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ValueInvestor747 (79.66)

AAPL’s Lack of Innovation…Myth

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May 17, 2013 – Comments (7) | RELATED TICKERS: AAPL

I’ll start by providing full transparency: I’m long AAPL with real money and on CAPS. I initiated my position back in 2011 so I’m still up a healthy 30%, but I have obviously watched with great dissatisfaction and frustration for the past few months as my position lost about 40% of its value. I will not spend my time here ranting about fundamentals, valuation, past and future earnings, etc. I will acknowledge that AAPL’s growth has slowed, as expected, and they do face a much more competitive landscape now compared to just 2 or 3 years ago. What I do want to touch on is the notion that I’ve heard for the past few months that AAPL is no longer innovative. What really prompted me to write this article is David Trainer’s recent article pegging AAPL with a value of $240 (great piece by Evan Niu here illustrating how absurd his assumptions and model are).

Anyways, I digress – to the point. David, and plenty of others, contends that AAPL is dead in the water because they have lost their innovative touch and they’re done producing groundbreaking, blockbuster, whatever else you want to call it, products. Their proof: Steve Jobs is dead and they’ve only provided us with improved versions of existing products over the past few years. It seems these pessimists need a little history refresher, so here it goes: The “Steve Jobs” era, i.e. profitable AAPL or AAPL as we know it today, began in 1996. The iMac was introduced in 1998. I’ve never been a fan of iMacs, but it’s hard to argue that this was not a revolutionary product. Three years later, the iPod, along with iTunes, was released. In terms of revolutionary, this blew the iMac out of the water. This single product and its software completely upended the entire music industry and forever changed how the world listens to music. Four years later, in 2005, AAPL began work on the iPhone. The first generation iPhone was released in 2007, six years after the iPod. Finally, the first generation iPad was released three years after the iPhone in 2010. Keep in mind that the iPad, unlike the iPod and iPhone, was not much of a leap from an existing product (iPhone). So let’s look at the frequency of groundbreaking products: An iMac release after roughly 15 years of nothing significant, an iPod 3 years later, an iPhone 6 years later, and an iPad 3 years later. So now it has been a whole 3 years since the iPad release and everyone is in panic mode. Meanwhile, AAPL has completely revamped its iPod, made 5 new iPhone generations with very significant improvements, and 5 new iPad generations, including the mini, which was released last year.

So maybe I’m missing something, but please, someone, explain to me why nobody made a peep while they were waiting on the iPhone, iPad, iPad mini, etc. but now all of the sudden, since we’ve waited a whole 3 years since the last major product, AAPL is the new Dell. All this while everyone has applauded its competitors, namely Samsung, as surpassing AAPL in terms of innovation when in fact, the insignificant truth is that Samsung wouldn’t even be in this market (and would be scraping by as a company) if it weren’t for AAPL. Samsung is nothing more than a thief who swooped into a market late and stole patents (not my opinion, that of the courts) and produced cheap versions of quality products. Maybe I am missing something, but I think as consumers and investors, our attention spans have gotten to a point where our expectations are unrealistic. I know technology is a fast paced industry, but do you really expect a company to produce a high quality, revolutionary, industry disrupting product every 1 or 2 years? I can’t think of a company who’s ever done this. Let me know if you can, I will surely invest.  

7 Comments – Post Your Own

#1) On May 17, 2013 at 4:29 PM, L0RDZ (82.16) wrote:

3 years  and  counting  since  Apple  has   introduced anything of   excuse  the  clique   apple  like  value  and   on  the horizon  at  best  you  can  look  forward  to  a  wrist  watch  i-product  which  already  exists  as  you  can  get a  wrist  thing  and  attach  an  i-pod  to it.

Personally I  think  Apple  S*cks   ~   you  practically  have  to pay  for  everything  and   while   they  look  stylish  and seem  well  crafted ?  they  are   designed  to  become  obsolete  every year.

A  totally  inverse  Bizarro  comparison  to Apple  is  Google  which by  the way  is looking  to  reach  the  thousand  a  share level while apple  looks  like it  will  be  hard pressed to  retain   three digits and  will  not  get to  the  thousand unless they do a  reverse stock split. 

Google  has  made a  fortune  for basically  giving  away  free its  products  and  services,  I  can  see  how   this  would  make someone  red  faced  such  as  Steve  Jobs  and  the  money hungry  s o  bs   at  apple  who would  if  they could  patent  breathing air  and  make  it  into  an   I-method to which they would  charge  and  seek  to prosecute  people who would dare breathe air and  not give  Apple  its due.

Apple isn't  the  new  dell  ~  they  are  the  new  Atari  and   new  phone  makers  are  the new  x-boxs  and   sony's.

The  world  doesn't  want  600 dollar  phones   when  you  could  provide  much  cheaper  more  functional  phones  for  far far less.

