New Ways Apple Can Profit From the Recession

| Hidden Dimensions

"Boldness is business is the first, second, and third thing."

-- H.G. Bohn

It's generally known that Apple has used an economic slowdown in the past to get a jump on the competition, for example in 2001-2. Now, almost a decade later, technologies have changed, and the things that Apple can do with much more capital are dramatically different.

Back in 2001, according to a reference at the Motley Fool, Apple had US$1.191B in cash, $2.836B in short term investments and $300M in debt. That left them with $3.727B, which is a nice chunk of change, about three years worth of payroll at the time. (8,000 regular employees, ave. $75K/yr, 2:1 overhead rate.)

Apple cash

Credit: Todd Bishop's Blog

Since then, Apple has been accumulating cash at an amazing rate, and, according to Peter Oppenheimer at the last earnings report on January 21, Apple has US$28.1B in cash and marketable securities. With a mixture of Apple retail store employees and regular staff, amounting to over 32,000 employees, it's a little harder to do that math above, but Apple could go for years, never earn another dime, and still make payroll and pay for operating expenses.

Even though many people think Apple should pay dividends in order to make holding the stock long term more attractive and others think Apple should buy back stock to increase the price/earnings (P/E) ratio, Apple has elected to do neither.

Apple is also extraordinarily wise, almost miserly with its capital. I can guarantee that, based on experience, in this economic slowdown, Apple departments are being asked to do more with less. Only bold visions can release R&D dollars.

That leads naturally to the strategic question of how Apple can, like the last time around, utilize its working capital to emerge from the recession strong, far ahead of the competition, and create a competitive advantage -- especially in a market where everyone has access to the same basic hardware technologies.

In the past, I've spoken about how Apple can pay cash for large run-rate commodities used in making hardware. That makes life difficult for the competition. However, in this case, the discussion will revolve around pure technology.

What Are the Key Technologies?

Apple has been extraordinary in developing technologies that give it a technical advantage over Windows, things like Core Image, Core Data, OpenCL, application sandboxing, HFS+ meta data and Spotlight indexing, and Grand Central. However, as has happened in the past, Mac OS X superiority has failed to make a huge dent in the Windows market because these technologies are subtle, not keenly visible or appreciated by the average, potential PC user, and easily mimicked.

It's a bit like the new touch screen smartphones. "Look, you can touch it with your fingers and make things happen. It's just like an iPhone!" the ads suggest. For example, a circular gesture with one finger can be interpreted to zoom a picture instead of an iPhone two-finger "un-pinch," something a recent AT&T commercial showcased for the HTC Touch.

MacBook touch

Gizmodo: MacBook Touch Concept

In order to think about what Apple could do, one has to ask questions.

  1. What does the movement to netbooks say about the needs and buying habits of current and future customers? That's not the same question as asking if Apple should develop one.
  2. What fundamental changes to OS security could be developed that percolate into the consciousness of users in a quantitative, not easily duplicated way? Can virtualization be exploited?
  3. How does the AT&T 3G Microcell, which gives 5 bars for voice in a home, create a convergence between voice calls and what we think of as mobile computing?
  4. At what point does it make sense to commit to SSDs and other technologies in notebook computers so that the concept of turning the power on and off for a notebook is meaningless? The "always on" dream lingers.
  5. Along those lines, what would it take to kill the notebook computer as we know it and replace it with something that's always on and weighs 1.5 pounds?
  6. How can Apple continue to use manufacturing methods and industrial design to further its image as a top tier maker of quality computers while holding the line on prices?
  7. The end of the Finder. The concept of a replacement Finder has been discussed for years, but Apple has never figured out how to either replace it or improve it dramatically. Now would be a good time to shock Microsoft while it squanders time and effort with its own smartphone.
  8. How can Apple continue to develop a revenue stream, based on sales of music and video content, and still drive towards a breakthrough in computer and HDTV integration? Apple has been in a wait and watch mode with the Apple TV and, so far, hasn't contributed much to the state-of-the-art.
  9. Is the shirt pocket the definitive size/form factor for mobile devices or are there technologies which could be pressed into service to create a better visual experience while keeping the size and weight small?
  10. PC design is largely limited by the enterprise focus. IT managers have specific needs and goals that conflict with having the latest, cool technology. That places constraints on Microsoft that evidenced themselves in the design of Vista. What OS design changes would preserve Apple's enterprise revenue stream, yet put continued pressure on Microsoft -- thus preserving the Vista failure path?
  11. How can the gesture-based multi-touch interface of the iPhone be developed into a next generation product that preserves Apple's revenues while leaving the dated WIMP (Windows, Icons, Menus, Pointing device) behind, an aging relic of dusty business offices? Apple is doing something similar with the transition from the legacy iPod to the iPod touch. Can it be done with the notebook computer?

