AAPL - Apple Inc.

[LC]

 

-How can a company be a 'luxury item' without having a competitive advantage?

 

 

High quality does not equal competitive advantage.

 

Now, having a culture or infrastructure which allows your company to consistently offer the highest-quality product in a market is a competitive advantage. Whether that be a corporate culture which attracts the brightest employees, or patents on certain processes/machinery, or the best sourcing of materials, or something else.

[Guest valueInv]

 

-How can a company be a 'luxury item' without having a competitive advantage?

 

 

High quality does not equal competitive advantage.

 

Now, having a culture or infrastructure which allows your company to consistently offer the highest-quality product in a market is a competitive advantage. Whether that be a corporate culture which attracts the brightest employees, or patents on certain processes/machinery, or the best sourcing of materials, or something else.

 

I'll tell you one thing, not having dumbasses working in your marketing dept. is a huge competitive advantage:

 

http://www.bgr.com/2012/09/18/samsung-iphone-5-ad-facebook-galaxy-s-iii/

 

;D ;D ;D

[Liberty]

http://www.engadget.com/2012/09/18/apple-iphone-5-review/

[Guest valueInv]

I don't agree with some of the points in your long post, but I think the above two stick out in particular:

 

1. If you are going to imply that operators have such great power to set renewal cycles and such, you won't like it to hear that now operators are telling their sales staff to persuade customers away from purchasing the iphone. 

 

 

I have heard. And how is that working? Last quarter was slow for the iPhone due to leaks and iPhone 5 anticipation. Gokou3, could you tell me what % of smartphone sales were iPhone at the 3 large operators it was available at (Sprint, Verizon, ATT)?

 

This is what I mean by no facts.

 

I wouldn't be surprised if US operators start offering 18-month contracts on android phones.

So the operators must now amortize the subsidy over 18 months instead of 24 months. Does that work in their favor? What does it do to their churn numbers? How does it effect their customer acquisition costs?

 

2.  How is a low R&D expense % a good thing?  If they increase their R&D budget, perhaps they could have gotten out the iphone 5 last year and maintained the technology lead. 

Have you considered that they are spending less because they are more efficient? By having small teams, they are more nimble? Do you think that the best R&D comes from big bureaucratic organizations? Have you ever shipped a product? A bigger team does not necessarily help you ship faster. Read the "Mythical Man Month":

http://en.wikipedia.org/wiki/The_Mythical_Man-Month

 

I mentioned the R&D expense to show that even if it doubled, it's unlikely to effect margins, especially will the rates volumes are growing.

That is a good thing.

 

Btw, I read about the iphone 5 sales-doubling news.  This is really another example of "reality distortion field".  Not accusing the number is wrong, but it's manipulated to sound impressive -- I must admit Apple marketing is a genius at that.  There are a few contributing factors for the initial sales jump (over 4S): 1) Better and more distribution points this year.  New provider Sprint, and ability to online pre-order through carriers (in Canada; not sure about US). 2) First day availability in more countries, notably Hong Kong which is a proxy to the China market.  You can say, double is double.  True, but I maintain that this initial doubling of sales does not give an indication of its sales going forward.  In fact, it may be an indication of *some* sales drawn forward.

Really? Pop over to Apple site and see what the shipping delays are. They've already sold out about a months worth of production before they have even physically released the phone. I'm guessing you are going to rationalize this by saying that this month is drawing from next month's sales. I'm fine with that argument as long as it continues perpetually  ;)

 

Like I said, facts.

[gokou3]

I don't agree with some of the points in your long post, but I think the above two stick out in particular:

 

1. If you are going to imply that operators have such great power to set renewal cycles and such, you won't like it to hear that now operators are telling their sales staff to persuade customers away from purchasing the iphone. 

 

 

I have heard. And how is that working? Last quarter was slow for the iPhone due to leaks and iPhone 5 anticipation. Gokou3, could you tell me what % of smartphone sales were iPhone at the 3 large operators it was available at (Sprint, Verizon, ATT)?

 

This is what I mean by no facts.

 

I wouldn't be surprised if US operators start offering 18-month contracts on android phones.

So the operators must now amortize the subsidy over 18 months instead of 24 months. Does that work in their favor? What does it do to their churn numbers? How does it effect their customer acquisition costs?

 

2.  How is a low R&D expense % a good thing?  If they increase their R&D budget, perhaps they could have gotten out the iphone 5 last year and maintained the technology lead. 

Have you considered that they are spending less because they are more efficient? By having small teams, they are more nimble? Do you think that the best R&D comes from big bureaucratic organizations? Have you ever shipped a product? A bigger team does not necessarily help you ship faster. Read the "Mythical Man Month":

http://en.wikipedia.org/wiki/The_Mythical_Man-Month

 

I mentioned the R&D expense to show that even if it doubled, it's unlikely to effect margins, especially will the rates volumes are growing.

