AAPL - Apple Inc.

[CorpRaider]

Hey if all the boomers switch to iphone as portrayed in the samsung adds, aapl will have a rapidly growing market share in the fastest growing demo in the country.

[Guest valueInv]

I totally disagree with the "platform stickiness" thesis.  My main reasons are:

1. Consumers have consistently invested in new media regardless of past dollars invested (think VHS -> DVD, CDs -> mp3).

2. The total dollars invested isn't that great (about $30 on average for Apps on each iOS device).

3. Learning new platforms is dead easy.  That's why 1bn people own smartphones.  If it were hard, you couldn't get 15% of the world's population on board.

4. Media is rapidly moving towards a streaming-from-catalog model.  IP ownership is so 20th century.

 

That said, shouldn't Apple shareholders be concerned if stickiness is a real thing?  Apple's global market share is about 12% now.  If stickiness is a real thing, how is Apple going to convince the other 88% to switch platforms?

 

Again, I don't believe in stickiness.  I think Apple's win is on providing an insanely great experience at a high price, but ultimately that will fall in the face of a good experience at an insanely great price.

 

http://techcrunch.com/2013/07/25/nexus-7-trade-ins-suggest-lots-of-upgraders-to-new-model-little-to-no-interest-from-the-ipad-crowd/

 

 

BTW, IIRC,  Apple's share is around 20% of the smartphone market.

 

But wait, there's more:

 

http://gigaom.com/2013/07/26/mobile-os-loyalty-how-ios-android-and-others-stack-up/

[rkbabang]

Hey if all the boomers switch to iphone as portrayed in the samsung adds, aapl will have a rapidly growing market share in the fastest growing demo in the country.

 

Very true.  My wife's uncle came to visit us for a few weeks, he's 71yrs old and lives ~3000 miles away from us, so we haven't seen him in about 12 years.  I found it interesting that he doesn't even have a computer anymore he said he hadn't used his computer in years and finally just unplugged it and put it in his closet. He does everything he needs to do on his iPhone and he was on it constantly, using it for the web, facebook, gmail, GPS every time he gets in a car.  I'd think boomers are less technophobic than his generation, as well as more numerous and more wealthy, so they should be a great market segment to be popular with.

 

The one problem he was having and it was the reason he said he might fire up his computer again or buy something cheap is that his 16GB iPhone is near full (mostly pictures) and having a computer to off load them to would be helpful.

 

[VAL9000]

 

http://247wallst.com/telecom-wireless/2013/05/15/iphone-market-share-falls-in-q1-gartner/

http://techcrunch.com/2013/01/17/apples-smartphone-marketshare-expected-to-peak-at-22-in-2013-says-abi-research/

http://appleinsider.com/articles/13/05/16/idc-apples-ios-fell-to-17-of-smartphones-shipped-in-q1-windows-phone-passed-blackberry

 

Something tells me Apple gained marketshare this quarter ::)

 

IDC numbers are out:

http://thenextweb.com/mobile/2013/07/26/idc-apple-samsung-lose-smartphone-market-share-as-lenovo-and-others-see-greater-growth/

 

Now at 13.1% market share.

 

http://www.bloomberg.com/news/2013-07-25/samsung-misses-estimates-as-high-end-smartphones-near-saturation.html

 

But...but...everyone's friends are switching to the Galaxy phones.... :P

 

For the two months it was in the market, S4 alone sold about the same number of units as all iPhone models, so I can see how it would look that way when you count the S3 and Note as well.

 

[Guest valueInv]

 

http://247wallst.com/telecom-wireless/2013/05/15/iphone-market-share-falls-in-q1-gartner/

http://techcrunch.com/2013/01/17/apples-smartphone-marketshare-expected-to-peak-at-22-in-2013-says-abi-research/

http://appleinsider.com/articles/13/05/16/idc-apples-ios-fell-to-17-of-smartphones-shipped-in-q1-windows-phone-passed-blackberry

 

Something tells me Apple gained marketshare this quarter ::)

 

IDC numbers are out:

http://thenextweb.com/mobile/2013/07/26/idc-apple-samsung-lose-smartphone-market-share-as-lenovo-and-others-see-greater-growth/

 

Now at 13.1% market share.

