How the Jealous Investor Community Tries to Punish Apple

| Particle Debris

The investor community has its agenda. Make lots of money and delight themselves. Apple has its own agenda. Make lots of money and delight the customers. When these two agendas clash, $AAPL tanks. Think of it as punishment for Apple raking in all that money.

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We know the drill. Investment analysts, VCs, and some media sites get a simple-minded idea. Apple should sell cheap iPhones to stop the infestation of cheap Android phones in emerging markets. That will surely allow Apple to squeeze out the bad guys and dominate the market. If Apple dominates, its investors get rich.  That was happening in 2011 and 2012 with the iPad, as Apple reigned. Apple stock soared.

Apple, on the other hand, has its own set of problems. It must maintain the quality of its brand, and it must allow any iPhone to be a gateway to its own services, iTunes, iCloud, iBooks, and so on.

So just exactly how would Apple build a cheaper phone that nevertheless supports all the services Apple offers and also maintains that special customer craving for something really cool? Cheaper speakers and audio subsystem would denigrate iTunes. Crappier display? That would only disappoint. Omit certain communication bands? Then it wouldn't work worldwide seamlessly. Cheapen the construction so that when a customer drops it from a meter height, it explodes into 20 pieces? Not good. Smaller battery? Not with LTE you don't.

Apple executives have access to information we do not. They know how each part of the design of the iPhone fits into their strategy and the markets the company pursues. They know what sells and what doesn't. They can estimate what would be lost by going cheap.

And so, Apple pursues its own agenda and lets market share slide. Other companies that sell smartphones (besides Samsung) aren't making much, if any, money. Yet, the tirade of the investor community continues to misjudge Apple's business model, and so they, in dismay, punish Apple by selling off their stock.

Here are two excellent explanations. First, Jay Yarrow: "Apple Doesn't Want, Doesn't Need, And Doesn't Care About A Cheap iPhone." Second, Rocco Pendola: "Apple Laughs When It Realizes Google Makes Computers."

Meanwhile, Apple takes the money, in an indirect sense, the investors could have made and banks it. To the tune of US$140 billion. That makes them even madder. So Apple had to placate investors with dividends. But it isn't enough.

And so it goes, around and around.

In my opinion.

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Tech News Debris For The Week of September 9

Jean-Louis Gassée suspected that Tim Cook may have tricked competitors into a false sense of what a modern smart watch ought to be. He explores that theme, playfully but smartly, in: "Apple’s Wearables Future."

John Sculley has provided a detailed account of what drove Steve Jobs out of Apple back in 1985. Why now? According to Forbes, "Sculley clearly didn’t appreciate Ashton Kutcher’s recent Steve Jobs biopic. (“For those of us who knew him well, [we’re] scratching our heads what they were thinking of when they wrote this movie,” he said earlier in the day.) Here's the story, including Sculley's biggest regret. "John Sculley Just Gave His Most Detailed Account Ever Of How Steve Jobs Got Fired From Apple."

It just goes to show that re-creating history for the sake of entertainment (and cash) while the principals are mostly still alive is a perilous, vacuous venture.

Rocco Pendola thinks that Apple, by making iWork free, is being very clever, and I agree. It's one of those things where you lightly mask the "2" (content creation on a tablet) then add the other "2" (free iWork) and someday, a magic and obvious sum of "4" pops out that no one saw coming: Microsoft's tablets plans are derailed: "Apple Killed Microsoft: The Media Buried the Lede."

It appears to be insane for Google to allow anyone to post apps to Google Play and then have a setting in Android to restrict downloads to Google Play only. (Ostensibly for better security.) Especially since, according to Symantec, about about 1,000 malware apps were posted there in August alone. Although the apps are removed, usually overnight, Symantec notes that during that time, there are an estimated 8,500 to 10,000 downloads by unsuspecting customers. Ouch.

