What's propelled Apple (AAPL) to incredibly high valuations over the last year and a half can be boiled down to 3 factors: innovation, market share and large gross margins. 18 months following Steve Jobs' passing, these factors don't seem to be there anymore, paving way for the likes of more innovative companies such as Blackberry (BBRY) to gain market share.
During the time Steve Jobs was at the helm, Apple was a master trendsetter and was undoubtedly the most innovative company on the planet. Under his guidance, Apple went on to create market disrupting devices such as iPods and iPhones, which at the time were clearly the most superior products in their industries. Furthermore, with the conception of the iPad, Jobs singlehandedly created a market segment of his own, which no other company had even dared to explore until it became clear that tablets would be a device consumers would use.
Apple devices quickly became the "in" products to have, and as the contagion spread, loyalists had developed a cult-like following for Apple products. By essentially being first-to-market in the music player, mobile phone and tablet space, Apple was capitalizing on a huge market share, all while maintaining fat margins. This knack for innovation brought Apple to the forefront of the mobile devices industry, and rendered many devices such as the old Sony Walkman obsolete.
When the great Steve Jobs passed on October 5, 2011, there were many questions about the state of Apple Incorporated, and whether or not it would be able to sustain the remarkable rate of innovation it had over the last decade. With the negligible price movement during the day of Jobs' passing, many pundits claimed that the risk had already been priced into the stock valuation. The market seemed to believe so, as the stock price skyrocketed from $300 on October 5th to highs of over $700, where it surpassed ExxonMobil (XOM) and was recognized as the most valuable company in the world (in terms of market capitalization). It seemed as if Apple hadn't lost a beat since his passing.
Today, 18 months after Jobs' passing, its looks as if Apple Incorporated has been riding on the momentum of Steve Jobs' visionary leadership. There's no doubt that iPhones remains a wildly popular phone among the masses, but one has to wonder how long this can continue. The only innovative features that Apple has added to the product line over the last year and a half is the 5th line of icons to the iPhone, and an iPad mini that Steve Jobs was adamantly opposed to.
Market Share and Margins
Without innovation, competitors are slowly chipping away at the only two factors that make Apple stock worth buying: market share and margins. In today's world of technological copycats, if you're not moving forward, others are catching up real quick. In the latest report released by Kanter Worldpanel, Android accounted for 51.2% of U.S. smartphone sales, while iPhones remain in second place with 43.5%, down for a consecutive period. With little innovation over the last little while, Apple's first-mover advantage is slowly wearing away and companies like Blackberry are looking to take some of its market share. It's already been reported that 50% of users switching to the Blackberry Z10 devices are coming from Android and iPhone users.
Apple's gross margins aren't making the pill any easier to swallow, either. Compared to a year ago, Apple's FY2013 first quarter margins declined to 38.6 percent, lower than the 44.7 percent on the same quarter a year ago, representing an over 15% decline. Worse yet, The Wall Street Journal is reiterating its previous claims that a cheaper iPhone is in the works for this year, which will only further diminish margins. While Apple margins are steadily decreasing, one of the more pleasant surprises in Blackberry's fourth quarter 2013 fiscal year earnings was the increase from 30% to 40% gross margin it reported on revenue. There is strong reason to expect these robust margins to continue on Blackberry's end, as enterprise devices have tended to secure larger margins (think Lenovo).
Apple's development since Steve Jobs' passing has been largely stagnant. With fierce competition in the industry, the likes of Blackberry will be looking to take advantage of any churn that occurs from users dissatisfied in waiting for a full year for a new device, only to have a slightly thinner iPhone. Android's best phones, the Nexus 4, will likely be made with a "zero margin strategy" in mind, as Google (GOOG) attempts to maximize advertising revenue, and the Galaxy S4 has features that are too gimmicky to be taken seriously as a market leader.
It is of my opinion that Blackberry can and will capitalize on a situation where advances in mobile technology are stalling. Unlike Apple, Blackberry has a secure platform, as well as apps that are able to run concurrently in real time. No one will ever be able create the dent in the universe that the great Steve Jobs did, but Thorsten Heins is developing the new Blackberry phones with an eye on the future.