AAPL - Apple Inc.

[Guest valueInv]

BTW, Txlaw, have you held AAPL before?

[Guest valueInv]

From Chapter 6: How to Avoid Commoditization

 

(Note: this is a whole chapter on commoditization in "The Innovator's Solution."  ValueInv, do yourself a favor by buying this book and reading it. ;))

 

The process that transforms a profitable, differentiated product into a commodity is the process of overshooting and modularization. . . . When [the] circumstance changes—when the dominant, profitable companies overshoot what their mainstream customers can use—then this game can no longer be played, and the tables begin to turn.  Customers will not pay still-higher prices for products they already deem too good.  Before long, modularity rules, and commoditization sets in. 

 

 

So customers think phones are too good?  ;D ;D ;D ;D ;D

[Guest valueInv]

From Chapter 10: The Role of Senior Executives in Leading New Growth:

 

We noted in chapter 2 that most of the companies whose stock we wish we had owned in the past fifty years took root with a disruptive strategy.  A few—but not many—of these companies subsequently caught or created other waves of disruption that kept the parent corporation growing at a robust pace for a time.

 

One of our most sobering realizations is that within the population of companies that successfully caught a subsequent wave of disruption and stayed atop their industries, the vast majority were still being run by the company’s founder at the time they tackled the disruption.  Only a few companies that were run by professional (non-founder) managers have succeeded in creating new disruptive growth businesses.”

 

From Chapter 3: What Products Will Customers Want to Buy?:

 

Sony’s founder, Akio Morita, was a master at watching what consumers were trying to get done and at marrying those insights with solutions that helped them do the job better.  Between 1950 and 1982, Sony successfully built twelve different new-market disruptive growth businesses. . . . Every new product launch decision during his era was made personally by Morita and a trusted group of five associates. . . Interestingly, 1981 signaled the end of Sony’s disruptive odyssey, and for the next eighteen years the company did not launch a single new disruptive growth business. . . . What caused this abrupt shift in Sony’s innovation strategy?  In the early 1980s Morita began to withdraw from active management of the company in order to involve himself in Japanese politics.

 

--------

 

The takeaway here is that it is entirely possible that Steve Jobs was a unique individual who was primarily responsible for the new-market innovation that we all expect from Apple.  For example, if Apple’s TV venture is a success, that will be part of the Jobs pipeline -- but there’s no guarantee that there will be anything after that.

 

Therefore, if Apple sticks with its current business model, investors better hope and pray that the commoditization story is not true because that will mean that the circumstances for sustaining innovation in the OS layer do not exist.

 

This is not to say that Apple cannot do well going forward, but they will need to be more like GE, JNJ, PG, IBM, and GOOG to do so.  But they’ll have to stay on their toes because the cycle of commoditization and de-commoditization will happen again and again.

 

More to follow . . .

 

Apple is going the opposite way - they are integrating more parts into their proprietary value chain. Walt Disney was a genius too and Disney has done just fine after his death.

 

BTW, Dell is still being run by its founder, and that has not helped it against new market disruption. RIM was being run by its founders and they still lost to new market disruption.

 

BTW, apparently the current iPhone 5 was also designed under Steve Jobs, so I guess they are not getting disrupted according your theory?

[Viking]

The iphone represents the majority of Apple's profits. How it goes the company will go.

 

I keep reading about how smartphones are now a commodity. There are many manufacturers making great phones. Consumers will buy these other phones in great number and Apple will see its sales and profits decline precipitously.

 

Some industry observers have said the HTC One is the top Android phone available. Heady praise. We would expect sales to be off the chart and HTC to be raking in the profit. What is the reality? HTC continues to post terrible financial results. If they have such a great phone, what is the problem. The answer appears to be "In the handset market today, having a lovely product is necessary but insufficient." This comment likely applies to Nokia/MSFT and Blackberry as well. It looks to me that factors other than 'lovely product' are key to making money in the smartphone business. Perhaps Apple has a little more staying power than Mr. Market currently is giving them credit for.

 

http://stratechery.com/ Scroll down to the 'HTC Stalls' article

 

[Guest valueInv]

The iphone represents the majority of Apple's profits. How it goes the company will go.

 

I keep reading about how smartphones are now a commodity. There are many manufacturers making great phones. Consumers will buy these other phones in great number and Apple will see its sales and profits decline precipitously.

 

Some industry observers have said the HTC One is the top Android phone available. Heady praise. We would expect sales to be off the chart and HTC to be raking in the profit. What is the reality? HTC continues to post terrible financial results. If they have such a great phone, what is the problem. The answer appears to be "In the handset market today, having a lovely product is necessary but insufficient." This comment likely applies to Nokia/MSFT and Blackberry as well. It looks to me that factors other than 'lovely product' are key to making money in the smartphone business. Perhaps Apple has a little more staying power than Mr. Market currently is giving them credit for.

