Things AAPL fans should actually fear:

1. Internet radio making iTunes irrelevant (happening on college campuses already)
2. Losing the "hip" image. Competition from Samsung and its rather tone deaf move to (temporarily) ignore EPEAT certifications (angering all its hippie customers)
3. Users somehow gaining the ability to move apps to Androids, either by getting the same apps for free (this happens) or some other fashion I can't think of.
4. Decreased level of polish. One of the things that impresses me about Apple is it actually has better integration with Google mail, tasks and calendars (with the MacOS clients) than the abominable Outlook+Google solutions (many of which are not free.) Their recent executions? Itunes Match still works like it's in beta. Siri still can't deal with background noise (lol using it in NYC). Magazines looked horrible on the new iPad. These are things that should not have gotten past product testing. Things I would not expect with a perfectionist Jobs at the helm.

Any one of these factors can break down the barriers of AAPL's walled ecosystem. But until we start seeing the users move, people, myself included, will continue to pay pretty crazy premiums to get the most polished product on the market least likely to give me headaches.

And oh, make me feel young and hip... younger than my actual age anyway.

TLDR: Until AAPL reality distortion field runs out of power, it will continue to enjoy ridiculously high margins on its hardware.

Things AAPL investors should actually fear:

1) Changes in smartphone/subsidy pricing agreements.
2) Android users increasing the amount of time/money spent on the devices.
3) Asian markets heavily favoring Android over iOS.
4) Further improvements to Android and the Google ecosystem.
5) Supplier constraints or problems.
6) Reduction in innovation...or even the perception of this.
7) Failure to enter new markets successfully (Television).
8) Failure to continue to leverage and expand iTunes/Mobile sales.

Samsung Pays Apple $1 Billion Sending 30 Trucks Full of 5 Cents Coins!! HAHA

http://en.paperblog.com/samsung-pays...-coins-294795/

In the US i think apple have a few extrapercent..its there homemarket.
In asia many will choose HTC or Samsung for the same reasons

Young and Hip are only the IPads here, Iphones are far behind Samsung they have still lost there pool position.

Overall i find amazing that noone is scared about Microsoft, they have nearly no business in " mobile devices " so far. Usually they must be scared that with the time people move from desktops and laptops to tablets and phones.

I am relative sure that they will try to strike back and for people like me
a great working Windows 8 / 9 with a 100% compatible Phone/Tabletsoftware would be a nobrainer. Anything that i use would work on all systems...one of the reasons that apple is last on my personal list.

Ok maybee a german thing.

You are pretty stupid to believe that this is true (the sending 30 trucks full of nickels part).

You are pretty stupid if you think that when anybody posts a link they believe what it contains to be true.


Yes I did read the small print at the bottom.

Never read the thread before, just started going through it and quoting the above post for the sheer lol of it all...

No.

Yes. Although not sure on the TV part - Apple does need to enter new markets of course to maintain growth, but if you're referring to Apple TV device sales (should Apple develop new TV products), I'm not sure they need to win that. They just need to ensure their software is prominent on the TV screen - that's most easily accomplished by actually selling the device, but as we know the TV device business is not a great one from a margin perspective.

They simple have problems to deliver the parts for the iphone 5, or they increase the prices so that they make 2 billion

Via Felix Salmon

Any of the pro apple fans afraid that it's run up has been to much to soon. It's run from 400 to 675 in just eight months. It's market cap is huge. I know it could run up some more but why couldn't it dip as well. I would think a 20% swing either way wouldn't be unheard of.

Its a growing business and apple of course will earn money but i would not be too optimistic. Microsoft had a monopol..apple not. Apple develop a product and they create a new market. Sure that they had a big advantage but in my opinion they will loose the top position. One of the reasons for me is there kidnapping-like ecosystem.

Iphones best running markets USA, GB and Australia.
Tablets: Ipads so far rated as the best tablet nearly worldwide.
Smartphones: The Iphone 4S is rated as 13th out of 289 here in germany.

Germany at sample they increased there marketshare 2012 from 20 to 22,3%
Android from 13% to 45%
Looser was Nokias Symbian from 45 to 7%

At least continental europe loved Symbian and love now androids

Consumer satisfaction is not great here for any Smartphone including the Iphone, guess they expect more for the pricetag.

For the TOP_Smartphones 19-25% voted there product as crap.
The poorest cars here have such ratings but to be fair also Audi is voted with 9% crap

Television was/is my best guess as to their next major market entrance will be. Rumors and analyst opinions on this subject vary widely. Some think Apple won't enter this space while others think it is imminent.

I'm also skeptical on if they'll actually sell TVs. I agree, the most important thing is Apple controlling the user experience and vastly improving it over what is currently available. They won't be able to do that without help from the content providers and/or carriers. The television industry is a tough nut to crack if you're Apple, and wiggling in and wrangling control away from these two interlinked groups won't be easy.

