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  • Potential Challenges for Apple?

    April 19th, 2012

    As you may have noticed, Apple's stock price dipped by the equivalent of $50 billion in market value earlier this week for various reasons. Certainly the stock market's volatility was but one possible cause. Another was the claim that wireless carriers resent having to pay Apple high prices for the iPhone and will be looking at other smartphones to offer instead. But that's just one potential challenge, real or imagined, which Apple may face in the next few years.

    All together, should any of those fears be realized, it may reduce Apple's amazing growth, or maybe move the revenue curve in the wrong direction. Or maybe not.

    When it comes to the needs of those wireless carriers, let's not forget that the success of a mobile handset is very much customer driven. If people weren't crowding the stores and buying up iPhones, sales would go down. If customers want iPhones, and dealers don't have them -- or try to push them into buying an Android or Windows Phone device instead -- the customers will just go elsewhere. So long as huge numbers of Apple customers love their iPhones and are only too willing to upgrade on a regular basis, it's not as if dealers are going to be able to easily change their minds.

    So maybe one reason why Apple's stock price began to climb once again is simply that Wall Street investors realized the fears were unfounded. If and when Apple's revenue appears to be poised to stall or take a fall, there will be sufficient advance word from industry analysts who actually measure sales -- as opposed to those who are just making it all up -- and investors can act accordingly. Certainly Apple's guidance about future quarterly sales would be a key indicator of potential trouble ahead. Apple tends to be conservative about such matters.

    Now that doesn't mean Apple has a free ride either. Obviously Nokia and Microsoft are really hoping and praying you'll buy a Windows Phone instead, particularly the Lumia 900, although the ultimate success of that smartphone is still not quite certain. Yes, AT&T, the sole dealer in the U.S. to handle them, claims that the Lumia 900 sold out during the first days on sale, but that, of course, doesn't mean much. After all, it's very possible that they deliberately didn't have enough available to hype a potential sellout, or because production is still ramping up. You'll know a lot more when AT&T delivers their financials for the current quarter.

    There's also a published report claiming that the iPad's market share is doomed for a huge fall by 2013, in part because of the arrival of Microsoft's Windows 8. As you recall, Windows 8 is Microsoft's attempt to deliver an OS that works on both mobile gear, run by ARM processors, and traditional PCs. All well and good, but it's not at all obvious if customers will willingly embrace the user interface, Metro, borrowed from Windows Phone and the Zune. Once again, the success of Windows Phone is by no means certain, although it's a sure thing that Microsoft and Nokia will give it all they got.

    Remember, when it comes to tablets, Microsoft has done poorly. Will Windows 8 change that? Honestly, I haven't a clue how the people will react, although I expect businesses will be skeptical. Warm and fuzzy, or the attempt at being warm and fuzzy, may encourage consumers to embrace Windows 8 and Metro, but that doesn't mean that businesses will accept it as readily. I'm skeptical.

    It's also true that Google will continue to rev up the Android, but only the Amazon Kindle Fire, with a highly altered Android OS, has shown any potential for success. And that may have only been a holiday phenomenon. Early reports indicate that production orders for the Kindle Fire were sharply cut after the first of the year. There are also reports claiming that Google will concentrate on low-end Android gear to attract customers who might regard the iPad, starting at $399 for last year's model, as a little too expensive. That move, if it happens, may simply take customers from Amazon.

    Some even claim Apple is poised to release the so-called iPad mini, with a 7.85-inch display, in order to cater to people who simply want ebook readers, and won't feel so confined by the smaller screen. But the fact that Apple may have been sampling iPads in different sizes doesn't mean they actually intend to produce any. As of now, the iPad remains in control of the tablet market, with no evidence whatever that any other contender, whether Amazon, Google or Microsoft, will be successful.

    When it comes to Macs, it may well be that sales are only slightly higher than last year's March quarter, at least in the U.S., if you can believe current estimates. But since Apple is getting lots of action overseas, it may not matter so much. A slate of product refreshes, now expected because Intel's Ivy Bridge processors are finally beginning to ship, may very well boost Mac sales for the current quarter.

