Before I start, full disclosure, I am an Apple shareholder, I own a MacBook Pro, an iPhone, and iPad and an iPod Nano. Having said that, I do not consider myself an Apple fanboy. I also own two Windows computers, I previously owned a computer running Ubuntu Linux, and I’m about to buy an Android tablet just to see what it is like. Also, I frequently scratch my head trying to understand some of Apple’s hardware, software and business decisions. Now that we have that out of the way…
…This past Tuesday, 10 September 2013, Apple performed their annual ritual of announcing the newest iPhone(s). This followed the usual pattern, i.e. months of rumor and speculation leading up to the announcement, followed by the announcement itself, followed by pundits and financial analysts reporting that Apple has, once again, let us down.
What Apple presented on Tuesday was, more or less, what was expected. They announced the new iPhone 5S which is a newer, faster, stronger version of the iPhone 5 (faster processor chip, new camera, etc.), and includes a neat fingerprint identity sensor. Depending on your perspective, this is either a major upgrade to the iPhone 5, or just minor improvements, nibbling around the edges if you will. This is what was expected.
The other announcement was the iPhone 5C. This iPhone is basically the same as the iPhone 5, except, instead of a metal case, it has a plastic (polycarbonate) case with an internal metal frame that provides support and acts as an antenna. There had been a lot of speculation about the cost of the phone and what the C stood for. It was generally believed that it would be a less expensive iPhone, meant to compete with offerings from Samsung, and mostly targeted at markets outside the U.S., mainly China and India; so, some people thought that the C stood for Cheap (which somehow does not to seem very Apple-like). Others thought was that the C stood for China, and that the iPhone would be targeted to China Mobile, China’s largest mobile carrier, who currently does not sell the iPhone. While the two other Chinese carries, China Telecom and China Unicom will continue to sell iPhones, no announcement has been made about an Apple/China Mobile deal.
Well, it seems that C actually stands for Colorful. Four new colors are being offered, along with white. Personally, the colors are a bit garish for my taste, so, if I were to get a new iPhone, I would probably opt for a 5S in space gray, but that is just me, and I digress…
Following the announcement, Apple’s stock price dropped $26.93/share, or about 5.44% on Wednesday. This followed a drop of $11.55/share or 2.3% after the Apple announcement on Tuesday. It has continued a slow slide after this.
So, what does all this mean? Is Apple on a decline? Will iOS die at the hands of Android? Should I sell my stock now? (some family members felt I should have sold it when it was at its peak, but that is another story). If Apple asked me what I thought, I would tell them that they need to do a better job of managing expectations. They keep their plans close to their chests (but with a lot of leaks), leading to a lot of speculation as to what Apple should do. The pundits and financial analysts all think that Apple should go head-to-head with companies like Samsung in the low-end market, while Apple seems content to remain as the company that sells high-end, and high profit items. Unfortunately they seem to have trouble communicating that to people.
Is that a formula for Apple’s success in the future? It depends on your interpretation of the numbers. As I look at the numbers, I am always reminded of a book called How to Lie with Statistics, which we read as part of an engineering lab class. Sometimes, you can make the numbers say what you want them to say.
Over the long term, Apple’s market share and number of units sold* has been increasing, yet at a much slower rate than its chief rival, Samsung. As you can see by this chart, the overall number of smart phones being sold is increasing, with the largest share going to Samsung partly at the expense of other manufacturers, most notably Nokia. So, what does all this mean? I think it means that, despite what the pundits and financial analysts say, Apple will remain to be content to stick to their business model as the company that sells high-end, and high profit items, leaving the low cost smart phones to others. I think the share price would do better if the shareholders understood that this is the Apple business model, and it has been a profitable one. Once the numbers come in for the iPhone 5S and iPhone 5C, I think we will see that Apple will sell more iPhones this quarter than they did in the same quarter last year, and their coffers will continue to fill with money. This is the model that has worked for them in the past, I’m curious to see if it continues into the future. Meanwhile, I’m going to hold on to my stock, and try to decide if I want a new phone when my two year contract expires….
*One interesting factor is that Apple tends to make public the number of units sold, while all other manufacturers make public the number of units shipped to retailers. One would think that smart companies like Samsung don’t flood the market with units they cannot sell, so, while comparing numbers may be a bit of apples to oranges, looking at the percentages is probably a good indication of trends.