AAPL - Apple Inc.

[txlaw]

 

I'm basing this on:

-Business theory from the likes of people like Clayton Christensen

 

Here is how the 'commoditization' theory has worked out in another consumer electronics market:

 

http://news.investors.com/technology/070913-662970-us-consumers-buying-bigger-tv-sets.htm?ven=yahoocp,yahoo

 

 

In theory, theory and practice are the same. In practice, they are not. -- AlbertEinstein

 

TVs are a fantastic example of a commodity electronics market. 

 

The only way that manufacturers will be able to combat deflation there is by giving people a lot more value (i.e., bigger screen and resolution) per dollar. 

 

And sales are rapidly slowing because TVs have become "good enough."  You get your nice TV, and then your next purchases for a while are the things you attach to it -- Apple TV, PS4, Xbox One.  Unless of course we start to see manufacturers incorporating those devices into the actual sets.

[Viking]

wellmont, when looking at Apple's profitability, we all know that iphone is the key driver. Within iphone, the US is Apple's largest market by far. If you own Apple shares you will want to follow Apple's US smartphone share closely due to the impact it has on total profits every quarter. Reporting these stats is not being an Apple 'fanboy'.

 

Research firm Kantar Worldpanel released on Monday a report on U.S. smartphone share over the March-May period. Apple's share of the market rose by 3.5 percentage points compared to the prior-year period. What drove Apple's growth? An increase in distribution. The report attributes Apple's growth to the iPhone becoming available on T-Mobile USA, the last of the four major U.S. carriers to begin offering the device.

http://www.macrumors.com/2013/07/08/iphone-tops-t-mobile-usas-smartphone-sales-as-carrier-expansion-drives-growth-for-apple/

 

I am very surprised that even with all the recent new launches (HTC, Blackberry & Samsung) that Apple has been able to GROW share. This report shows the important of distribution (even though T-Mobile is the smallest of the big 4).

 

Yes, Apple does not have the same share internationally that it has in the US. What is one reason (there are many)? Distribution. To improve international sales Apple needs to get a distribution deal with China Mobile and Docomo the dominant carriers in China and Japan. I am hopeful that should Apple launch a cheaper smartphone in Sept/Oct that it is announced along with an agreement with China Mobile.

[Viking]

Richardgibbons, I also read the report you linked. Unfortunately, it is hard to understand what to take away from reports such as these as they are simple one persons opinion with no sounce material supplied to back up the guesses. Rather than a 'data point', these reports look more like a WAG (wild ass guess).

[fareastwarriors]

http://www.bloomberg.com/news/2013-07-10/verizon-seen-owing-apple-up-to-14-billion-for-iphones.html

 

 

 

Verizon Seen Owing Apple Up to $14 Billion for IPhones

 

[CorpRaider]

Yeah, here's another WAG:  Thanks to Samsung's S4 launch campaign mocking the older couple prefering iphone, retirees are now starting to give up their jitterbugs and rotary phones in droves, thus ensuring AAPL dominance in the fastest growing age group in the U.S.  Talk about a bad advertising campaign...

[Guest valueInv]

when the Apple fan talks about USA market share, they conviently ignore probably over 66% of what's really going on. But invariably, you can't get an apple fan boi to talk about anything but the USA market, where Apple has the strongest position. over 50% of smartphones sold in USA are Android. And that's not changing anytime soon.  Granted Apple has gotten a tiny bump from t-mobile, which just began to sell the iphone. But that has hardly made a dent in the aggregate numbers. But here's the important thing to remember. Android is simply dominating IOS outside of N/A, and holding it's own just fine in N/A. :)

 

1, Txlaw was the one who is bringing up US centric data points. I am responding to them.

2, Apple's marketshare has been steadily increasing in the US, not just in the last quarter. Yes, that has been because of increased distribution and segmentation. If you have bothered to read the thread, that has been my point.

3, Apple has also increased marketshare in Japan and India. Stay tuned on Brazil.