 

http://stratechery.com/ Scroll down to the 'HTC Stalls' article

 

Htc and other vendors will have a big problem on their hands if Apple introduces a cheaper iPhone.

[txlaw]

Meh, it's not worth responding to ValueInv's posts. 

 

I suggest everyone buy "The Innovator's Dilemma" and "The Innovator's Solution," read both, and come to your own conclusions about what could possibly happen in the smartphone market.

 

The one thing that a lot of people will probably conclude is that the high tech market is precarious, and it makes a lot more sense to put more money into traditional value plays instead. 

[txlaw]

The iphone represents the majority of Apple's profits. How it goes the company will go.

 

I think you're right on this.  And, currently, iPhone  unitsales are very substantial relative to the market. 

 

So the question is whether they can increase unit sales despite GM and ASP decline to maintain and grow profit.  They can also change their business model to take advantage of their position as an ecosystem provider. 

 

I'd like to see them focus more on software and services.  Make iCloud way better, for example, or partner with someone who can do it right.

 

I keep reading about how smartphones are now a commodity. There are many manufacturers making great phones. Consumers will buy these other phones in great number and Apple will see its sales and profits decline precipitously.

 

I'm not sure if you are referring to me, but what I'm saying is that the OS layer in smartphones is becoming commoditized, just like the device and components underneath.

 

It hasn't happened yet, but we are seeing it happen.  As Eric Schmidt said in the AllThingsD interview, the value is in the apps, services, peripherals (sensor devices, for example), etc.

 

I have no idea whether AAPL will see its sales and profits decline precipitously.  I actually doubt that anything will happen precipitously -- if profits decline, it will happen over time. 

 

Remember, MSFT has had EPS go up pretty much steadily over the last 10 years, but the price of the stock stagnated because of where the valuation was 10 years ago.

 

Some industry observers have said the HTC One is the top Android phone available. Heady praise. We would expect sales to be off the chart and HTC to be raking in the profit. What is the reality? HTC continues to post terrible financial results. If they have such a great phone, what is the problem. The answer appears to be "In the handset market today, having a lovely product is necessary but insufficient." This comment likely applies to Nokia/MSFT and Blackberry as well. It looks to me that factors other than 'lovely product' are key to making money in the smartphone business. Perhaps Apple has a little more staying power than Mr. Market currently is giving them credit for.

 

http://stratechery.com/ Scroll down to the 'HTC Stalls' article

 

HTC One just came out, and they just announced their alliance with FB.  We have to see what the next quarters will look like.  But note that HTC appears to placing most of its hopes on HTC One making the company a player again -- they can easily fail. 

 

I don't dispute the notion that AAPL has staying power.  So does AMZN or GOOG or MSFT.  But we're talking about valuation, which is not exactly the same thing.

[Guest valueInv]

Meh, it's not worth responding to ValueInv's posts. 

 

I suggest everyone buy "The Innovator's Dilemma" and "The Innovator's Solution," read both, and come to your own conclusions about what could possibly happen in the smartphone market.

 

The one thing that a lot of people will probably conclude is that the high tech market is precarious, and it makes a lot more sense to put more money into traditional value plays instead.

 

It's definitely not worth responding to my posts if you want to consistently live in lala land.

 

I bet it wasn't worth responding when I was objecting you lovely posts about Dell's honest management. ;)

[txlaw]

Very good posts Txlaw. You are one of the reasons I signed up for this forum.

 

I guess it is possible that Apple has a permanent competitive advantage on innovation and/or attracting people. I would personally deem it extremely unlikely, but each to his own.

 

Thank you, sir.

 

Yeah, we'll see how it goes.  It will take time, of course, to find out.

[Viking]

txlaw, just to clarify, my comments around much of what we read today on Apple (commoditization of smartphone, lower sales and profits for Apple) were not directed at you. This is my general take away from reading analyst reports and various acticles.

 

I do appreciate the difference of opinion that we see on this site. Different people can look at the same things and draw different conclusions. And I am sure we will all learn a few good lessons along the way.

 

PS: I will be buying The Innovators Dilemma to read. 

[Palantir]

I should have bought more at 400.

[Guest valueInv]

Disruption? Commoditization? Or segmentation?

 

http://www.bloomberg.com/news/2013-05-06/apple-misses-iphone-customers-as-global-carriers-balk.html

[Guest valueInv]

The iPhone in Japan:

 

http://tech.fortune.cnn.com/2013/05/06/how-the-iphone-conquered-japan/?source=yahoo_quote

[Guest valueInv]

https://plus.google.com/+Scobleizer/posts/ZLV9GdmkRzS#+Scobleizer/posts/ZLV9GdmkRzS

 

 

Seems Ive should be able to work his magic on some of these no?  Lots of room for design improvement.  Huge demand.  Huge excitement.