My beliefs are that if Apple could develop, produce and sell an Apple branded television set that could control the user experience how they'd like, they would. They just can't. So instead they need to slowly work their way into the market another way. Apple TV (current product) is a start ("hobby"). Working with Comcast, Time Warner, Cablevision, Cox, Charter, Direct TV, Dish, AT&T, Verizon, etc on supplying set top boxes with better interface might be a route. I honestly don't know though how this will all unfold and am interested to see if/how Apple approaches this market. I think it is long overdue for change.

this was also true about the mobile phone/smartphone business before iphone came along. and that business is still pretty crappy from a margin perspective for everyone but apple.

that's not to say iphone-like margins will ever be attainable in TVs, but i wouldn't count it out as a potentially very profitable business.

Apple seems to be the most misunderstood company in the world. It is seen as an innovative company, but it mostly assembles existing technology. It is associated with counterculture, but among tech companies, it has one of the most oppressively top-down corporate management where decisions flow strictly downward. It seems new and hip, but its approach to design is notoriously conservative and is extremely resistant to change (compare the evolution of MacOS to the evolution of Windows. or for tha matter the evolution of iOS to the evolution of Android). It stands for the pinnacle of American entrepreneurship, but its culture is strangely Eastern and collectivist,

To answer Felix Salmon's somewhat poorly researched piece, Microsoft in 1999 was dominant in a way that Apple has never been. It had the dominant OS, the dominant productivity suite, and was on the way to having the dominant web browser. It had won every major fight for marketshare in every market it entered and looked invincible. Earnings growth, given their dominant market position and unparalleled software engineering prowess, was inevitable. Also the height of their dominance was also the height of the technology market, whereas Apple was in terrible shape when the overall technology sector peaked. If investors in 1999 knew exactly how much Microsoft would go on to earn in the 2000's, I don't know that they would be priced all that differently. As a software organization, Microsoft was so dominant that it took efforts by millions of volunteers around the world working to commoditize Microsoft's core strength through open-sourcing their work to keep Microsoft taking over the world completely. Apple and Google and just about every company that survived against Microsoft (RedHat, IBM, Sun, etc) owe a huge portion of their success to utilizing open-source software (Linux/GNU, BSD, WebKit, Apache, MySQL, Perl, Python, etc) - it's not clear that they survive without those volunteers and collaborating in the open with one another.

Yet Windows has 90+% marketshare, is completely entrenched in the enterprise, not to mention .NET, Office, SharePoint, etc.

Apple does not have anything close to that level of market dominance Microsoft did and still does. Very few people are meaningfully locked into iPhones and iPads the way people were and still are locked into Windows. Because of the lesson people learned with Microsoft and availiability of web applications/services, people simply don't invest that much in a single platform solution - just about every top grossing iPhone app is largely redundant (games or otherwise time-waster), represents little commitment on the part of the buyer and has an android equivalent. Most popular apps are simply front-ends to platform-agnostic services. This is different from the 90's when a lot of software companies were happy to write extremely complex Windows-exclusive software with little thought given to portability. No proprietary platform has that level of commitment from developers and Windows is still probably the most valuable proprietary platform by this measure, with Java and .NET close behind.

Another thing is that consumers are often irrationally price-sensitive for one-time purchases for durable goods. On the other hand, consumers are quite price-insensitive for subscription services paid over time. This structurally helps companies that have heavily invested in software and software services (Microsoft, Google, Facebook, etc) over companies that are dependent on hardware sales. Even Apple derives a huge portion of their revenue by coupling their hardware to carrier contracts, taking advantage of the oligopolistic structure of the market to extract rent from carriers. If all phones are unlocked or if carriers stopped subsidizing smartphones, Apple would lose market share without accepting lower margin. The trend towards this is probably inevitable because the main reason for the size of the subsidy was that data plans were quite lucrative and the barrier to them quite high due to high smartphones prices. Once prices for good-enough smartphones drop sufficiently and almost everyone's on the data plan, there's no longer any reason for carriers to subsidize purchases to the extent they do.

There are three possible futures for Apple's core markets - commoditization, arms race for features or absorption. Obviously in case of commoditization, Apple's record margin is unlikely to persist. In the arms race, Apple has to win to remain viable. If iOS or Apple's hardware design somehow fail to keep up with the market leader, Apple is unlikely to become anywhere near as profitable it is today. This is what happened to Apple in the 90's - Apple could not keep up with Microsoft. Mac OS was laughably ahead of DOS/Windows in the 80's, but it fell behind with every release of Windows and by the late 90's, it was obvious to everyone that Apple had to start over with a different OS, which it did with OPENSTEP (which became MacOS/Cocoa).