 

 

You see that graph at the bottom ? Where does the average for the black curve lie?

 

http://www.bloomberg.com/news/2013-07-25/samsung-misses-estimates-as-high-end-smartphones-near-saturation.html

 

But...but...everyone's friends are switching to the Galaxy phones.... :P

 

For the two months it was in the market, S4 alone sold about the same number of units as all iPhone models, so I can see how it would look that way when you count the S3 and Note as well.

 

Where did you get the numbers from?

[VAL9000]

 

You see that graph at the bottom ? Where does the average for the black curve lie?

 

 

I see your point - it's higher over the year.  My point is that current market share is about 13%, which is the lowest it's been in the past 2 years (5 years?).

 

 

 

http://www.bloomberg.com/news/2013-07-25/samsung-misses-estimates-as-high-end-smartphones-near-saturation.html

 

But...but...everyone's friends are switching to the Galaxy phones.... :P

 

For the two months it was in the market, S4 alone sold about the same number of units as all iPhone models, so I can see how it would look that way when you count the S3 and Note as well.

 

Where did you get the numbers from?

 

From the article you posted. 

 

TongYang Securities Inc. (003470) expects Samsung to sell 27 million S4 devices in the third quarter, up from 22 million units delivered in the three months ended June, the brokerage said in a July 9 report.

 

22mm S4's shipped over 2 months vs. 31mm iPhones shipped over 3 months.

 

[Guest wellmont]

strategy analytics: Apple loses 3pts of share for q2 yoy to Google's Android.

 

16.6%  to  13.6%

[Guest valueInv]

strategy analytics: Apple loses 3pts of share for q2 yoy to Google's Android.

 

16.6%  to  13.6%

 

Yes, in the quarter where the largest Android vendor released their flagship device and right before the quarter

before they refresh their own device. In other words, its a slow quarter for Apple and still they grew units by

20%

 

But since you're back posting on this thread, don't you want to talk about marketshare outside NA. Here are some numbers for you from Cook:

 

 

Yes, sure. From an iPhone point of view, Tony, with the moves that we made on 4 and with iPhone 5 continuing to be the most popular model. We saw very strong sales in several of the emerging markets or prepaid markets. India was up over 400%. Turkey and Poland were both up over 60%. The Philippines were up about 140%. And in addition, we saw very strong iPhone sales in several of the developed markets. For example, the U.S. was up over 50%, Japan up over 60%, the UK about 50%, and so we had several regions, where iPhone growth actually accelerated from the previous quarter, which is a unusual pattern for us and we were very, very happy with this.

 

[RichardGibbons]

(mp3, phone, tablet, computer, TV). I repeat, Apple is the clear leader today in every device I just listed.

 

You make an interesting argument, but including this hurts your credibility substantially.  Apple can only be considered a clear leader in mp3s and tablets.  They're behind in phone, computers, and TVs.

[Viking]

RichardGibbons, my comment on being the clear market leader is not built solely around who is shipping the most devices. Instead, my with metric is if you had the ability as an investor to own any manufacturer out there (and own all future profits) who would you pick? My guess is most would pick Mac for personal computers and iphone for smartphone. Both enjoy the majority of profit share, the highest customer satisfaction ratings and the highest intent to repurchase ratings.

 

Yes, some may pick Samsung. I do not view them as being the leader. Should they displace Apple in the premium segment (where most of the margin is) and top Apple in customer satifaction and repurchase intent then I would pick Samsung.

 

I think it will be easier for Apple to take share away from Samsung in the mid priced segment than it will be for Samsung to take share from Apple in the premium segment. I think Apple will launch a mid priced phone in late Sept/Oct and I think it will sell like hotcakes. This will help Apple to once again actually grow smartphone marketshare. They will then be the number one player in both the premium and mid tier segments and they will capture the majority of profits in the smartphone category.