That is a good thing.

 

Btw, I read about the iphone 5 sales-doubling news.  This is really another example of "reality distortion field".  Not accusing the number is wrong, but it's manipulated to sound impressive -- I must admit Apple marketing is a genius at that.  There are a few contributing factors for the initial sales jump (over 4S): 1) Better and more distribution points this year.  New provider Sprint, and ability to online pre-order through carriers (in Canada; not sure about US). 2) First day availability in more countries, notably Hong Kong which is a proxy to the China market.  You can say, double is double.  True, but I maintain that this initial doubling of sales does not give an indication of its sales going forward.  In fact, it may be an indication of *some* sales drawn forward.

Really? Pop over to Apple site and see what the shipping delays are. They've already sold out about a months worth of production before they have even physically released the phone. I'm guessing you are going to rationalize this by saying that this month is drawing from next month's sales. I'm fine with that argument as long as it continues perpetually  ;)

 

Like I said, facts.

 

1. Nice rebuttal attempt, but that AT&T news was from August 1, so there's no meaningful sales figures to back up whether the persuasion works or not yet.

2. Re: contract length, if you are a consumer given a choice of contract length, would you go for a shorter one, all else equal?  You can't argue there's no value to the consumer.  Of course, carriers don't like it, but that's just another way to compete.

3. Is this fact or opinion?  Like I said many times, they are no longer the leader in specs.  Perhaps if they have included NFC and offered a strategy for implementing it, I would have thought of the 5 much more highly, since at least there's some real innovation there and they would be enhancing the all-important user experience.  Btw, you must know that Apple spends billions of $ securing component supplies.  Do you call that nimble too?  Or is anti-nimble good now because Apple is doing it?  I guess that's what they have to do when they are not as vertically-integrated as their major competitor.

4. If you are using shipping delay as a proxy for demand, then don't feel too excited yet.  The longest delay I have seen is 5 weeks, vs. 3-4 weeks now.  There, a factoid for you.  Meanwhile, I am not sure how your shipping delay point counters my original explanation for the doubling in sales.  Remember, in some markets, the local online apple stores only sell unlocked iphones.  Those who wanted to purchase a carrier-subsidized one needed to call / physically go to their operators.  Starting this generation, one can pre-order carrier ones online.  I can't say for sure Apple counts those orders in their first 24 hour sales, but I don't see why not.

 

 

 

[Green King]

I found a old MSN board Thread that can add some perspective to the current situation.

 

http://msnbrkboardarchive.multiply.com/journal/item/9240/The-Danger-in-Buying-the-Biggest

 

http://web.archive.org/web/20040512113619/http://www.pabraifunds.com/What%20Warren%20Buffett%20Can%20Teach%20Microsoft%20Jan%202%202003%20TheStreet.pdf

[berkshiremystery]

I found a old MSN board Thread that can add some perspective to the current situation.

 

http://msnbrkboardarchive.multiply.com/journal/item/9240/The-Danger-in-Buying-the-Biggest

 

http://web.archive.org/web/20040512113619/http://www.pabraifunds.com/What%20Warren%20Buffett%20Can%20Teach%20Microsoft%20Jan%202%202003%20TheStreet.pdf

 

Green King,...

 

I know,... Mohnish also published the first article "The Danger in Buying The Biggest" in his first book.

It's one of the main reasons not to buy the biggest. But good that you repost this article to remind everybody.

[Green King]

I found a old MSN board Thread that can add some perspective to the current situation.

 

http://msnbrkboardarchive.multiply.com/journal/item/9240/The-Danger-in-Buying-the-Biggest

 

http://web.archive.org/web/20040512113619/http://www.pabraifunds.com/What%20Warren%20Buffett%20Can%20Teach%20Microsoft%20Jan%202%202003%20TheStreet.pdf

 

Green King,...

 

I know,... Mohnish also published the first article "The Danger in Buying The Biggest" in his first book.

It's one of the main reasons not to buy the biggest. But good that you repost this article to remind everybody.

 

Thank You for your original post  :D

[DCG]

Like I said many times, they are no longer the leader in specs. 

 

You keep saying this, but it sounds like you really don't understand why the majority of people buy and use phones and technology. Hint..it has nothing to do with tech specs.

[racemize]

Daring Fireballs' review (I generally like his take on things):

 

http://daringfireball.net/2012/09/iphone_5

[txlaw]

Daring Fireballs' review (I generally like his take on things):

 

http://daringfireball.net/2012/09/iphone_5

 

That's a pretty good review.  I am looking forward to getting my hands on one and comparing it to a Razr HD.  Then I'll make a decision on what to get. 