For those who thought that Apple was out of iPhone innovation gas, Dan Rowinski sizes up the iPhone 5s and writes that "The iPhone 5S: More Than An Incremental Apple Update." Rowinski writes," Apple wanted to state, with authority, that its iPhone [5s] was the best damn smartphone ever built."  And it has.

Image Credit: Apple

Finally, Dan Goodin is the Security Editor at ars technica, and he's written a pair of interesting articles on the state of security in Java. "Security of Java takes a dangerous turn for the worse, experts say" and then, later in the week, "New features aim to shore up Java’s flagging security."

Comments

aardman

I’m going to sound like the choir here and nod wholeheartedly to “Apple executives have access to information we do not.”

Among this information that they know that we don’t is a comprehensive customer profile which relates what device you bought, how much you paid for it, how you paid for it (cash, credit, carrier contract, no-contract, etc.), how much you spent subsequently on apps, on accessories, on Apple Store services, etc.  And they have this for each country.  In short they have information that tells them what price for what device is going to generate what revenue in what country.

They also relate the above information to how often you called tech support, how often you visited a Genius Bar, and what service you received.  So they know how much each customer cost Apple in tech support.

This is the information that we don’t know, that no analyst knows, that is critical in determining Apple’s pricing strategy.  It probably lead them to a no-brainer decision—that they cannot deliver a proper Apple product at prices that will capture the middle class 3rd world customer.

Bosco (Brad Hutchings)

Seems like a good time to round up every penny you have and buy AAPL. A year of living on Top Ramen and getting an extra day out of ever pair of Jockey Shorts could become Top Sirloin every night and Fruit of the Loom boxer briefs in Fall, 2014.

Let me try to put it another way… This should make every Apple fan a proponent of eliminating insider trading laws (other than disclosure). All that internal private information we can’t know about would become measurable enough if Tim, Jony, and Eddie (or hundreds of mid-level managers) could trade AAPL shares on it.

mrmwebmax

+

Regarding the article on how Apple killed Microsoft by bundling iWork with new iOS devices, I have to wonder if that move on the part of Apple led to Microsoft’s obvious desperation move to offer a $200 iPad trade-in program as part of a Surface promotion:

www.zdnet.com/microsoft-launches-ipad-trade-in-promotion-7000020629/

As I mentioned in the forums, this move by Microsoft is just plain nuts. They expect that people will:

a) trade in the world’s most popular tablet, for
b) tablets that no one wants at all, at a time when everyone knows that
c) Microsoft is going to be announcing new Surface tablets in the very near future.

If that’s not desperation, I don’t know what is.

John Martellaro

Brad, believe it or not, I missed you!  Welcome back.

Bosco (Brad Hutchings)

Thanks. I read regularly. More focussed on NSA/security issues these days. Lot of disgust out there.

mrmwebmax

+

Jason Hiner has an interesting article over at ZNet, where he argues that the 5c was never meant to be a cheap iPhone for emerging markets. Instead, he first notes that no new iPod Touch has been announced. Then he adds that iPod sales, overall, are basically tanking YOY. Then he shows how inexpensively a household can now add a child or teen’s cellular data plan to their own existing plan.

His thesis: The iPhone 5c is an iPod Touch replacement. It makes a lot of sense: 88 million iPod Touches have been sold. That’s 88 million people—presumably young people—already bought into the iOS ecosystem with apps, music, and other media. So just as members of this group are getting old enough for a smartphone, Apple releases a $99 w/ contract full-blown iPhone 5c in a bunch of colors, with optional colorful cases that have obvious youth appeal.

It’s a good read:

www.zdnet.com/two-factors-reveal-apples-real-mission-with-iphone-5c-7000020669/

John Martellaro

mrmwebmax: Factors like that are what drive long lines in the Apple stores.  Amazingly, critics miss things like that in their assessment of the product.

mrmwebmax

+

John,

In retrospect, the young/tween/teen target market for the 5c should be obvious: The plastic body is for more than reduced cost and color: Its for durability. Add one of Apple’s silicon cases and you’ve got perhaps the most rugged iPhone ever built, which is perfect for the younger set. (What businessperson is going to want a colorful iPhone 5c in a contrasting color case with holes cut out?? No, they’ll go for aluminum and glass, and a leather case.)