 

Until Samsung demonstrates that it is able to innovate I will have a hard time putting it in the industry leader category. I think if HTC or Sony can grow (via Android) Samsung is the most at risk. Same with the cheap Chinese manufacturers... they are coming after Samsung in the low end market.

[LC]

Looking at the industry from another perspective:

 

The consumer electronic industry is defined by consistent "disruption" i.e. innovation.

 

Which has been the most innovative company in the industry over the last 10 years? I think most would argue Apple.

[RichardGibbons]

Yeah, I think that's a good argument, Viking.  If someone forced me to buy a CE manufacturer (and you don't count Microsoft or Google as manufacturers), I'd probably go with Apple.

[txlaw]

RichardGibbons, my comment on being the clear market leader is not built solely around who is shipping the most devices. Instead, my with metric is if you had the ability as an investor to own any manufacturer out there (and own all future profits) who would you pick? My guess is most would pick Mac for personal computers and iphone for smartphone. Both enjoy the majority of profit share, the highest customer satisfaction ratings and the highest intent to repurchase ratings.

 

Yes, some may pick Samsung. I do not view them as being the leader. Should they displace Apple in the premium segment (where most of the margin is) and top Apple in customer satifaction and repurchase intent then I would pick Samsung.

 

I think it will be easier for Apple to take share away from Samsung in the mid priced segment than it will be for Samsung to take share from Apple in the premium segment. I think Apple will launch a mid priced phone in late Sept/Oct and I think it will sell like hotcakes. This will help Apple to once again actually grow smartphone marketshare. They will then be the number one player in both the premium and mid tier segments and they will capture the majority of profits in the smartphone category.

 

Until Samsung demonstrates that it is able to innovate I will have a hard time putting it in the industry leader category. I think if HTC or Sony can grow (via Android) Samsung is the most at risk. Same with the cheap Chinese manufacturers... they are coming after Samsung in the low end market.

 

Viking, one thing to consider in the Apple versus Samsung debate is that Apple isn't really a CE company.  They've never considered themselves the equivalent of a Sony or Samsung because they feel their value-add is about software (really, the OS that runs on top of the specially picked hardware).

 

See

.

 

The reality is that Samsung is making money in the iProduct value chain by manufacturing many of the components that Apple uses in its products.  Samsung is one of the display manufacturers that Apple relies on for its high quality displays.  And Samsung actually makes the A6 chip for Apple in Austin, Texas.  (Note that the Nexus 10 -- a full-size iPad competitor -- that will be coming out soon is manufactured by Samsung.)

 

Therefore, it probably doesn't make sense to call AAPL the premier manufacturer.  If anything, Samsung could arguably be considered the premier hardware manufacturer, at least wrt smart phones.

 

Instead, it makes sense to compare AAPL with GOOG, MSFT, BBRY, etc.  iOS 7 cribs a lot of features off of their competitors.  There's nothing wrong with this, but it sort of dispels the myth that Apple is the leader in innovation.

 

The competition is heating up, which is good for consumers.

[Packer16]

How do you guys get comfortable that there are others who will buy AAPL stock?  I like how cheap it is and its high margins versus other large tech names like IBM but who is left to purchase it?  The analysts appear to have high ratings on AAPL also 4/7 out 5 for buys.  Is the play here that AAPL will buy back the shares?

 

Packer

[VAL9000]

Viking, one thing to consider in the Apple versus Samsung debate is that Apple isn't really a CE company.  They've never considered themselves the equivalent of a Sony or Samsung because they feel their value-add is about software (really, the OS that runs on top of the specially picked hardware).

 

See

.

 

The reality is that Samsung is making money in the iProduct value chain by manufacturing many of the components that Apple uses in its products.  Samsung is one of the display manufacturers that Apple relies on for its high quality displays.  And Samsung actually makes the A6 chip for Apple in Austin, Texas.  (Note that the Nexus 10 -- a full-size iPad competitor -- that will be coming out soon is manufactured by Samsung.)

 

Therefore, it probably doesn't make sense to call AAPL the premier manufacturer.  If anything, Samsung could arguably be considered the premier hardware manufacturer, at least wrt smart phones.