Had  Microsoft had  a  hipper smarter  person  running  their  mp3  divisions  ~  maybe  they  could  have  had  a  greater  impact  in preventing   apple  to  take  over  the  music  industry  ~   but  honestly   people  buying  individual music  is  over  ~  music  is back  to  the  free model or  if  you want  you  can basically  subscribe  and  get  all you want  for a  lower  monthly  price.

Stick a  fork  in  Apple...    as  soon  as   the  2  carriers  decide to  stop  subsidizing for  these   overly priced phones...   they are  toast.

Apple will more likely  go  the  way  of    Nokia  and  other  phone makers  who  are  nothing  more than  after thoughts  in  the  now new computer  phone  markets.

Sadly  Apple  phones  are  made  in  places  where most  if not all  the  workers  there  would  never  be  able to  afford  to own  them.

Meanwhile  the competition which is  killing apple is  making  phones  that  the masses  can  more  afford or  have  the chance to  acquire.

I  know  you  love  Apple  such  that my  words will fall upon deaf ears  if not  cause  anger  in  your  heart.

 

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#2) On May 17, 2013 at 4:55 PM, ValueInvestor747 (79.66) wrote:

Everything you just said is nothing more than speculation. I'm not sure where to start so I'll just hit on a few: The world doesn't want $600 phones? Is that why they sold 37.4M iPhones last quarter? After being in the market for 5 years, YoY is still growing. They also sold 19.5M iPads, an almost 80% YoY increase.

 And if you truly think AAPL is worth 2 digits, you sir are not an informed investor. That's all I have time for now. 

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#3) On May 17, 2013 at 6:35 PM, ChrisGraley (29.65) wrote:

There was a time where Apple could sell things for about twice as much as what they were worth. That time is over. The moat is gone and competitors from all directions will out-manuver them. 

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#4) On May 17, 2013 at 9:15 PM, HarryCarysGhost (99.69) wrote:

Just asked my niece and nephew, (the target demographic IMO) about apple and the share collapse.

Basically they said that the I-pad mini sucks, and no one uses it.

So if teenagers sour on a product that could be very bad news for a tech stock in a hurry.

(Just my random observations)

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#5) On May 19, 2013 at 9:36 AM, rofgile (99.29) wrote:

I think android devices are finally fairly competitive (I almost bought a Nexus 7, since that is a pretty slick 7" tablet).

Then, I got sucked into Windows 8 stuff, since I really like the speed and smoothness of the UI.  However, the hardware is still lacking - where is the killer 8" tablet for Windows 8?  Why don't windows 8 tablets cost $250, like the Nexus 7?

I agree that for Apple, competition is rampant now.  Doesn't mean that Apple won't continue making high quality hardware and software.  Doesn't mean that people won't keep buying Apple products.  They do need to have some new ideas, however.  What Google and MSFT are doing lately is more interesting to me than what AAPL is doing.  

I did buy shares of Apple for ~ $400.  I think this is a reasonable price for a profitable and usually very innovative and well run company.  Dividend is nice too. 

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#6) On May 21, 2013 at 5:05 AM, jiltin (27.85) wrote:

IMO, no matter who created the smartphone or who pioneered the smartphone, it is the business growth that decides the company health. 

Inventor becomes a leader, but not always leader. He is leader as long as he maintains the leadership. If AAPL maintains the leadership in their products, they are fine. Otherwise, their growth is stalled or slowed.

IMO, Tim Cook is making mistake after mistake (at least as of now). I can not dictate what he needs to do. As an investor, I analyze the growth potential of the company and solid evidence either through product attraction, sales, order book position, revenue or profit. This is not attractive at this time.

With this crazy bull market, if company growth is slowed, who will wait for years to get back? 

When it is not attractive, Tim voluntarily offers big buyback thinking that investors/banks get satisfaction that prices go up. In fact, when he buys, investors/banks dumps the shares on Tim Cook head and get away with money.

With that money, investor/banks choose some other winning horse and play their roles.

I hope that I am not so harsh. An investor, who is behind money, thinks this way. Let us see one year how AAPL goes.

Bottomline is Revenue Growth or Order Book or Profitability that matters 

 

 

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#7) On May 23, 2013 at 4:32 PM, Louebsch (< 20) wrote:

I think you underestimate the value of having a mouth piece such as Steve Jobs  leading the company. Steve Jobs was a tremendous salesman. The people that owned apple products knew who he was. I don't think they know who the current leadership is. When Steve Jobs spoke about the new products it made national headlines and that is not the case anymore.

"Samsung is nothing more than a thief who swooped into a market late and stole patents (not my opinion, that of the courts) and produced cheap versions of quality products."

I couldn't agree more. Doesn't Walmart have a similar business model? Selling cheap crap? Apparently, cheap crap is what the masses are willing to buy and thus Apple hasn't lost their innovation, people are just stealing it from them and selling it for cheaper.

Disclosure: I don't own any apple products and think they are useless for people that need to produce work. They are great consumer devices for people that only need to download movies,music, games, etc.

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