Lessons Learned From Apple's Collapse

Interesting article on Zero Hedge today about Apple's woes right now.

Let me be clear, I like Apple and own their phones and computers but I have been saying this for a couple years now:

1. Steve Jobs WAS Apple. This current Apple is not the Apple of Steve Jobs. They seem to have plateaued on innovation without him

2. Their phones COST TOO MUCH and their decision to double down and make them even more expensive seems to be a giant misstep

Everyone who wants a smartphone has a smartphone and the time between replacements is starting to stretch out as they get more expensive.

quote:

The iPhone is a mature product and the high-end smartphone market is saturated, with most of the unit growth a function of the replacement cycle. In support of this view is the company's decision to stop disclosing iPad and iPhone unit shipments.

Since the introduction of the iPhone X, Apple has been raising prices. ASPs (average selling prices) in the most recent reporting period buoyed sales (up 24%) even though unit sales were flat. This briefly buoyed Apple's shares, but it is more likely representative of "Peak Apple (Margins)." (Note: Beginning in late 2017 I began to get concerned about demand elasticity from high-priced iPhones.)

With a lack of significant product innovation, those higher iPhone prices will likely elongate the replacement cycle from slightly under two years to as much as four years.

In order to grow, the company has monetized its installed base of Apple products by selling services (apps, music, movies, etc.), sales of which reached $10 billion in the most recent quarter. But Apple's digital store has had its share of failures. An example is Apple's email product (MobileMe) and its iCloud data-storage service, which respectively lost their relevancy to Alphabet Inc.'s (GOOGL) Gmail and to Google Drive and DropBox Inc. (DBX) . Apple Maps only exists as it is a default service on the iPhone. Meanwhile, Apple competes versus Amazon.com, Inc. (AMZN) in streaming music and movies. Its closed systems don't allow Apple music to work on speakers furnished by Amazon and Google. Finally, there is Siri, the quality of which is materially lower than both Alphabet's Hey Google and Amazon's Alexa, which have opened their digital voice assistants to other developers.

Apple is a products company (two-thirds of its sales come from the "closed" iPhone) that has developed complex and expensive operating devices that evolve over time. By contrast, services (software) require more prompt revisions and almost continual improvements and usually are inexpensive, as much of services is commoditized. Consider that Apple speakers will not play Spotify (SPOT) , one of the most popular music services and a competitor to Apple. So, in a sense, Apple in the services arena is fighting with one arm tied behind its back in order to protect the iPhone (hat tip to my contrarian friend, Vitaliy Katsenelson).

There is no apparent new category that lies ahead in the relatively near future that will move Apple's sales/profits needle.

Should Apple's installed base growth ease in rate-of-change terms, the valuation argument that Apple should be valued as a consumer packaged goods company -- something I have consistently rejected -- versus a lesser-valued hardware company may prove to be faulty.

Kass: Lessons Learned From Apple's Collapse

Posts: 33897 | Location: Pennsylvania | Registered: November 12, 2007

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