 

Instead, it makes sense to compare AAPL with GOOG, MSFT, BBRY, etc.  iOS 7 cribs a lot of features off of their competitors.  There's nothing wrong with this, but it sort of dispels the myth that Apple is the leader in innovation.

 

 

I agree, but wanted to add some thoughts on summarizing Apple as "software", which I think overlooks vast tracts of value created by their method.  I prefer to think that it's the "intangibles" that make Apple what it is.  Software is a big part of that.  And software could easily include things like iTunes and iCloud and device integration that are such wonderful aspects of the ecosystem.  But what the software argument doesn't include is all of the other intangible aspects that make Apple such a great brand.  Things like emphasis on design, focus on quality, a detail oriented approach to packaging (at all levels), marketing, great customer service, etc.  In isolated chunks, none of these factors are game changing, but as a whole they reinforce that most intangible of intangibles: Apple's brand.

 

The competition, it seems to me, isn't yet up to the task of competing with Apple on all fronts.  Some have figured out design, others software, and almost all are struggling with customer service.  So far, nobody has managed to crack the code the way that Apple has, and for that I will credit them on innovation.  They invented the Apple experience and have reaped enormous gains from that invention.

 

And this is where the problem is.  Apple is so obviously better than the competition.  The Samsung software is crap.  Getting Samsung to fix your busted hardware is like pulling teeth.  The battery sucks.  The S3/S4 is ungainly and in my opinion a bit ugly.  Yet, the pricing matches the iPhone 5's pricing, despite delivering a poorer experience on almost every measurable level.  And somehow..  somehow the Galaxy S3/S4 are giving the iPhone 4S and 5 a run for their money.  Dollar for dollar I know that the iPhone is the better product.  As someone who studies this space pretty closely, I'd guess that for 80% of consumers, the iPhone is the right product for them (in that segment).  So then how is Apple not making anywhere near that number of premium smartphone sales?  How is this segment even in contention?

 

The whole thing is mind boggling.

 

The competition is heating up, which is good for consumers.

 

And that's where things are starting to look pretty scary.  The competition, with all its shortcomings, is doing a mighty fine job on the sales side today.  Google's Android is poised to take the lead on the software side of things, which is definitely the hard part.  All that remains is for those handset makers to close the gap on those remaining intangibles and things will get really, really interesting*.

 

*And by interesting I mean we're going to see a really ugly battle for market share facilitated by very aggressive price points.

[bargainman]

And this is where the problem is.  Apple is so obviously better than the competition.  The Samsung software is crap.  Getting Samsung to fix your busted hardware is like pulling teeth.  The battery sucks.  The S3/S4 is ungainly and in my opinion a bit ugly.  Yet, the pricing matches the iPhone 5's pricing, despite delivering a poorer experience on almost every measurable level.  And somehow..  somehow the Galaxy S3/S4 are giving the iPhone 4S and 5 a run for their money.  Dollar for dollar I know that the iPhone is the better product.  As someone who studies this space pretty closely, I'd guess that for 80% of consumers, the iPhone is the right product for them (in that segment).  So then how is Apple not making anywhere near that number of premium smartphone sales?  How is this segment even in contention?

 

The whole thing is mind boggling.

 

I'm not sure how you think it's mind boggling.  The reason Apple is getting a bit beat up is the same reason they got beat up with the mac back in the day. (and 'beat up' here is a very relative term considering how successful the iphone still is).  Apple chooses to make one product and really focus on it.  That one product is really great, but it doesn't differentiate much, and it doesn't try to sell a particular feature usually.  This is both their strength and weakness.  I'm not saying it's bad, it just is.  Samsung came up with a phone that has a bigger screen.  It's a spec they can sell on.  Some people want the bigger screen.  Then there is the Note series.  Some people want a stylus.  Cnet reviewed the S4 as "The everything phone for (almost) everyone"

 

http://reviews.cnet.com/samsung-galaxy-s4/

 

and gave it 4.5 stars.  Not bad for 'ungainly and ugly'..  It can be a remote, and it has NFC, all 'sellable' features.  Also samsung is not afraid to release many products for every niche.  Apple is about focus and vertical integration.  Samsung, Andriod is following in the historic steps of windows to some degree.  Filling all the little niches that Apple has decided to leave behind because their laser sharp focus requires them to leave these places behind.  Another sellable niche feature that's recently emerged is the 'super camera' phones.  Samsung s4 zoom,  Nokia 1020, HTC one to a lesser degree.  Apple will always have a good to great camera on their phone, but not the best.  It will lose that fragment of the market.