4, How about we talk about your comments on Apple's capital allocation instead? ;)

 

BTW, the difference in marketshare in different geographies supports the point I am making about segmentation. Unlike the US, other countries either don't have high phone subsidies or have large lower income segments.

[Guest valueInv]

-Business theory from the likes of people like Clayton Christensen

who ,of course, has a great track record on predicting the iPhone in the first place.

 

Come on.  Don't pretend like you haven't quoted from Christensen extensively when talking about how people in "the Valley" know all about the disruptive innovation model, whereas most value investors do not. 

 

I guess when the theory suits your views on AAPL, it's all good.  Otherwise, not so much.

 

The difference is I know what it means ;)

 

I understand that it is one among many forces driving markets and that it is a theory that is not applicable in every situation. Disruption is not the only factor in situations and there are many ways to circumvent it. The people who circumvent it use other forces to suppress disruption.

 

Why don't we talk about how commoditization is effecting Dell's server business and RIMs messaging and MDM business?

[Guest valueInv]

 

I'm basing this on:

-Business theory from the likes of people like Clayton Christensen

 

Here is how the 'commoditization' theory has worked out in another consumer electronics market:

 

http://news.investors.com/technology/070913-662970-us-consumers-buying-bigger-tv-sets.htm?ven=yahoocp,yahoo

 

 

In theory, theory and practice are the same. In practice, they are not. -- AlbertEinstein

 

TVs are a fantastic example of a commodity electronics market. 

 

The only way that manufacturers will be able to combat deflation there is by giving people a lot more value (i.e., bigger screen and resolution) per dollar. 

 

And sales are rapidly slowing because TVs have become "good enough."  You get your nice TV, and then your next purchases for a while are the things you attach to it -- Apple TV, PS4, Xbox One.  Unless of course we start to see manufacturers incorporating those devices into the actual sets.

 

Oh, I get it. This is "NOC services" all over again - you're using words without understanding the true meaning. 

 

Commoditization happens when products are fungible- i.e. you can't tell the difference between products. It is the very opposite of segmentation where the products are differentiated. Eg. cars are not commoditized because a BWM is well differentiated from Toyota and they play in different segments. A drop of oil and a grain of wheat are commoditized because you can't tell the difference between drops and gains.

 

Prices in commoditized markets are dictated by supply and demand - not value, not features. So the very fact that vendors are getting people to pay more for TV sets which changing supply shows that it is neither commoditized nor disrupted.

 

If TVs are good enough, people won't be paying higher prices for new features.

 

You sure like to confuse concepts, don't you?

[Guest valueInv]

BTW, here is an example of commoditization:

 

http://venturebeat.com/2013/07/10/amazon-cuts-cloud-prices-up-to-80-your-move-google-microsoft/

[txlaw]

Oh, I get it. This is "NOC services" all over again - you're using words without understanding the true meaning. 

 

Commoditization happens when products are fungible- i.e. you can't tell the difference between products. It is the very opposite of segmentation where the products are differentiated. Eg. cars are not commoditized because a BWM is well differentiated from Toyota and they play in different segments. A drop of oil and a grain of wheat are commoditized because you can't tell the difference between drops and gains.

 

Prices in commoditized markets are dictated by supply and demand - not value, not features. So the very fact that vendors are getting people to pay more for TV sets which changing supply shows that it is neither commoditized nor disrupted.

 

If TVs are good enough, people won't be paying higher prices for new features.

 

You sure like to confuse concepts, don't you?

 

Oh, lord -- don't start flaming me again, please.  You were wrong on the NOC Services debate, and you're wrong here with the TV market, and now you're going to start with the insults again, huh?

 

TVs are commodity products -- i.e., on the "pure commodity" to "highly differentiated product" spectrum, they are very close to the pure commodity end.  There are very few differentiating factors between one supplier's TV and another's.