Top that off with Apple’s not-so-subtle image on this page:

www.apple.com/iphone-5c/

Scroll down two levels to “Engineered to the brightest specifications.” In the red 5c, there’s a photo of a young girl playing a guitar. That’s the demographic they’re after. Note, too, the absolute marketing genius of the picture itself: The girl is in a red tent, wearing a white and yellow top and blue jeans, while sitting on a green and white striped towel. Her toenails are also painted green. The entire color palette of the photo is that of the 5c.

wmac

You are probably correct about the new 5c aimed at a younger demographic, but I’m upgrading to the 5c in red so I can tweak all the corporate types I work with. Haven’t figured out what color protector/case to purchase though. I am buying the unlocked version so I can use it on PureTalk USA network. BTW, I am not in the younger demographic, let’s just say I am closer to SS than graduating college wink

MacFrogger

Rocco Pendola said: “Apple should give iWork away for free. Everywhere. Every way. On everything. Not only could it crush Microsoft Office, but it will fend off Google’s push to extend the reach of its cloud-based software and services.”

I agree with Rocco - this guy is getting more insightful.  MS Office apps are the Achilles heel of Mr Softy.  The key for Apple is to make iWork apps (Pages, Numbers, and Keynote) as cross-compatible with their MS counterparts as possible while distributing them for free.  People will wake up one day and say, “my Apple apps don’t have all the features that my MS apps do, but they are good enough for me and they are free!” 

Lee Dronick

MacFrogger, in many cases TextEdit is all the user needs. Of course other people need Pages, Word or something more featured.

Are the iWork apps on iCloud available to everyone who has an account? If so that is sort of “free” though there is no local app.

MacFrogger

Oh yeah - I also wanted to say to Bosco:  Welcome back! 

I have always appreciated your contrarian views; they provide a useful counter-point when you and your antagonists don’t cross the line into personal attacks.  You are spot-on at times, and egregiously wrong at other times.  Just like everyone else in the TMO community.  Hmmm - by golly, you must be HUMAN!!  wink

MacFrogger

Lee,

Many of us in the corp/govt sectors cannot load docs, spreadsheets, etc into iCloud.  And we MUST use MS Word, Excel, and Powerpoint because these are the only apps our institutions will support and accept as corporate/govt docs - for now.  But we often work at home on Macs, create presentations in Keynote, convert them to Powerpoint - or create them in Powerpoint for Mac knowing they are compatible with ppt for PCs, because we know the computer we WILL present them on will be a PC… you get it?

Its difficult for those with control over their own IT to understand - but we who work in places where Windows/Office is essentially “locked in” have to conform to the dominant paradigm. Giving away iWork is subverting the dominant paradigm, and a brilliant “Trojan Horse” strategy!

iJack

“More focussed on NSA/security issues these days.
Lot of disgust out there.”[/]

And not nearly enough disgust here.

Lee Dronick

Closing the italics

Yes of course if there is a requirement for an app such as Word or Excel then thankfully that is an option.

Last week I was looking for an alternative to Adobe Illustrator because of their, ahem, requirement for the cloud. I took a chance and spent $25 on iDraw at the App Store. It doesn’t have all of the features of Illustrator, but I am more than pleased. The learning curve is not too steep if your are already familiar with Illustrator. Furthermore, it works with iCloud. smile

iJack

Sorry, and thanks, Lee.

Lee Dronick

Your welcome Jack.

I have taken to composing a lot of comments in Pages or Text edit and then pasting them in to the comment box. I can better edit them than in a comment box. Too bad that there isn’t a BB Code preview in word processors.

iJack

“Too bad that there isn’t a BB Code preview in word processors.”

Too bad there is one on TMO!

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