 

To me the biggest advantages Apple has in no particular order are:

- fanatical core fanbase.  (Jobs told Eric or Larry this when he took Apple over.  His friend questioned his taking over of the company, and Jobs retorted "Apple is putting out total crap, and has people lining up the next morning to pay top dollar for it.  Now imagine if we put out amazing product instead!?" - paraphrasing of course :-) )  They still have this core, but it's not all Apple customers, it's probably fewer percentagewise than it was in the Mac only days.

- Razor focus on the customer experience and design (cemented more, now that Ive is in charge and Forstall is out)

- Willingness to say no to products they develop, and the ability, ahem cash, to stay the course until they have something great to show (witness the delay of the original flat panel mac by a year, and the last minute redesign of the iPhone when Steve decided that the plastic screen had to go since his keys in his pocket scratched it)

- Vertical integration.  As you said - it sucks having a PC or a Samsung when it goes bad.  My mac or and iPhone goes bad, I truck it down to the genius bar, and you won't get the run around about how "oh it's a software problem, you should call up MSFT or  get a driver update from that other company etc...) 

- Focus and a small product portfolio which does allow for massive buying and locking up of certain supplies, either Flash, or even all of Fedex's capacity the day after an iPhone launch.  Since they have so few products they can exert a reasonable amount of pressure on suppliers.  This cuts both ways now though, since they are in bed with Samsung.

 

What will make them topple?

- Steve Jobs was the 'one ring to rule them all'.  I have heard that the situation has turned a lot more political now that he's gone.  People are jockeying for position, witness the Forstall incident.  It will be interesting to see what happens going forward, but I think this is a big problem going forward.

- Apple is big.  When you're the king of the hill it both takes a lot to move the needle, and great things are expected of you.  Media and others have been more critical lately when something doesn't 'blow them away'.  Plus they lost their reality distortion field.

- Competition is heating up.  5 years ago iPhone was years ahead of everyone.  Now they are ahead in some ways and behind in others.

- As a stock, the issue is that with that large a market cap, and that big a float, the big buyers are few and far between. 

 

I could go on, but that's a brain dump.

 

 

[Parsad]

Good points Bargainman!  I remember when the iPhone came out, I went to an Apple retail store in Seattle, because they didn't have one in Vancouver at the time.  The technology was mind-blowing and the interface was intuitive out of the box.  They were way ahead of anyone else.  I have yet to see that from any of their products since the introduction of the iPad.  I can't wait to see what they do next...if they do something that great, that is.  Cheers!

[Sunrider]

Guys to inject some humour on this very grey Sunday in the Cape:

 

I forgot who it was that started the TSLA thread but the kick-off as "we need another thread for flame wars" was brilliant. Can't we just all accept that AAPL trades at 10x earnings (or thereabouts), that even if they just do 'ok' they'll still be cheap in many people's views and be done with it?

 

;-)

 

So much time goes into the posts here around things that really seem minor in the great scheme of Apple things. They'll either come out with another great enough product this year or next, or they won't. In the meantime their business ticks along whilst competition eats into it. Not a whole lot more to analyse methinks until such time that the above happens (or fails to).

 

So on then over to the TSLA thread ... has Musk released anything else on the Hyperloop yet? Check out ET3 by the way.

 

(all in good spirit)

 

C.

 

Oh ... I'm typing this on a Mac ... darn, I guess I must be partial.