 

I expect Google Glasses to fail to get mass market adoption. I hope Apple does not waste time on stuff like this.

 

even if it doesn't the work they are doing on them will be valuable. at least goog is innovating. I would rather wear these than a watch. :)

 

"Innovating" ;):

 

http://www.forbes.com/sites/petercohan/2013/05/07/does-google-glass-violate-community-standards/

[Palantir]

ValueInv has likely posted this at some point, but it is an interesting article nonetheless.

 

 

 

Apple and the Innovator’s Dilemma

 

http://stratechery.com/2010/apple-innovators-dilemma/

 

EDIT: Pretty amazing actually.

[Guest valueInv]

ValueInv has likely posted this at some point, but it is an interesting article nonetheless.

 

 

 

Apple and the Innovator’s Dilemma

 

http://stratechery.com/2010/apple-innovators-dilemma/

 

EDIT: Pretty amazing actually.

 

Maybe he didn't read "Innovator's Solution" like Txlaw did.

 

  ;D ;D ;D ;D ;D ;D

[Guest valueInv]

ValueInv has likely posted this at some point, but it is an interesting article nonetheless.

 

 

 

Apple and the Innovator’s Dilemma

 

http://stratechery.com/2010/apple-innovators-dilemma/

 

EDIT: Pretty amazing actually.

 

The article more or less captures what I have been saying on this thread. It always amazes me that what I read here is the same thing  people have been saying about Apple for years. The more things change, the more they stay the same.

 

 

[berkshiremystery]

1993 vs 2013,... some comparison without words.  ::)

 

http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

Source: http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

 

 

[Parsad]

1993 vs 2013,... some comparison without words.  ::)

 

http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

Source: http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

 

Very cool and accurate, but a few other things that are missing.

 

- A Map

- GPS

- Calendar

- Flashlight

- Calculator

- Notepad

- Address Book

- Foreign Language Dictionary

- Video Game Console

 

To name a few.  Cheers!

 

[tombgrt]

Just a personal anecdote on tablets. Wanted to buy one for my gf's birthday who already is an owner of a mb pro and Iphone 4. I was going to get a samsung tab 2 7.0 first which is a lot cheaper and she doesn't need the same OS at all for her usage. Oddly enough I have settled for the Ipad mini after serious consideration. It's actually expensive for what you get hardware-wise but the design, battery life, screen size (etc) and the fact that she already has other iOS devices compelled me to go for the Ipad.

 

If they have pricing power on me as a non-customer, I guess they still have it on plenty of people. I'd still go for something cheaper for myself, but I'm a cheapskate on personal expenses. :)

[DCG]

As an owner of both an iPad and a Nexus 7, the iPad (mini or regular) is the better device.

[DCG]

The iphone represents the majority of Apple's profits. How it goes the company will go.

 

I think you're right on this.  And, currently, iPhone  unitsales are very substantial relative to the market. 

 

So the question is whether they can increase unit sales despite GM and ASP decline to maintain and grow profit.  They can also change their business model to take advantage of their position as an ecosystem provider. 

 

I'd like to see them focus more on software and services.  Make iCloud way better, for example, or partner with someone who can do it right.

 

I keep reading about how smartphones are now a commodity. There are many manufacturers making great phones. Consumers will buy these other phones in great number and Apple will see its sales and profits decline precipitously.

 

I'm not sure if you are referring to me, but what I'm saying is that the OS layer in smartphones is becoming commoditized, just like the device and components underneath.

 

It hasn't happened yet, but we are seeing it happen.  As Eric Schmidt said in the AllThingsD interview, the value is in the apps, services, peripherals (sensor devices, for example), etc.

 

I have no idea whether AAPL will see its sales and profits decline precipitously.  I actually doubt that anything will happen precipitously -- if profits decline, it will happen over time. 

 

Remember, MSFT has had EPS go up pretty much steadily over the last 10 years, but the price of the stock stagnated because of where the valuation was 10 years ago.

 

Some industry observers have said the HTC One is the top Android phone available. Heady praise. We would expect sales to be off the chart and HTC to be raking in the profit. What is the reality? HTC continues to post terrible financial results. If they have such a great phone, what is the problem. The answer appears to be "In the handset market today, having a lovely product is necessary but insufficient." This comment likely applies to Nokia/MSFT and Blackberry as well. It looks to me that factors other than 'lovely product' are key to making money in the smartphone business. Perhaps Apple has a little more staying power than Mr. Market currently is giving them credit for.