 

The higher average selling price you are referring to is a higher price paid for bigger screens.  In fact, the article you linked to specifically is titled, "TV Prices Edge Up In U.S. Due To Bigger Screens."  So we're not talking about differentiating features here.  What we're seeing is that the price of TVs have come down so rapidly that people who are in the market for purchasing a flat screen TV are going with bigger screen products.  In fact, the average size of TVs has been going up over time. 

 

People have been buying bigger and bigger refrigerators over time.  That doesn't mean they aren't commodity appliances. 

 

I think you're the one who is confused here.

[VAL9000]

Prices in commoditized markets are dictated by supply and demand - not value, not features. So the very fact that vendors are getting people to pay more for TV sets which changing supply shows that it is neither commoditized nor disrupted.

 

In short, TVs are not commoditized products because bigger TVs cost more?

 

LOL - this thread consistently delivers the goods.

 

[VAL9000]

this is one of areas where the "evidence" cited can be construed to justify opposing positions. i would say the entire reason for people buying cases is because people want to protect their beautiful phones. to which you'll reply with some credible sounding counter-argument im sure. we'll just have to agree to disagree. time will tell who's right.

 

i disagree on the s3 design as well; i think it looks great. 

 

I can definitely respect not wanting to blow out this debate.  It's a tough one to pin down because there is so little data available.  I will offer my counter-theory though: I agree that people buy those cases to protect their phones from being damaged..  but I think it's because phones are expensive and they are concerned about the cost of replacement and the cost of resale.  The cases that consumers then choose gives considerable insight into how highly rated design really is.

 

My arguments aren't just meant to be credible sounding.  They're meant to be credible and sound.

 

[Guest valueInv]

 

Oh, lord -- don't start flaming me again, please.  You were wrong on the NOC Services debate, and you're wrong here with the TV market, and now you're going to start with the insults again, huh?

 

Yes, RIMs financials are certainly proving me wrong. Oh wait, never mind.

 

TVs are commodity products -- i.e., on the "pure commodity" to "highly differentiated product" spectrum, they are very close to the pure commodity end.  There are very few differentiating factors between one supplier's TV and another's.

 

 

The higher average selling price you are referring to is a higher price paid for bigger screens.  In fact, the article you linked to specifically is titled, "TV Prices Edge Up In U.S. Due To Bigger Screens."  So we're not talking about differentiating features here.  What we're seeing is that the price of TVs have come down so rapidly that people who are in the market for purchasing a flat screen TV are going with bigger screen products.  In fact, the average size of TVs has been going up over time. 

 

People have been buying bigger and bigger refrigerators over time.  That doesn't mean they aren't commodity appliances. 

 

I think you're the one who is confused here.

 

What happened in The Innovators Dilemma when vendors kept producing hard drives with greater capacity? Did customers keep spending more money on hard drives? If TVs are 'good enough' why are customers buying more expensive TVs?

 

I guess By your reasoning BMWs are commoditized because customers get more value for their money ie a better driving driving experience. Just like a more expensive TV provides a better viewing experience.

[Guest valueInv]

Prices in commoditized markets are dictated by supply and demand - not value, not features. So the very fact that vendors are getting people to pay more for TV sets which changing supply shows that it is neither commoditized nor disrupted.

 

In short, TVs are not commoditized products because bigger TVs cost more?

 

LOL - this thread consistently delivers the goods.

 

Yes, like that guy who try to validate Google's lack of strategy by showing VCs 'superior' 4.5% returns. ;)

 

Read the disk drive case study in the Innovators Dilemma. Commoditization is not accompanied by rising prices.

[VAL9000]

Yes, like that guy who try to validate Google's lack of strategy by showing VCs 'superior' 4.5% returns. ;)

 

:)

 

You've said that twice now, but it never happened:

 

On the theory that VCs/angels "throw crap at the wall to see what sticks":

 

http://techcrunch.com/2013/03/26/paul-graham-picky/

 

Like I said, don't assume.

 

PG and YC are exceptional.  Plus this is PGs book - of course he's not going to run down his most recent crop of investments. 

