quarters their profit will fall from $40x billion to $25 billion annually, and they'll lose 1/3 of their existing market share while margins also keep falling.
> "I would wager that within two years..."
> "My opinion is that Apple is about to get hammered..."
From elsewhere on this post:
> "Android is going to take 85%+ of the global smart phone market..."
> "The iPhone's market share will stop growing this year..."
> "I don't think it will hold up..."
I like that you are so confident about the future and I'm quite interested to know how you make these predictions?
I have a particular talent for spotting negative positions in stocks and trends in general. I'm not trying to prove that I do, take my word for whatever it's worth to you. In equities I've derived it from the Graham-Dodd-Buffett approach. I've found it exceptionally easy to spot when to short stocks by reversing the Graham Dodd approach (it works for spotting undervalued equities, and it works equally for spotting overvalued equities, I just happen to be good at that side of it).
On the technology side, if you understand Apple's business model, and you understand how technology markets work toward consolidation around standards, and then you apply the context of what Android is and its vendors / support / ecosystem (and whether it's of high enough quality to be good enough for that 80% to 90% of consumers, to rule ala Windows) - the rest is obvious, it lays out a momentum line that can't be stopped.
There are exceptionally painful consequences to Apple losing market share that very few are pricing into things. The mistake I see often is linear thinking on market share to profits; eg if Apple is making $30 billion on 20% market share, said people then think Apple could make $15 billion on 10% market share (when in fact there are numerous destructive penalties for falling below thresholds in the market, regarding developers / apps, music, media, consumer perception, negotiating position with suppliers, stock price falling and losing key employees and on and on).
So, can you give us links to some of your predictions 3 years ago in order to assess your accuracy?
http://arstechnica.com/apple/2012/08/apple-lifts-curtain-on-...
"Samsung, by comparison, revealed that it has sold 21.25 million smartphones in the US between June 2010 and June 2012, along with 1.4 million tablets. (Keep in mind that the smartphone number only included devices at issue in the trial, not Samsung's full lineup.) But even when you only look at Apple's data from those same quarters, the differences are stark—the company sold almost 63 million iPhones, 34 million iPads, and 25.3 million iPod touches during the same period. Even the weakest link of the iOS family—the iPod touch—is selling faster than a large chunk of Samsung's portfolio."
"Looks Like Samsung Pretty Much Lied About US Sales To The Public" http://www.macgasm.net/2012/08/10/looks-like-samsung-pretty-...
"Confidential Apple, Samsung sales figures outed in court filing" http://www.zdnet.com/confidential-apple-samsung-sales-figure...
iPhone market share is relatively stable; Android gains are mainly at the expensive of RIM/Microsoft.
> I believe within eight quarters their profit will fall from $40x billion to $25 billion annually, and they'll lose 1/3 of their existing market share while margins also keep falling.
Do you have any facts to support your opinion? Or is it just a gut feeling you have? Apple isn't going to stand still for 8 quarters. I just bought an iPad Mini for the wife yesterday, the Apple store was very crowded as usual doing $1m+ in sales a day. Its amazing how people make these predictions and always forget about China.
http://techland.time.com/2013/04/16/ios-vs-android/
The Time says it best.
So who is winning — iOS or Android? Android if you’re talking about market share; iOS if you mean financial success. So far, this is a strikingly different market than the PC business back in the 1990s, when market share translated directly into financial success.
Repeating myself again.
Don't compare the smart phone market with the PC market. The PC market is completely different... any analogy here does not rest on sound financial first principles. Market share by number of units has not translated to market share by profit. The former is useless.
Does the profit machine hold so well if you have a declining market share? (in which case there are dramatic follow-on consequences in pricing power with suppliers, margins in dealing with carriers, in app ecosystems, you name it).
I don't think it will hold up. I believe there's very likely a market share line in the sand, that if Apple gets pushed below it, there will be terrible profit consequences.
Apple can probably be a great company with just 20% of the international market and 40% of the US market (also, they are gaining % in the US which is sort of an indicator for how the world would behave in the near future).
Does the profit machine hold so well if you have a declining market share?
Yes. All that matters directly is $ not how many units you sell. As a business it all comes down to $ and whether you can keep it flowing. They have kept it flowing with a reduced market share by units. Also, shouldn't the system have collapsed long ago when Android overtook iOS quite a while back? Care to explain why it will fall? As a developer, I will always develop apps for the platform with the most number of paying customers who appreciate quality.
Consumers with $ will always go towards the best product. The hackers will go towards the best platform.
*I don't think it will hold up. I believe there's very likely a market share line in the sand, that if Apple gets pushed below it, there will be terrible profit consequences.(
Instead of giving poetic descriptions, please give us solid reasoning from financial first principles.
I am convinced that you just want to see Apple fail and have no solid argument. I would be interested in one if you have it. It is not all flowery for Apple, but claiming "terrible profit consequences" is just FUDish IMHO.
The profit machine does not hold if you lose market share.
There are penalties in economics for falling below lines in market share, and they accelerate destructively the lower you go. It's not a linear calculation, it's a compounding one.
Apple can't negotiate the same way with telecom companies for the hyper rich subsidies if they're not as relevant in the market. They can't negotiate as tremendous of supplier deals if they aren't selling as many units. They can't keep developer interest if the scale isn't high enough. Their music network loses its moat effect if they're not the #1 music platform because Android overtakes it via streaming services or otherwise.
I could list one or two dozen other powerful follow-on effects to Apple losing market share in smart phones. It's a very costly situation indeed.
By your reasoning, Mercedes-Benz is in a bad position compared with GM. We all know that is not the case as they are in different segment of the market, just like Apple.
In other words, not enough information in either snippet on DF.
In this specific case, yes... but stepping back, isn't this just as likely to be different 'journalists' doing the same non-Apple-specific thing -- skewing their reporting to suit either their assumptions or biases -- as it is to have anything at all to do with Apple?
It's like asking a single potato farmer to predict how well Utz potato chips will sell this summer.
The raw facts are rarely exciting enough, and therefore journalists always put a spin on it. Which way, doesn't matter. But a journalist can be depended upon to have somehow spun it to be more exciting. (All the while pretending to be neutral.)
I wasn't implying otherwise. The point I was trying to make is that, although Apple undoubtedly know more than any journalist looking to spin a yarn, it doesn't mean that public statements by their representatives share any of that insight.
Seriously, journalists and analysts have been jumping on these kind of reports for years, claiming that they prove Apple is "losing their lustre" in whatever market, and most of the time Apple have reported record profits for that quarter... Traders seem to be taken in by them hook, line and sinker but I'd take it with a grain of salt...
Reporting stock sensitive information (like "sales are up") should also be done via a formal press release.
I think he did the right thing; He tried to dismiss all current and future rumors with one statement.
TC may not seem like the most convincing speaker, but he is not stupid, and he is a brave man for walking in Jobs' shoes, firing Scott Forstall (father of iOS), apologizing for the Apple Map issues etc. I wouldn't change places with him.
Right now the investors are trying to figure out if some of his risky actions are generally smart or stupid... That's why the stock is down. Risk!