[gokou3]

Like I said many times, they are no longer the leader in specs. 

 

You keep saying this, but it sounds like you really don't understand why the majority of people buy and use phones and technology. Hint..it has nothing to do with tech specs.

 

Yes, as often as the people touting "user experience".  How can Apple enables users experience mobile payments (among others) without NFC, I don't know.  User experience and specs are complementary, and it used to be that Apple integrated the two beautifully.  Recently, however, its products' spec advancement trails that of the user experience.    That's the point that I have been driving at all along.

[Ross812]

Daring Fireballs' review (I generally like his take on things):

 

http://daringfireball.net/2012/09/iphone_5

 

I thought the article did a good job of capturing how the iPhone is luxury item. Apple had the first mover advantage into the smart phone market. Now they will have to rely on their brand and luxury status going forward.

 

Gone are the days where you are fed up with your clamshell and decide to get a smart phone, 'the' smart phone, an iPhone. Now you have a choice. Do you want a larger screen? Better processor? NFC? a phone that still has a little bit of the linux 'wanna pull your hair out every once in a while'? Even on this board, a very small cross section of smart phone users, you have people saying they will compare the new iPhone, razer, and SGS III. No one debated between three smart phones three or four years ago, and that is why I do not see a moat for Apple. Four years and less than 20 billion dollars later, Google has people fighting over which smart phone is the best.

 

What do the next four years look like in the smart phone business? I have no idea, so I'll invest elsewhere.

[Guest valueInv]

1. Nice rebuttal attempt, but that AT&T news was from August 1, so there's no meaningful sales figures to back up whether the persuasion works or not yet.

Your link was the late one, operators were trying to steer customers away a long time before that:

 

http://appadvice.com/appnn/2012/05/further-proof-verizon-is-pushing-potential-iphone-customers-to-other-devices

 

What do you think? Operators issued the memo and bloggers found out and posted it the next day?

 

2. Re: contract length, if you are a consumer given a choice of contract length, would you go for a shorter one, all else equal?  You can't argue there's no value to the consumer.  Of course, carriers don't like it, but that's just another way to compete.

 

Do you know of any operators that offer cheap phones with a 1 year contract? Since when have operators put their customers first? Mobile networks is an industry built by barriers to entry and squeezing customers, no innovation.

 

3. Is this fact or opinion?  Like I said many times, they are no longer the leader in specs.  Perhaps if they have included NFC and offered a strategy for implementing it, I would have thought of the 5 much more highly, since at least there's some real innovation there and they would be enhancing the all-important user experience.  Btw, you must know that Apple spends billions of $ securing component supplies.  Do you call that nimble too?  Or is anti-nimble good now because Apple is doing it?  I guess that's what they have to do when they are not as vertically-integrated as their major competitor.

We were talking about R&D expense not operations (and hence has nothing to do with component supplies). Just because you didn't get the feature you wanted doesn't mean Apple is doing a bad job at R&D. How many NFC readers have you seen? Have you even used one?

 

Here's why Apple didn't include NFC, not because their couldn't:

http://allthingsd.com/20120912/interview-phil-schiller-on-why-the-iphone-5-has-a-new-connector-but-not-nfc-or-wireless-charging/

 

4. If you are using shipping delay as a proxy for demand, then don't feel too excited yet.  The longest delay I have seen is 5 weeks, vs. 3-4 weeks now.  There, a factoid for you. 

http://macdailynews.com/2011/12/27/foxconn-doubles-size-of-chinese-factory-to-produce-more-apple-iphones/

 

Do the math.

 

[gokou3]

1. Nice rebuttal attempt, but that AT&T news was from August 1, so there's no meaningful sales figures to back up whether the persuasion works or not yet.

Your link was the late one, operators were trying to steer customers away a long time before that:

 

http://appadvice.com/appnn/2012/05/further-proof-verizon-is-pushing-potential-iphone-customers-to-other-devices

 

What do you think? Operators issued the memo and bloggers found out and posted it the next day?

 

2. Re: contract length, if you are a consumer given a choice of contract length, would you go for a shorter one, all else equal?  You can't argue there's no value to the consumer.  Of course, carriers don't like it, but that's just another way to compete.

 

Do you know of any operators that offer cheap phones with a 1 year contract? Since when have operators put their customers first? Mobile networks is an industry built by barriers to entry and squeezing customers, no innovation.

 

3. Is this fact or opinion?  Like I said many times, they are no longer the leader in specs.  Perhaps if they have included NFC and offered a strategy for implementing it, I would have thought of the 5 much more highly, since at least there's some real innovation there and they would be enhancing the all-important user experience.  Btw, you must know that Apple spends billions of $ securing component supplies.  Do you call that nimble too?  Or is anti-nimble good now because Apple is doing it?  I guess that's what they have to do when they are not as vertically-integrated as their major competitor.