 

Here is some real data on the subject, showing that throwing crap at a wall might be a better approach:

http://www.avc.com/a_vc/2013/02/venture-capital-returns.html

[RichardGibbons]

Richardgibbons, I also read the report you linked. Unfortunately, it is hard to understand what to take away from reports such as these as they are simple one persons opinion with no sounce material supplied to back up the guesses. Rather than a 'data point', these reports look more like a WAG (wild ass guess).

 

Yeah, I mostly agree Viking.  It's difficult to understand how credible the statements are without understanding the source.  I'd weight it a bit more than a WAG, because someone is staking their reputation on making a public statement, and they may be in a position to triangulate Apple's production using information from supplier data.  But I'd definitely weight it less than hard data.

 

So to me, it just shifts the probabilities a bit.

[Viking]

RG, it looks to me like the high end smartphone market is slowing. Stickiness of ecosystem and loyalty of existing customers will become more important factors moving forward for companies to continue to show growth in the high end segment. The data points to Apple customers being the most loyal (likely to purchase another smartphone from Apple). Perhaps this is another reason their marketshare is actually increasing up in the US when it makes sense it should likely fall a bit (given the competitive launches and age of the iphone5).

 

When Apple releases results July 23 all eyes will be watching their forecast for July-Sept. If it comes in low the bears are going to feast. I am not sure to what degree they include unannounced innovation in their forecast (i.e. iphone 5S and budget iphone).

[Guest valueInv]

Yes, like that guy who try to validate Google's lack of strategy by showing VCs 'superior' 4.5% returns. ;)

 

:)

 

You've said that twice now, but it never happened:

 

On the theory that VCs/angels "throw crap at the wall to see what sticks":

 

http://techcrunch.com/2013/03/26/paul-graham-picky/

 

Like I said, don't assume.

 

PG and YC are exceptional.  Plus this is PGs book - of course he's not going to run down his most recent crop of investments. 

 

Here is some real data on the subject, showing that throwing crap at a wall might be a better approach:

http://www.avc.com/a_vc/2013/02/venture-capital-returns.html

 

My bad. It was 3.9% not 4.5%.

[Parsad]

You guys, can you keep the sniping down on this thread!  I'm getting complaints about how useless the AAPL thread is becoming because of all of the pot shots people are taking.  Cheers!

[Kraven]

You guys, can you keep the sniping down on this thread!  I'm getting complaints about how useless the AAPL thread is becoming because of all of the pot shots people are taking.  Cheers!

 

There's an AAPL thread?  Damn, who knew?  I had no idea.  Now, if there could only be a Blackberry thread too my life would be complete.

[CorpRaider]

Yeah, I kind of want to buy some AAPL, but I'm using a lack of posts on this thread as a contrarian indicator/buy signal. So, ya' know...

[Guest wellmont]

apple appears to have violated antitrust laws by colluding with publishers...perhaps this idea was "Designed in California?" ;)

 

http://www.nytimes.com/2013/07/11/technology/judge-rules-against-apple-in-e-books-trial.html?_r=0

[Viking]

Wellmont, I agree that this ruling certainly does not reflect well on Apple. Looks like their legal department gave them some pretty poor advice (they should have settled and swept the whole thing under the carpet like the publishers); regardless, it looks like pretty poor judgement on the part of senior management due to the reputational damage the trial is inflicting.

 

Daring Fireball linked to the following excellent summary "Explaining the Apple Ebook Price Fixing Suit": http://tidbits.com/article/13912

[Guest wellmont]

Wellmont, I agree that this ruling certainly does not reflect well on Apple. Looks like their legal department gave them some pretty poor advice (they should have settled and swept the whole thing under the carpet like the publishers); regardless, it looks like pretty poor judgement on the part of senior management due to the reputational damage the trial is inflicting.

 

Daring Fireball linked to the following excellent summary "Explaining the Apple Ebook Price Fixing Suit": http://tidbits.com/article/13912

 

agreed. they did not need to push the limits like this. But some people just can't help themselves.

[Guest valueInv]

Wise words:

 

http://mattgemmell.com/2013/07/15/constraints/