New interfaces

MIT: Future Interfaces

I Keep My Visions to Myself

At least, that's what Stevie Nicks said. However, with Apple, now is a time for bold, public visions. The question is, can Apple, steered through treacherous financial times by Tim Cook, come up with the bold visions required to put the company in afterburner in 2010? Simply saying that Apple has proven it can conduct business as usual without the traditional leadership of Steve Jobs is not good enough.

There are few companies that can give us hope. While many companies are laying people off and begging for government money, we all get the feeling that things have fundamentally changed, going from bad to worse. Apple is a company that, with nearly US$30B in cash assets, can continue to build on its dream. It's not a time for being too conservative, and future historians will judge Apple by the boldness of its vision while everyone else is in the dumpers.

Fear of product failure is not an option for a company with that much cash.

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Comments

Lee Dronick

In all seriousness I hope that Apple puts some R&D money into changing the Mighty Mouse so that we can easily clean it. Maybe do away with the scroll ball and put a touch pad in its place.

geoduck

Good article. Here’s my 2 cents:

What does the movement to netbooks say about the needs and buying habits of current and future customers? That’s not the same question as asking if Apple should develop one.

People want more bang for their money. Apple could start simply by promoting that Macs have a longer useful lifespan than other computers and that Apple has been ranked near the top of quality rankings for years.

What fundamental changes to OS security could be developed that percolate into the consciousness of users in a quantitative, not easily duplicated way? Can virtualization be exploited?

Two questions really. I’ve thought that password based security was obsolete for several years. I’ve been reading of a system where your computer would recognize your face and then only run for you. I like that idea. As far as virtualization, imagine if Apple bundled behind the scenes virtualization into the OS. You could run any app, Man, Win, Linux, maybe Solaris, etc. without missing a beat. Just stick the CD in or download the app and go. The OS would have the basics and would reach out to the web and grab whatever drivers it may still need. That would help with the value argument from #1.

The end of the Finder. The concept of a replacement Finder has been discussed for years, but Apple has never figured out how to either replace it or improve it dramatically. Now would be a good time to shock Microsoft while it squanders time and effort with its own smartphone.

I would love to see some step beyond the mouse pointer and boxes interface. A really new way of interfacing with computers that would make Windows look like an ox-cart in the jet age. However it should not just be different for the sake of being different. It has to be significantly easier, faster, and more efficient, like MacOS was to DOS.

Is the shirt pocket the definitive size/form factor for mobile devices or are there technologies which could be pressed into service to create a better visual experience while keeping the size and weight small?

Portibility is great but especially as the population ages these devices are just too small to be useful. How about something small but with a flexable screen that rolls up (Earth, Final Conflict had such a thing). I’ve been hearing a good deal about organic flexible displays that might make this a reality. How about a projected full size keyboard as well. Then your iPhone could be a full sized computer when you needed it.

Tiger

Do people realize that netbooks have become so popular because they afford people with the OS they’re used to in WinXP, it’s light and portable. In other words, YEARS old technology.

But at a hefty performance hit to me that’s not worth the price of manufacturing, and the price of the things going into the landfills in under 3 years (as evidenced by the sheer number of used and recertified machines already flooding the market). They run XP, have a processor that’s basically operating at Celeron speeds at best, and unless you swap out for a 160G hard drive, they generally operate with an 8 Gig Solid State Drive that runs out of space if you install Apps on there to do anything remotely useful such as MS Office and Acrobat Pro.

It’s a portable terminal at best. Will they improve? Maybe with cloud computing, but considering the inherent security risks that cloud computing entails, not to mention wireless, would you trust your sensitive date to that environment? It’s just not worth that hassle.

geoduck

I had another thought. Take the face recognition security to another level. Have it watch you for signs of stress, fatigue, health problems and react accordingly. If it sees signs of fatigue and you’re making more typos than usual it could prompt you with “Dave, you don’t seem to be doing your best work. How about a nap?” In the worst cast if it saw that you were exhibiting signs of a heart attack or stroke it could call 911 for you.

ctopher

So what are your thoughts on the “New Ways”? I see a lot of analysis, but zero conclusions. Typical consultant speak, read my own watch but don’t tell me how to wind it…

OK, so what do I think they should do? Further develop Grand Central and OpenCL. Put effort into the tools that make using those technologies easy for developers. Then develop some hardware that can really take advantage, multiple cores, multiple graphic accelerators. Don’t design or invent new silicon, but make what’s out there really sing. Don’t release the new hardware yet, let the economy come back some before springing anything really advanced on the world.

But when it does come back, the new multi-core hardware and software will blow the doors off of those folks that just rode out the downturn.

Now my glasses make me see like a software developer so I want the effort put there. Is that correct? Maybe not. Maybe they should eschew third-party developers and put their efforts into new hardware that can finally bridge the divide between the living room and the laptop. There are probably some paradigms that haven’t been explored yet that will turn the entire problem on it’s head. But I don’t have that kind of insight. I wish someone did, it would make good reading.

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