 

http://stratechery.com/ Scroll down to the 'HTC Stalls' article

 

HTC One just came out, and they just announced their alliance with FB.  We have to see what the next quarters will look like.  But note that HTC appears to placing most of its hopes on HTC One making the company a player again -- they can easily fail. 

 

I don't dispute the notion that AAPL has staying power.  So does AMZN or GOOG or MSFT.  But we're talking about valuation, which is not exactly the same thing.

 

The more I think about smartphone commoditization, the more I think it's that Android is actually becoming commoditized, which will ultimately benefit Apple. Android phones are really becoming a dime-a-dozen, and the more android devices that are out there doing pretty much the same thing, the more Apple can retain it's position as the premium brand.

 

I just got done reading the book 'Insanely Simple', and I think the examples he gives of PC manufacturers like Dell constantly offering about 25 computers with slightly different specs, and different names (which is real confusing for consumers), is happening with Android devices.

[rkbabang]

1993 vs 2013,... some comparison without words.  ::)

 

 

Very cool and accurate, but a few other things that are missing.

 

- A Map

- GPS

- Calendar

- Flashlight

- Calculator

- Notepad

- Address Book

- Foreign Language Dictionary

- Video Game Console

 

To name a few.  Cheers!

 

 

Wired recently had a much better diagram in its magazine.  Here it is on its website:

 

How Over 40 Gadgets Converge Into the Tiny Device in Your Pocket

 

[Guest valueInv]

The iphone represents the majority of Apple's profits. How it goes the company will go.

 

I think you're right on this.  And, currently, iPhone  unitsales are very substantial relative to the market. 

 

So the question is whether they can increase unit sales despite GM and ASP decline to maintain and grow profit.  They can also change their business model to take advantage of their position as an ecosystem provider. 

 

I'd like to see them focus more on software and services.  Make iCloud way better, for example, or partner with someone who can do it right.

 

I keep reading about how smartphones are now a commodity. There are many manufacturers making great phones. Consumers will buy these other phones in great number and Apple will see its sales and profits decline precipitously.

 

I'm not sure if you are referring to me, but what I'm saying is that the OS layer in smartphones is becoming commoditized, just like the device and components underneath.

 

It hasn't happened yet, but we are seeing it happen.  As Eric Schmidt said in the AllThingsD interview, the value is in the apps, services, peripherals (sensor devices, for example), etc.

 

I have no idea whether AAPL will see its sales and profits decline precipitously.  I actually doubt that anything will happen precipitously -- if profits decline, it will happen over time. 

 

Remember, MSFT has had EPS go up pretty much steadily over the last 10 years, but the price of the stock stagnated because of where the valuation was 10 years ago.

 

Some industry observers have said the HTC One is the top Android phone available. Heady praise. We would expect sales to be off the chart and HTC to be raking in the profit. What is the reality? HTC continues to post terrible financial results. If they have such a great phone, what is the problem. The answer appears to be "In the handset market today, having a lovely product is necessary but insufficient." This comment likely applies to Nokia/MSFT and Blackberry as well. It looks to me that factors other than 'lovely product' are key to making money in the smartphone business. Perhaps Apple has a little more staying power than Mr. Market currently is giving them credit for.

 

http://stratechery.com/ Scroll down to the 'HTC Stalls' article

 

HTC One just came out, and they just announced their alliance with FB.  We have to see what the next quarters will look like.  But note that HTC appears to placing most of its hopes on HTC One making the company a player again -- they can easily fail. 

 

I don't dispute the notion that AAPL has staying power.  So does AMZN or GOOG or MSFT.  But we're talking about valuation, which is not exactly the same thing.

 

The more I think about smartphone commoditization, the more I think it's that Android is actually becoming commoditized, which will ultimately benefit Apple. Android phones are really becoming a dime-a-dozen, and the more android devices that are out there doing pretty much the same thing, the more Apple can retain it's position as the premium brand.

 

I just got done reading the book 'Insanely Simple', and I think the examples he gives of PC manufacturers like Dell constantly offering about 25 computers with slightly different specs, and different names (which is real confusing for consumers), is happening with Android devices.

Welcome  :)

[Guest valueInv]

1993 vs 2013,... some comparison without words.  ::)

 

http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

Source: http://www.ritholtz.com/blog/wp-content/uploads/2013/05/1993-2013.jpg

 

Very cool and accurate, but a few other things that are missing.

 

- A Map

- GPS

- Calendar

- Flashlight

- Calculator

- Notepad

- Address Book

- Foreign Language Dictionary

- Video Game Console

 

To name a few.  Cheers!

New market disruption