Apple (AAPL) is now a chief. That means it has matured, mellowed, and is looking back at its life and achievements and realizing that it can no longer behave like it has nothing to lose. It remains a fundamentally solid company despite the recent decline in its stock price, one quarter of flat growth, margin duress, tougher competition, and no recent big hits. It was always going to be hard for Apple to continuously outdo itself with hit products. But, it could also get comfortably ensconced and squeeze cash from the market leading products. If iPhone sales have slowed, they are still at levels that other companies dream of attaining. Apple has always been a "push" rather than a "pull" company. It defined the problem, formulated a solution, and "pushed" it out to the market place. It might not have created the smartphone, tablet, or MP3 players, but they created these sectors for what we know them today as. Apple did not stop listening, it just never did.
So what happened? A chief has to listen to its constituents and this chief was never a good listener. Instead of being bold it decided there is safety in its largesse. Instead of finding a new segment busting product it has decided to go mini so it can squeeze money out of its core products. Products like the rumored iPhone mini and iWatch could be deemed necessary. I argue that these products speak to the core of Apple's current problem, real or perceived, and are indicative of Apple's inability to lead from the front.
Without knowing much about the rumored iWatch and an iPhone mini, including the price, it is fair to say these products are not going to be of the caliber of the iPhone and iPad when they came out. They will be evolutionary for the iPhone mini and complementary for the iWatch. It is also fair to assume that to be successful these products would have to be value priced. Lately, Apple has relied on evolutionary releases of its products and these two products do nothing but perpetuate that stigma for Apple. A stigma which is nothing close to what Apple represented even when it was not doing as well as it has in the last five years. It appears revenue growth has trumped the audacity to be bold, which is what happens to companies as they mature. It is obvious Apple cannot ignore competition and emerging markets, but it cannot and should not compromise its identity to do so.
In creating a product portfolio that looks for opportunity on the lower end rather than the high end of the market Apple is essentially conforming and not leading. Let's take a look at rumored, refreshed or new products that Apple should be putting to market in the near future. The most glaring item missing from the list is the "wow factor" even just for the imagination.
pending for too long
iPad mini 2/Retina
In addition to the lack of any clear "Apple-esque" type of product it is obvious from Apple's cycles that the most likely products to launch this year will be the iPhone 5S. Any mix of two additional products and we are right back to situation that was quoted as a reason for; supply chain constraints, product launch expenditure, and gross margin issues.
iPad Mini Effect
Blame the relative success of the iPad mini on Apple's identity crisis. It sold enough units to be considered a success but brought with it baggage of success in evolution, lower margins, and comfort in revenue growth. With the benefit of hindsight it is easy to see how it made the argument of the iPhone mini very solid. I was very disappointed in the concept of the iPad mini because in my opinion it was reactionary. I praise Apple when it does well because competition in tech raises the tides for all players. This time I think if Apple cycles back into a not so high flying state we can look back and point to the iPad Mini as the reason.
The iPad mini diluted the iPad aura and cannibalized iPad sales. One way to look at cannibalization is that a company is better off cannibalizing their own sales than letting competitors do it. The other way to look at it is that these mini devices pull Apple into a space that is driven by price not function. It also pulls them into a space that is not part of its heritage and where Samsung and other manufacturers have done very well. Apple does not have a history of being able to compete head on and from behind and winning.
Apple should be playing into areas of natural progression instead of regression. Two areas that are ripe and ready for the picking are a combo gaming system/Apple TV and in-car infotainment systems. I am not talking connectivity of existing devices for in-car systems. I mean developing a complete interface including design for car manufacturers. Microsoft and Sony power both categories right now and Apple has an interface that will fit easily and command market share.
With the proliferation of Apps and the ubiquity of the iOS interface it is a no brainer for Apple to get into in-car infotainment. These are systems that can sell at acceptable margins and be subsidized at the same time in the case of the in-car systems. It also allows Apple to cross sell other items and reduce the ability of customers to switch to other systems if these systems work better with their products. It is a natural fit in terms of ability to charge the appropriate price, the available market size, opportunity to remain premium, and a highly transferable user base. This is without considering the fact that many carmakers and direct competitors have already done most of the early work to encourage adaptation. Apple only needs to get in, brand appropriately, design, build the platforms and take it to the next level. Microsoft (MSFT), Sony (SNE), and Google (GOOG) are making great strides in these areas albeit slowly just like they did with phones before Apple snuck in. Time is of the essence and messing around with an iWatch or iPhone mini will not help the stock.
What Are They Doing?
Google: The Chromebook Pixel and Google glass are stretch products of intent for Google. Both products are not cheap but point to a desire and willingness to be disruptive. It is fair to assume that Google will have something from Motorola before the end of the year.
Chromebook Pixel Google Glass
Samsung: Samsung has arrived. It is staking its relevance with sheer scale of products and with aggressively short product cycles. It is also pushing the envelope on the innovations front with product and form factors.
As long as David Einhorn, stock splits, S and mini versions of product is all that you hear about Apple there is little hope the stock will recover from recent drops. If Apple were to stay true to itself it would worry more about making premium and innovative products than the market and competition. It did not worry about the market before and it should not worry about it now. There are many examples of brands like Vertu and LVMH that have remained successful without diluting their products to cater to lower income customers. They should allow customers to dream of Apple products and the prestige in the brand instead of trying to cater to all customers.
Investors are starting to question if the best use of Apple's cash is as payment to investors rather than new inventions and acquisitions. This tactic has been deployed before and it always happens to stable, profitable and mature companies. Apple should bring back some pride to the "i" products until then, you should leave the stock alone if you do not already own it. If you own it, you might as well hold on to it for a little longer. It is overdue for some correction pending next product release announcement.
Disclosure: I am long MSFT.