We were talking about R&D expense not operations (and hence has nothing to do with component supplies). Just because you didn't get the feature you wanted doesn't mean Apple is doing a bad job at R&D. How many NFC readers have you seen? Have you even used one?

 

Here's why Apple didn't include NFC, not because their couldn't:

http://allthingsd.com/20120912/interview-phil-schiller-on-why-the-iphone-5-has-a-new-connector-but-not-nfc-or-wireless-charging/

 

4. If you are using shipping delay as a proxy for demand, then don't feel too excited yet.  The longest delay I have seen is 5 weeks, vs. 3-4 weeks now.  There, a factoid for you. 

http://macdailynews.com/2011/12/27/foxconn-doubles-size-of-chinese-factory-to-produce-more-apple-iphones/

 

Do the math.

 

1. So you think things like this take immediate effect?

2. You need to look outside of the US market.

3. The component supply example is indeed not about R&D, but it illustrates the common thinking that whatever Apple does is good, even in two contradictionary situations.

4. Capacity != sales.

 

This discussion has dragged on for longer than I wanted, and I don't feel like going back and forth on minute points.  I think I have hashed out many ideas multiple times, and it's ok if you don't agree.  My major point is that, to repeat with Ross said above, that Apple's moat is under attack from all sides -- competing phone manufacturers with deep pockets and perhaps slightly irrational persistence, operators who got squeezed by Apple for the last few years but now see a breakthrough in choices, and suppliers whose interests can align with whomever that give them the best benefits at the moment.  It's not obvious that Apple can maintain its lead in a rapid-changing industry for an extended period (next 3-5 years) -- one disappointing product release and the entire company's prospect suddenly change.  And thus, I do not invest in it.

 

[Guest valueInv]

1. So you think things like this take immediate effect?

So if you're a ATT retail employee, you get a memo from corporate, you're going to wait for the next full moon to implement?

 

2. You need to look outside of the US market.

Feel free to show me 5 major markets anywhere in the world where operators offer well subsidized phones for a one year contract.

 

3. The component supply example is indeed not about R&D, but it illustrates the common thinking that whatever Apple does is good, even in two contradictionary situations.

 

We were talking about R&D costs to Damodaran's point, weren't we? Are you trying to change the subject since you don't have a rebuttal?

 

 

4. Capacity != sales.

Pre-ordered capacity translates to sales.

 

[Liberty]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

http://www.bbc.com/news/technology-19659736

[racemize]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

http://www.bbc.com/news/technology-19659736

 

yeah, I guess the google relationship is really out the window--sad really, I like Apple hardware and google services. 

[txlaw]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

http://www.bbc.com/news/technology-19659736

 

This is actually one of the major reasons why I might try out a Razr HD or Galaxy S3 instead of the iPhone 5.

 

Google Maps is the app I use the most on my iPhone.

[DCG]

 

Google Maps is the app I use the most on my iPhone.

 

The problem with it is it didn't offer turn-by-turn navigation, so Apple had to do something different to be able to offer this feature (without required a 3rd party app).

[DCG]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

 

That one's pretty funny.

 

I'm curious how much of the issues are due to the data provided by TomTom, compared to the app.

[gfp]

I'm sure google will very shortly have a google maps app that you could place on your home screen right where the old one was.  Until then you can save the html5 web app at maps.google.com as an icon on the home screen that launches right into it.  Very similar to the youtube deal - a stand alone youtube app came out right afterwards.

[txlaw]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

 

That one's pretty funny.

 

I'm curious how much of the issues are due to the data provided by TomTom, compared to the app.

 

One of the major issues is TomTom.  They are the worst of the map data providers.  Also, the search function apparently sucks on Apple's maps app (this has riled up small businesses who can't be found via Apple's map app), and there is no Street View.

 

Google Maps on Android will have turn by turn directions, so it will be even better to use on a Razr or S3.

 

It will be interesting to see if Google tries to get Maps into the App Store and when they might try to do so.  Who knows?  Maybe they will delay putting it in the App Store to incent people to switch.

[Ross812]

Looks like the maps probably weren't fully baked..

 

http://theamazingios6maps.tumblr.com/

 

http://www.bbc.com/news/technology-19659736

 

This is actually one of the major reasons why I might try out a Razr HD or Galaxy S3 instead of the iPhone 5.

 

Google Maps is the app I use the most on my iPhone.

 

WHAT? I've been paying attention to this thread and there is no way Apple would lose users to a competitor. Don't you understand how deep the moat is you are trapped in?  ;)

[damianolive]

I've actually tried the new iOS 6 map application and the turn-by-turn navigation is flawless.