AAPL’s Lack of Innovation…Myth
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.