[txlaw]

I agree, but wanted to add some thoughts on summarizing Apple as "software", which I think overlooks vast tracts of value created by their method.  I prefer to think that it's the "intangibles" that make Apple what it is.  Software is a big part of that.  And software could easily include things like iTunes and iCloud and device integration that are such wonderful aspects of the ecosystem.  But what the software argument doesn't include is all of the other intangible aspects that make Apple such a great brand.  Things like emphasis on design, focus on quality, a detail oriented approach to packaging (at all levels), marketing, great customer service, etc.  In isolated chunks, none of these factors are game changing, but as a whole they reinforce that most intangible of intangibles: Apple's brand.

 

I agree with most of what you've said about Apple. 

 

What we might disagree on is the proportion of value that is assignable to the intangible assets you mentioned: the packaging, marketing, customer service (via the Apple Store), and branding, generally.  In my opinion, Apple's amazing market share (considering it is the Porsche of smart phones) is primarily due to their design thinking and the way that has resulted in an outstanding software + hardware package that gives a phenomenal user experience. 

 

And so when the software design innovation gap closes, and if the OS commoditization theory plays out, the Apple brand will still be worth a lot, but it won't be enough to sustain Apple's market share and current level of profits -- even if Samsung, MSFT, and others never provide the same level of customers service, branding, etc.

[txlaw]

Can't we just all accept that AAPL trades at 10x earnings (or thereabouts), that even if they just do 'ok' they'll still be cheap in many people's views and be done with it?

 

;-)

 

Well, there is a problem with this sort of thinking.  Remember that just a year or two ago, people were saying that AAPL was cheap based on its forward P/E ratio.  But as we know, the E in that equation changed and continues to change.

 

That's really what the debate is about.  It's all about whether the current level of earnings is sustainable and, if not, what the IV of Apple really is.

 

So much time goes into the posts here around things that really seem minor in the great scheme of Apple things. They'll either come out with another great enough product this year or next, or they won't. In the meantime their business ticks along whilst competition eats into it. Not a whole lot more to analyse methinks until such time that the above happens (or fails to).

 

I would hardly call discussing whether or not AAPL will lose market share, suffer more gross margin compression, and have less revenue growth as minor details when it comes to investing in AAPL.

 

I think that Apple the company will exist in the long run, and I also think that they will continue to generate profits for the foreseeable future.  But we're talking about valuation here. 

[txlaw]

Guys to inject some humour on this very grey Sunday in the Cape

 

Btw, I get that your post was intended to be a gentle nudge and a way of saying that maybe we're spending a bit too much time on AAPL (and perhaps other tech companies).

 

But I think the discussion has been very valuable because there has been some very good debate on the business fundamentals associated with these tech companies.  I view it as good mental exercise for thinking about business.  If my posts were proportionate to my portfolio, I'd be posting way more about financials, nat gas companies, telcos, and auto manufacturers.  But there is less to work out about those other investments.

[Guest valueInv]

RichardGibbons, my comment on being the clear market leader is not built solely around who is shipping the most devices. Instead, my with metric is if you had the ability as an investor to own any manufacturer out there (and own all future profits) who would you pick? My guess is most would pick Mac for personal computers and iphone for smartphone. Both enjoy the majority of profit share, the highest customer satisfaction ratings and the highest intent to repurchase ratings.

 

Yes, some may pick Samsung. I do not view them as being the leader. Should they displace Apple in the premium segment (where most of the margin is) and top Apple in customer satifaction and repurchase intent then I would pick Samsung.

 

I think it will be easier for Apple to take share away from Samsung in the mid priced segment than it will be for Samsung to take share from Apple in the premium segment. I think Apple will launch a mid priced phone in late Sept/Oct and I think it will sell like hotcakes. This will help Apple to once again actually grow smartphone marketshare. They will then be the number one player in both the premium and mid tier segments and they will capture the majority of profits in the smartphone category.

 

Until Samsung demonstrates that it is able to innovate I will have a hard time putting it in the industry leader category. I think if HTC or Sony can grow (via Android) Samsung is the most at risk. Same with the cheap Chinese manufacturers... they are coming after Samsung in the low end market.

