What are the big issues for AAPL for next few years?

  • Posted: 13 February 2011 08:06 PM

    I am the biggest AAPL fan out there.  The great optimism of this board (price target $700???) is reassuring to me, but I must also think about the alternative outcome for the AAPL stock.

    I have put my money where my mouth is (purchased practically every AAPL products since 2003 and invested in AAPL stocks/options since 2006) in my fandom…  Currently, greater than 50% of my portfolio is AAPL.  It is still the best performing stock over the last 12 months in my portfolio.  For this specific reason, I must think whether over-weighing AAPL is still the right choice for the next few years. 

    I have some concerns which I would like to throw out there for comment.

    The Windows/Apple analogy of the late 80/90’s seem to be similar to the Android/Apple scenario now.  Android is gaining incredible momentum in the phone and tablet market.  I think within two years, it will only be Android versus iOS.  Bye bye to RIM, WM7, etc.  Now how would you like to place your bets?  Every single other technology company versus AAPL.  One reason why Windows PCs succeeded over the Mac was because first it was cheaper, and second it was good enough for most consumers.  I think this mentality will soon come to Android versus iOS.  Every single technology company will be creating good enough Android phones and will be selling it much cheaper than AAPL.  That means unless AAPL creates another killer revolutionary software/hardware revolution, iOS product prices will need to come down as well as the margins.  Another year of Android growth being much higher than iOS growth would signal this type of change.

    Apple is running behind the technology cycle in many arenas.  The webOS system for example is more powerful and versatile than the iOS in few areas.  Notification system in iOS is horrible.  There are no cloud-based backup for devices.  Even after so many product cycles, it is a shame that we still need to physically connect to iTunes for a full backup.

    SJ has created incredible, revolutionary devices x3-4, but he may unfortunately not return to AAPL in full force (I hope he does!!)..  One reason AAPL has currently become so successful is that SJ had the vision to see the revolution of PC to mobile devices 4-5 years ago.  Will AAPL still innovate without SJ?  Does innovation arise from corporate group think or does it arise from the will of a few?  I don’t think we really understand what AAPL would be like without SJ.  Could it stagnate like MSFT?  Could AAPL be like MSFT for the next 10 years?  Certainly, it will be profitable but will its stock grow?  For AAPL to grow its revenues/stock in the explosive fashion it has over the last five years, it will need a revolutionary product/technology every 4-5 years (whatever that may be)...

    Few other thoughts:

    The price of smart phones will plummet over the next few years.  The days of $600/phone AAPL makes is soon to end (unless AAPL pulls out another revolution from its sleeves).

    It seems that AAPL for now has the cost advantage in producing tablet type PC (locked up supply it seems) but the major suppliers to AAPL are also its competitors (i.e. Samsung, LG, etc.)  The new Honeycomb Tablets seem to be quite good but not yet able to compete on price.  But this too will change as Samsung, LG, and others realize that locking up their own supply to AAPL will only kill their own evolution and growth.  As with anything, the pricing will become democratized.  Perhaps, AAPL will always be the most efficient and highest volume producer, but the differential will lessen over time.

    The greatest advantage that AAPL has may be the iTunes/App store eco-system.  I think AAPL realizes this and is zealous in protecting it.  Hence, the recent enforcement of non-App store purchases, i.e. Sony books app.  However by being over-zealous, the media and the content producers will become more reluctant to bid to AAPL’s wishes.  They will want to create a more democratic eco-system, controlled by a consortium, not just AAPL.

    So in conclusion to my rambling, how can AAPL innovate when the forces of every other tech company is gunning against it?  Have we seen the best days of AAPL stock appreciation behind us?

         
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    Posted: 13 February 2011 08:26 PM #1

    TL;TTRBORSOI (translation:  “too long; tried to read but only read some of it”)

    Some thoughts:

    Still not convinced about Apple’s success and long-term strategy with $65B revs booked last fiscal year and $100B+ targeted for this year?

    Last I checked, the PC wars aren’t over.  And Apple is eating the lion’s share of the profits.

    You’re looking at the smartphone market wrong if you think Android market share growth means Apple’s/iOS’s doom.  Symbian is now essentially doomed, with Nokia moving to WinMo 7, so market shares will change.  Anyway, the proper inquiry is how is Apple doing year over year, each year?  The handset industry is better than 1 billion units per year.  There is a ton of running room left.