And in the brief history of iOS versus Android, it's not looking great for iOS. iOS had a multi-year head start over Android, just as MacOS did over Windows, but at this point Android seems, from a purely engineering standpoint, ahead of iOS. Google is moving much faster to add features and fix flaws than Apple, despite the obvious handicap of having to support many more hardware combinations. The Android code base is probably much more accustomed to variations - a lot of the code base had to survive behavioral changes in other code, to due to a much more rapid change in the feature set and general flexibility afforded, not to mention hardware variability and vendor modifications. These constraints lead to a more flexible code base and design that can accomodate unexpected changes in the future. Furthermore, this is the sort of challenge that makes you a first-rate software engineering team.

In short, Apple's corporate strategy unfortunately makes it difficult for them to become a world-class software organization that can develop software that can survive rapid changes to win arms races. Apple's top-down culture and its internal lack of emphasis on software development, despite being almost entirely dependent on software for differentiaton of hardware made up of commoditized parts, do not help its cause either. Apple has very little influence on the rest of the software industry, the way Google and Microsoft do. Apple has no popular software services (Google Search, Gmail, YouTube), no important productivity suite (Office, Google Docs), no important development tools/platform/infrastructure (.NET, Azure, Google App/Compute Engine). The depth and breadth of software talent at Microsoft and Google have no equivalent in Apple. Add these up and Apple is very unlikely to become much more than a niche player if the smartphone market becomes part of another larger market without Apple controlling the transformation (which it did, when the portable music player market became part of the market for smartphones).

Nearly all of Apple's corporate profits historically come from using its vertical integration and diverse, loyal talent managed with singular vision to become the first to develop products that are only recently enabled by advances in technology. And use this first mover-advantage and a head start in design, execution and internal organization to become dominant, enabling a platform effect. Milk the ensuing ecosystem and brand loyalty to earn abnormally high profits even after the product superiority disappears. This describes the Mac, the iPod, the iPhone and the iPad. It's been possible because other companies tend not to have the talent to design whole systems from software to hardware. While Apple isn't quite the software powerhouse Google and Microsoft is, it's a much better software company than, say, Samsung or Sony. Google and Microsoft find hardware design to be uninteresting work best suited for people much less smart than their best employees. This leaves an opening whenever there's a need for an entirely new category of devices.

This likely means Apple needed to invent a new category to win - otherwise it will be relegated to a niche player with eroding margin, increasingly unable to justify the lofty valuation. History is not on their side. In the entire history of computing, there have really been about two product categories that could justify valuation at that level - the PC and the smartphone (the game console and the tablet are close but probably don't make the cut; the portable music player certainly doesn't). Smart-TV, smart-appliances are likely not that big of a market and it's also a market in which there are multiple existing players, including Apple. Apple's not Microsoft - it doesn't tend to fight from behind by slowly improving its product to win races.

Thanks for the post, and 100% agree with your thoughts, especially the point that the TV ecosystem is ripe for innovation (specifically on the set top box part of the business).

I think it's more difficult to imagine today, but very solid point that we can't count out Apple in TV device sales.

When you compare smartphone device sales to TV device sales, there are some pretty transparent issues (I think) in terms of value capture that exist today for Apple - 1) no established carrier/operator subsidy model for TV device sales; 2) long replacement cycle for TVs v. smartphones; 3) expense to produce TV driven by screen prices. Probably some more I'm not thinking of.

Over time though, I can see replacement cycles for TV moving from say 5+ years to 2+ years as hardware costs drop even more, and Apple perhaps cracking the code in the TV market one day as they did with the iPhone. But today, it looks like it's not a great market for Apple to be in, imo.

Phone Booth - really interesting post, thanks for sharing. I obviously don't know as much as you about the software/technology industry - will try to develop a viewpoint on your thoughts after doing some more research! Feels overly pessimistic though, imo. One point though that jumped out to me:

I'm not sure precisely what your point is w/r/t Felix Salmon's piece - I'm not sure that it is poorly researched, because I think Salmon is making a very straightforward point, and in fact, I think you basically agree with him?

AAPL drives absurdly high earnings, and investors trade AAPL at what looks like reasonable P/E ratios. You note that AAPL does not have the same monopoly advantages MSFT appeared to have, and it seems investors completely agree with you, and this is reflected by its relatively modest P/E (ttm 15.6x, and forward P/E 12.7x).

Maybe I am missing something though, very possible.

First, he's saying that Apple investors are somehow more rational than Microsoft investors based on some correlation which has nothing to do with Apple and Microsoft, but everything to do with the market as a whole. That Apple shares bottomed during the tech boom does not mean Apple investors are somehow more rational. It just means Apple as a corporate entity performed horribly during the tech boom. I'm really not sure what other information he thinks that graph tells.