 

Viking, one thing to consider in the Apple versus Samsung debate is that Apple isn't really a CE company.  They've never considered themselves the equivalent of a Sony or Samsung because they feel their value-add is about software (really, the OS that runs on top of the specially picked hardware).

 

See

.

 

The reality is that Samsung is making money in the iProduct value chain by manufacturing many of the components that Apple uses in its products.  Samsung is one of the display manufacturers that Apple relies on for its high quality displays.  And Samsung actually makes the A6 chip for Apple in Austin, Texas.  (Note that the Nexus 10 -- a full-size iPad competitor -- that will be coming out soon is manufactured by Samsung.)

 

Therefore, it probably doesn't make sense to call AAPL the premier manufacturer.  If anything, Samsung could arguably be considered the premier hardware manufacturer, at least wrt smart phones.

 

Instead, it makes sense to compare AAPL with GOOG, MSFT, BBRY, etc.  iOS 7 cribs a lot of features off of their competitors.  There's nothing wrong with this, but it sort of dispels the myth that Apple is the leader in innovation.

 

The competition is heating up, which is good for consumers.

 

uhhh, not true.

 

- If you follow Apple you should know that they are sourcing less and less from Samsung. Even most components that are sourced from Samsung are dual-sourced with Samsung being only one of the vendors

- Apple spent more than $10B capex in "manufacturing and process engineering". What software company spends so much?

- Bob Mansfield leads a newly created advanced technology group. He is a hardware guy

- Apple designs its own chips

- Apple buys and installs its own equipment at assemblers and manufacturers

- Apple has been buying hardware companies like Authentec

- And there's a lot more coming up. Stay tuned.  ;)

 

[VAL9000]

What we might disagree on is the proportion of value that is assignable to the intangible assets you mentioned: the packaging, marketing, customer service (via the Apple Store), and branding, generally.  In my opinion, Apple's amazing market share (considering it is the Porsche of smart phones) is primarily due to their design thinking and the way that has resulted in an outstanding software + hardware package that gives a phenomenal user experience. 

 

I don't think we're far off on our conclusions here.  When you say "design thinking", that to me is an intangible thing.  The result is something that you can hold in your hand, but the whole process that leads to the manufacture of that device is where the meat is.  When we're talking about tangibles, I'm thinking of the actual assembly of the device, logistics, chip fabrication, etc.  That stuff, as you pointed out, has very little to do with Apple's core competencies.

 

[txlaw]

RichardGibbons, my comment on being the clear market leader is not built solely around who is shipping the most devices. Instead, my with metric is if you had the ability as an investor to own any manufacturer out there (and own all future profits) who would you pick? My guess is most would pick Mac for personal computers and iphone for smartphone. Both enjoy the majority of profit share, the highest customer satisfaction ratings and the highest intent to repurchase ratings.

 

Yes, some may pick Samsung. I do not view them as being the leader. Should they displace Apple in the premium segment (where most of the margin is) and top Apple in customer satifaction and repurchase intent then I would pick Samsung.

 

I think it will be easier for Apple to take share away from Samsung in the mid priced segment than it will be for Samsung to take share from Apple in the premium segment. I think Apple will launch a mid priced phone in late Sept/Oct and I think it will sell like hotcakes. This will help Apple to once again actually grow smartphone marketshare. They will then be the number one player in both the premium and mid tier segments and they will capture the majority of profits in the smartphone category.

 

Until Samsung demonstrates that it is able to innovate I will have a hard time putting it in the industry leader category. I think if HTC or Sony can grow (via Android) Samsung is the most at risk. Same with the cheap Chinese manufacturers... they are coming after Samsung in the low end market.

 

Viking, one thing to consider in the Apple versus Samsung debate is that Apple isn't really a CE company.  They've never considered themselves the equivalent of a Sony or Samsung because they feel their value-add is about software (really, the OS that runs on top of the specially picked hardware).

 

See

.