    Notifications are in the eye of the beholder.  People who don’t get a bunch of texts or notifications every minute don’t really mind the current state of affairs.  Also, don’t confuse “slow adoption” (cut/paste, multitasking) with Apple’s consistent MO to get things right.  Can you argue that Apple’s copy/paste and multitasking aren’t pretty polished?  Btw, iOS 5 is very likely to address notifications, and if it ever got really bad, Apple could tweak iOS in a matter of weeks.

    It’s premature to invest as if SJ is no longer with the company.

    The smartphone ASP as far as Apple goes has been unchanged for more than 3.5 years, with lots of exciting smartphone innovation (dual-core to name just one) still to come.  Smartphones can still stand to be much faster and much more useful.  The ASP issue won’t be one for a while yet, I think.

    [ Edited: 13 February 2011 08:29 PM by Mav ]

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
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    Posted: 13 February 2011 08:32 PM #2

    1. Retail Stores:  numbers, location, appearance, value, trust  
    2. Retail partners

    what do customers want ... who will provide ... what price :  the eternal questions

         
  • Posted: 13 February 2011 08:41 PM #3

    chp5592 - 14 February 2011 12:06 AM

    The Windows/Apple analogy of the late 80/90’s seem to be similar to the Android/Apple scenario now.  Android is gaining incredible momentum in the phone and tablet market.  I think within two years, it will only be Android versus iOS.

    Interesting topic. I’ll start by focusing on the point quoted above.

    Contrary to popular belief, people didn’t flock to Windows because it was perceived to be better. People flocked to Windows because of a disastrous misstep by Apple management.

    Michael Spindler, the CEO at the time, bet the proverbial farm consumers would pay high prices for Apple-branded hardware regardless of the state of innovation. He flooded the markets with an an unbelievably complex series of products models (requiring a three-page ad to display them all) using the old Motorola 680X0 chip series while constraining supplies of the PowerPC Macs that had become an instant hit in the market.

    Unable to buy the new PowerPC Macs due to supply issues and unwilling to pay high prices for older technology Macs, consumers began migrating to Windows 95-based PCs because the products were in supply, component makers saw a robust upgrade market, peripheral makers and software makers were pushing Windows adoption and Apple couldn’t meet demand.

    Windows was “good enough” but certainly not on par with or better than the Mac in the minds of consumers.

    The lesson is people will buy Apple technology provided the company continues to innovate. The day Apple stops innovating or repeats the mistake of thinking the company can rest on old technology at high prices due to brand strength is the day Apple will see a precipitous decline in revenue and loss of leadership in the company’s primary markets.

    The Performa line represented everything that was wrong with Apple’s approach to the market at that time.

    Apple’s challenge in the smartphone market isn’t Android product. It’s procuring supply to meet demand. I’m far less worried about Android taking market share than I am about Apple’s ability to ramp production to meet current iPhone demand. If Apple can manufacture sufficient quantities of iPhones, Android phones become much less of a threat.

         
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    Posted: 13 February 2011 08:41 PM #4

    My issues for Apple: 

    1) Innovation has been powering astounding growth.  Apple will hit a growth wall in several years and start to mature…even “Sony-fy”.  What then?

    2) Has anyone powered through to such ridiculous revenues based on outsourced manufacturing to the same extent as Apple has?  How sustainable, or even safe, is this outsourcing strategy at the $100-$150 billion level and beyond?

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
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    Posted: 13 February 2011 09:33 PM #5

    Mav - 14 February 2011 12:41 AM

    My issues for Apple: 

    1) Innovation has been powering astounding growth.  Apple will hit a growth wall in several years and start to mature…even “Sony-fy”.  What then?

    2) Has anyone powered through to such ridiculous revenues based on outsourced manufacturing to the same extent as Apple has?  How sustainable, or even safe, is this outsourcing strategy at the $100-$150 billion level and beyond?

    A modest-major hiccup between the US and China and Apple/aapl would be TOAST! In fact, the toast would be char broiled black.

      cheers
        JohnG

         
  • Posted: 13 February 2011 10:04 PM #6

    chp5592 - 14 February 2011 12:06 AM

    The Windows/Apple analogy of the late 80/90’s seem to be similar to the Android/Apple scenario now.  Android is gaining incredible momentum in the phone and tablet market.  I think within two years, it will only be Android versus iOS.

    I’ll bite. Microsoft didn’t beat the Mac they beat the Apple II. The Mac had no market share. People always forget this fact when trying to say how much Google has beaten Apple.