Second, he's claiming that Apple's valuation today seems reasonable compared to Microsoft's valuation in 1999. I'm saying that he's ignoring fundamentals that have nothing to do with investor euphoria. Microsoft in 1999 was probably fairly or even slightly undervalued relative to the technology sector, which was quite overvalued as a whole. Apple is probably somewhat overvalued relative to the technology sector, which is much more fairly valued as a whole.

Overall, I'm disagreeing with his use of P/E to determine investor "euphoria" and "rationality" - investors can rationally pay for high P/E or be euphorically optimistic despite a low P/E. A lot of the financials at their peak in 2007 were trading at P/E around 10.


This is unlikely to happen. It's far more likely that replacement cycles for smartphones will move to something like 5+ years within the next few years. This has already happened to video game consoles and PCs, for instance.

The main reason that smartphones are being upgraded every two years is due to the form factor and present technological limitations related to the form factor that are failing to meet consumer needs. Mobile CPU/GPU performance, screen technology and battery performance haven't become good enough for some applications and are still rapidly improving. This means new software can't run on old hardware and customer demands for more complex features can only be met by hardware upgrade. This is beginning to change and will essentially end in 2-4 years unless something changes dramatically. Software isn't becoming complex quickly enough to keep pace with hardware advancement. Galaxy S3 and the upcoming iPhone 5 are powerful enough that they will be around to survive quite a few OS upgrades. This is obviously going to be even more true for newer devices.

Today's TVs, as dumb screens, are already good enough for the next 10 years. They can already do pretty much anything any future smart TV can, if you connect it to the right smart media receiver. TVs aren't limited in terms of form factor or other engineering limitations and content format used for TV must be standardized, which significantly limits the demand for arbitrarily powerful hardware.

Like you wrote apples absurde high earnings !!

In my opinion most are blended from Apples comeback and actual success.

And work apples closed / kidnapping ecosystem also with jailbreaked phones ?
A few here off course use apples products but all say to make it better you have to break it.

I dont know the US market but here apple run from 20% market share to 22 %, android from 15 to 45%. Sure this is from many producers inclusive low end androids. Microsoft is out of the market, but they will fight back and lets say in 2016 we see.

Android 65%
Windows Phone 20%
Apple 13%
Blackberry and others the rest

What do you think offer the best apps than ? What is " IN "

There TV plans might work in the USA, but here we dont use cable have plenty free channels and by the way normal pay-TV is a extreme poor business here too.

Phone Booth with great posts. I don't think it's a coincidence Apple without Jobs was not particularly innovative.

Jobs was one of a kind and I don't really understand why so many people think AAPL can continue its current rate of innovation (perfecting and packaging existing technologies is innovation too) without Jobs at the helm.

Considering AAPL's corporate history, I wouldn't bet on that, not at current multiples anyway.

Besides smartphone/subsidy requirements, everything scoot mentioned is at least partially reliant on AAPL's reality distortion field keeping its ecosystem in tact.

Thanks, this is a great post, much appreciated. Especially the bolded above - to your point, if Salmon wanted to take an in-depth look at the graph, he would have benchmarked MSFT relative to its peers in 1999, and AAPL to its peers today from a P/E perspective to give appropriate context. Probably a very obvious point to others on the board, I didn't get that, thanks again.

This is a very solid point (smartphone replacement cycles getting longer) - makes a lot of intuitive sense to me - and of course is just one dimension where AAPL loses profits in their smartphone business.

This makes sense - I was envisioning/positing a future that might make sense for AAPL to enter into the TV device business (shorter TV replacement cycles similar to current smartphone cycles) - obviously even longer TV replacement cycles would make the TV device business even less attractive to AAPL.

I'm not disagreeing with the general premise as much as I did entering into the thread - and have a better understanding of how AAPL's smartphone business may be challenged in real ways.

But oftentimes, people point to Android market share statistics, but what we really, ultimately, care about is profits. Just a point in case on mobile handset profits:

http://news.cnet.com/8301-1035_3-574...its-wait-what/

That is insane. Last I saw I think this time last year AAPL was ~60% of mobile handset industry profits. I don't know what the tablet stat is, but I'd guess its equally as impressive. And as we all know, both the high end smartphone and tablet market are growing rapidly - AAPL could theoretically not grow market share (let's say hold at 6.5% penetration), but still very much continue to grow its smartphone/tablet businesses and profits and just grow with the markets.

I'm not saying this stat in isolation directly counters what you and Photo Booth are saying, I just think a more profits focused discussion makes sense in a BFI thread - that it's probably less important to understand Android OS marketshare (though that is obviously a very important indicator), but what AAPL's own smartphone profit growth curve may look like. All indicators, AFAIK, are very positive on that front in the near-term (let's say 2-3 years out).

Nice post phone booth

I wonder of Microsoft aren't far more worried about Google/Android/linux than anything Apple can do. Android for the PC cant be far away and could be formidable

That was a pretty good post PB