 

The reality is that Samsung is making money in the iProduct value chain by manufacturing many of the components that Apple uses in its products.  Samsung is one of the display manufacturers that Apple relies on for its high quality displays.  And Samsung actually makes the A6 chip for Apple in Austin, Texas.  (Note that the Nexus 10 -- a full-size iPad competitor -- that will be coming out soon is manufactured by Samsung.)

 

Therefore, it probably doesn't make sense to call AAPL the premier manufacturer.  If anything, Samsung could arguably be considered the premier hardware manufacturer, at least wrt smart phones.

 

Instead, it makes sense to compare AAPL with GOOG, MSFT, BBRY, etc.  iOS 7 cribs a lot of features off of their competitors.  There's nothing wrong with this, but it sort of dispels the myth that Apple is the leader in innovation.

 

The competition is heating up, which is good for consumers.

 

uhhh, not true.

 

- If you follow Apple you should know that they are sourcing less and less from Samsung. Even most components that are sourced from Samsung are dual-sourced with Samsung being only one of the vendors

- Apple spent more than $10B capex in "manufacturing and process engineering". What software company spends so much?

- Bob Mansfield leads a newly created advanced technology group. He is a hardware guy

- Apple designs its own chips

- Apple buys and installs its own equipment at assemblers and manufacturers

- Apple has been buying hardware companies like Authentec

- And there's a lot more coming up. Stay tuned.  ;)

 

You put a lot of good information out there, but I think you're missing the main point I was trying to make, which was not that AAPL doesn't have hardware ops.

 

Apple does design hardware in-house.  They're definitely trying to bring in more manufacturing in-house and become more vertically integrated.  They continue to finance and acquire a lot the new hardware technologies they use (one reason why you can't look solely at GAAP earnings to determine Apple's owner earnings).  And they're also gravitating away from hardware suppliers who are competing with them, to the extent they can.  (Note that they will almost certainly have to rely on their frienemies though for sourcing, especially for display technology.) 

 

In fact, Apple has to bring more hardware expertise in-house because they are no longer able to lock up all the best supply at attractive prices with their dominant purchasing power.  They're competing with the rest of the guys for hardware supply now (including many of the hardware vendors themselves).  There are even reports indicating that Google beat Apple to the punch for sourcing "retina screen" display technology from Japan Display for the Nexus 7.  This could be because of Apple's insistence on using a larger display for the iPad Mini, but the effect is that all the capacity is used up to where Apple could miss the holiday buying season for any iPad Mini retina.

 

However, this all besides the point.  I am arguing that the value-add that results in these outrageous gross margins comes from the software side of the business, not hardware, and that's Apple's true competitive advantage. 

 

With each iteration of Android smart phones, the distance closes between Apple's optimally designed boxes and Android providers' "good enough" boxes.  The HTC One is close to being as smoothly operating as the iPhone 5, and the next iterations of Android hardware could show that vertical integration is only sufficient for keeping the "high end" of the market.  (It's sort of like the repeat of what happened in the PC market.)  At that point, it's the user experience and software and services integration that become more important to Apple's prospective customers.

 

Btw, Samsung apparently makes pretty impressive gross margins in their handset division (based on analyst estimates), but I don't think this is sustainable over the long term.  I think Samsung can be the low cost provider of awesome hardware, but I'm not sure they can make software type margins over the long run.  But they have impressed me so far, so I might be wrong on that.

[txlaw]

What we might disagree on is the proportion of value that is assignable to the intangible assets you mentioned: the packaging, marketing, customer service (via the Apple Store), and branding, generally.  In my opinion, Apple's amazing market share (considering it is the Porsche of smart phones) is primarily due to their design thinking and the way that has resulted in an outstanding software + hardware package that gives a phenomenal user experience. 

 

I don't think we're far off on our conclusions here.  When you say "design thinking", that to me is an intangible thing.  The result is something that you can hold in your hand, but the whole process that leads to the manufacture of that device is where the meat is.  When we're talking about tangibles, I'm thinking of the actual assembly of the device, logistics, chip fabrication, etc.  That stuff, as you pointed out, has very little to do with Apple's core competencies.

 

Ahh, then it seems we are very much on the same page.  :)