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    Posted: 13 February 2011 10:47 PM #7

    $700 price targets???? Who’s stupid enough to do that? Jeez…

    Arguments are full of holes and typical FUD. I go by with what I can see and what Apple has done for years. Unless someone proves that they can no longer do what they do Qtr. after Qtr. then I’m standing with my ridiculous targets thank you very much.

         
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    Posted: 14 February 2011 01:08 PM #8

    chp5592 - 14 February 2011 12:06 AM

    . . . AAPL for now has the cost advantage . . . (locked up supply it seems) but the major suppliers . . . also its competitors (i.e. Samsung, LG, etc.)  The new Honeycomb Tablets seem to be quite good but not yet able to compete on price.  But this too will change as Samsung, LG, and others realize that locking up their own supply to AAPL will only kill their own evolution and growth.

    The MO had an article on Apple purchasing 2 Chinese chip manufactures. Can?t find the original article so my point could be wrong. But isn?t this the way for Apple to go to assure supplies. It has the bucks and the moxie. Anyone remember the article (from this month) and what are the possibilities of this? Such a strategy doesn?t prevent Google going the same route, but do they design chips as Apple did or at least had a hand in the A4?

    Integration, the cool & brag factors, not prone to orphan products, patents, designated chip design, and then producing own chips; wouldn’t that put a moat around the fort? If untethering tablets from the computer is first achieved by the competitors, the iPad might be in real trouble.

    Just some thoughts. (I just can’t see Apple letting this go. The iPad2 (or a September iPad3) has to rock or Apple will be in big trouble; unless Android tablets really suck.)

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    Posted: 14 February 2011 03:20 PM #9

    chp5592 - 14 February 2011 12:06 AM

    The Windows/Apple analogy of the late 80/90?s seem to be similar to the Android/Apple scenario now.  Android is gaining incredible momentum in the phone and tablet market.  I think within two years, it will only be Android versus iOS.  Bye bye to RIM, WM7, etc.

    There will be no single mobile OS that captures 90% of the market. The personal computer industry of the 80s & 90s is very different from the mobile computing scene today. None of the major mobile OSes are going anywhere for the next 3-4 years. Palm with webOS died, but was resurrected by HP. There is no way RIM or MSFT is going to leave the field in 2 yrs. Microsoft has a history of “investing” billions of dollars to establish new revenue streams (Xbox & Bing). They’ve only just begun with Windows Phone 7.

    Apple is running behind the technology cycle in many arenas.  The webOS system for example is more powerful and versatile than the iOS in few areas.  Notification system in iOS is horrible.

    Yes, you can pick out a few specific parts of iOS that need improvement, but Apple is working on those. Their competitors, however, have a much higher hurdle: apps. The applications are what turn the iPhone/iPod touch/iPad into such versatile computing devices. In this most critical of arenas, Apple is dominant.

    For AAPL to grow its revenues/stock in the explosive fashion it has over the last five years, it will need a revolutionary product/technology every 4-5 years…

    I disagree. Apple is leading a tectonic shift in how people spend their time and money on personal computing. We’ve talked about this in other threads here, but mobile computing is going to be bigger than the entire personal computer industry of the past 30 yrs. This is not a short-term deal. The iPhone & iPad are set to drive AAPL’s revenue & earnings for at least the next decade. Apple does not need a “next big thing”.

    The price of smart phones will plummet over the next few years.  The days of $600/phone AAPL makes is soon to end…

    The prices of PCs have plummeted over the past few years, yet Apple’s computers have retained dominance of the high-end. The iPhone is nearly 4 yrs. old and people have been predicting a price drop every year since it’s introduction. If the iPhone Nano becomes reality this year, certainly it will bring down the overall iPhone ASP, but the top-of-the-line iPhone will still command high-end prices.

    So in conclusion to my rambling, how can AAPL innovate when the forces of every other tech company is gunning against it?  Have we seen the best days of AAPL stock appreciation behind us?

    Apple innovates while others imitate. AAPL stock price will continue to appreciate as revenue and earnings grow. For FY2011 Apple is likely to hit $100 billion in revenue. That’s $35 billion more than FY2010. Apple’s increase in revenue will surpass all of Google’s 2011 revenue. Think about that a while.

         
  • Posted: 14 February 2011 03:46 PM #10

    Thanks for great replies!  Really helps to get perspectives from the board members.  I don’t have any problem with AAPL reaching $700!!!!  I would be rolling on the floor with giddy. 