    This doesn't mean Apple can't or won't screw up. There's still skepticism how well Tim Cook will fare as CEO after the supposed inventory of products approved by Steve Jobs is used up. While next week's financial conference with analysts may reveal a different picture, right now the trends still appear very positive. But I'm not an industry analyst, nor do I play one on TV.



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    7 Responses to “Potential Challenges for Apple?”

    1. Jon T says:

      Jason Schwarz has the most credible response:

      http://www.thestreet.com/story/11498634/1/apples-tax-induced-selloff-is-over.html

      And also remember his description of the market that likes to create the "Apple slingshot"...

      As for carriers wanting to reduce subsidies, just imagine for one second if at the Apple negotiating table they were told there might be some delay before you receive the iPhone 5 - we wish to fulfil orders to carriers who are prepared to pay a subsidy. We know precisely what panic would ensue from that...

      The carrier subsidy issue is a red herring of the first order....

      And as for the question of Tim Cook, the "jury's out" discussion is nonsense because it suggests he's arrived to do the job from somewhere else. To all intents and purposes he been doing the job for years.

    2. DaveD says:

      I did see the blip that the iPad market share will fall by 2013. Did I read it? Nope. It would have been a waste of time. Why read someone's guess on a product that is not out yet. The big problem with these so-called Industry analysts is that when they are wrong, I see very little admission, hardly any mea culpa. The writers that do say that they're wrong, I applaud them. It's all about living and learning. I continue to read their writings.

      One of my favorite site directed me to a blog from MG Siegler that exposed a piece from Matthew Lynn writing for Bloomberg on January 14, 2007 titled "Apple iPhone Will Fail in a Late, Defensive Move: Matthew Lynn." Mr. Siegler pointed out his bad judgment calls.

      http://parislemon.com/post/21315988197/apple-iphone-will-fail

      Of course, I had to read Mr. Lynn's article for laughs. His commentary is written in such a condescending tone.

      http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRelVKWbMAv0

      Apple is now so far away for its once beleaguered status. I want Apple to continue to push the envelope and go forward while delivering the best user experience.

    3. Al says:

      I have to agree, I flagged the carrier subsidy as a red herring the first time I saw it pop up. All carriers would like to pay less subsidies since that practice began. But they don't because it's not really something they control. The amount of the subsidy is dictated by the competitive conditions they face. A highly desirable product for which there is more than one seller --well, the force of competition will drive those subsidies up. And if a carrier doesn't want to pay those high subsidies, it can always drop out of the market. But actually, the one carrier who wasn't invited to the party, rather than applauding its good fortune is clamoring to join in.

      The carriers will always complain about the subsidies if you ask them. But they know they have no choice but to pay if they want to play.

      I am amazed that a person who has no grasp of the basic economic logic driving market competition gets hired as an industry analyst.

      Gene Steinberg Reply:

      @Al, There's no "industry analyst" test that they have to pass. At least a barber usually has to get a state license to prove that he or she can cut your hair.

      Peace,
      Gene

    4. dfs says:

      I can't help wondering if all the lawsuits and legal injunctions being launched against Apple here and abroad are finally beginning to spook Wall St. They have the cumulative effect of interfering with Apple's ability to do business.

      Gene Steinberg Reply:

      @dfs, Except there's no evidence that any of those lawsuits has hurt Apple in any way, other than legal fees.

      Peace,
      Gene

    5. dfs says:

      When governments get involved in suits, they take on a certain added dimension. Besides the US govt's suit for alleged price-fixing, which is finding an echo in Canada, we have such things as Germany's current ban on iCloud push mail, and the squabble over the iPad trademark in China, which seems to have put an appreciable dent in iPad sales in that lucrative market. I can imagine how a skittish investor might see developments like these as more ominous than the usual back-and-forth suits within the industry

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