    I am still very long on AAPL, and again, it is my best performing stock for last six-12 months (Ford was doing well until the last earnigs but have been in that long term also).  For the near future, it will still be 50-60% of my portfolio.  My wife thinks I am crazy to be such a rabid AAPL fan, but it actually helps me sleep better that I have a big portion of my wealth in AAPL’s hands…  It has single handedly been the biggest profit source of my portfolio since 2006.

         
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    Posted: 14 February 2011 05:12 PM #11

    chp5592 - 14 February 2011 12:06 AM

    I am the biggest AAPL fan out there.  The great optimism of this board (price target $700???) is reassuring to me, but I must also think about the alternative outcome for the AAPL stock?

    Wrong forum to claim that you’re the biggest AAPL fan.  Most AFBers’ stock portfolio is 90% :bugeyed: in AAPL since 1997-2002.  Mine is about 92%, was nearly 99% before.

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  • Posted: 14 February 2011 05:18 PM #12

    Mace - 14 February 2011 09:12 PM
    chp5592 - 14 February 2011 12:06 AM

    I am the biggest AAPL fan out there.  The great optimism of this board (price target $700???) is reassuring to me, but I must also think about the alternative outcome for the AAPL stock?

    Wrong forum to claim that you’re the biggest AAPL fan.  Most AFBers’ stock portfolio is 90% :bugeyed: in AAPL since 1997-2002.  Mine is about 92%, was nearly 99% before.

    I stand corrected…...Clearly I am NOT the biggest AAPL fan in this forum.

         
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    Posted: 14 February 2011 09:26 PM #13

    The big issues perceived by Mr Market are SJ health and iOS vs Android competition.  SJ health is a Black Swan event so there is no way to assess when it would occur, just limit your AAPL investment till you can sleep well at night.  So long SJ is around, I believe Apple would win the competition.  Other issues you’ve raised are easily managed by the Apple management, I don’t know the solutions, but they would adapt accordingly.  As for post-SJ era, we’ll cross that bridge when we get to it, by then AAPL would probably comprise only 25% of my stock portfolio.

    iOS vs Android is of great interest to academics.  One represents the curated and tightly integrated approach.  The other represents the loosely controlled and fragmented approach.  The quality demanding and status conscious folks are rooting for iOS devices.  Geeks and price sensitive folks are rooting for Android devices.  The key issue is that the apps developers are geeks.  Geeks prefer unconstrained environment.  Currently, Apple leads in number of apps but that might change in future.  So, Apple has to be sensitive to this preference and not piss off too many developers.  It would a red flag if Apple cares too much of consumers at the expense of the developers.

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    Posted: 14 February 2011 09:38 PM #14

    I think the range of quality in Android devices is, speculatively speaking, really wide.  First, the average quality is lower.  Next, a great many are less than kosher with user’s data.  That said, it may be easier for an Android user to get a top top quality app (may not be famous, but it would be the best).  Apple sets certain minimum standards.  So its easy for the developers with apps in the Apple App Store to say their apps are above average quality.

         
  • Posted: 14 February 2011 11:17 PM #15

    Mace - 15 February 2011 01:26 AM

    The big issues perceived by Mr Market are SJ health and iOS vs Android competition.  SJ health is a Black Swan event so there is no way to assess when it would occur, just limit your AAPL investment till you can sleep well at night.  So long SJ is around, I believe Apple would win the competition.  Other issues you’ve raised are easily managed by the Apple management, I don’t know the solutions, but they would adapt accordingly.  As for post-SJ era, we’ll cross that bridge when we get to it, by then AAPL would probably comprise only 25% of my stock portfolio.

    iOS vs Android is of great interest to academics.  One represents the curated and tightly integrated approach.  The other represents the loosely controlled and fragmented approach.  The quality demanding and status conscious folks are rooting for iOS devices.  Geeks and price sensitive folks are rooting for Android devices.  The key issue is that the apps developers are geeks.  Geeks prefer unconstrained environment.  Currently, Apple leads in number of apps but that might change in future.  So, Apple has to be sensitive to this preference and not piss off too many developers.  It would a red flag if Apple cares too much of consumers at the expense of the developers.

    It has been a fairly new technology and some customers have not yet realized the benefit of a SmartPhone ecosystem. Key things that will differentiate iOS:
    - OS Upgradability. iPhones can be upgraded with new OS features without hassle and promptly. Andriod not so quickly and the provider has no incentive to do so.
    - Resale value. After two years of contract term, iPhones retain their value and sell easily on craigslist or gazelle. Lower TCO (Total Cost of Ownership). My old iPhone was gladly accepted by my daughter as an iPod for her.