Apple (AAPL) is a premium brand in a mobile technology market that is quickly devolving into a money pit. Google (GOOG) owned Motorola has launched the Moto G, a smartphone priced ($179 for 8GB, $199 for 16GB USD) to compete in the price sensitive emerging markets. The Android community is championing the Moto G as the device that will finally shake up the U.S. smartphone market and help Motorola gain market share globally. Apple is positioned to counter the Moto G, and the predictable responses, with premium products bolstered by the standing as the only premium brand in the smartphone market.
Advantageous carrier agreements continue to drive record sales and profit for the Cupertino tech giant. Tim Cook has consistently proven that his ability to run the operations of Apple translates into competitive advantages competitors spend billions trying to overcome. Investors should focus on the growing market share, strong profit margins and healthy dividends.
Apple Gets Mobile Right
Apple continues to market the iPhone and iPad as consumer consumption devices. Great care is taken to be excellent at the primary tasks performed on mobile devices. Everything from the television ads to print ads reflects this focused reflection of how users interact with their iOS devices. Social networking, weather, games, maps and photos are areas that the iPhone historically gets right. Photos, the theme of more iPhone commercials than any other feature since the iPhone launched occurs 92% of the time on mobile and just 8% on desktop platforms. This continues to drive industry leading user satisfaction rating. You'd be hard pressed to find a user who doesn't consider using an iPhone or iPad a premium experience. Uncompromised premium experiences allow Apple to maintain healthy profit margins while competitors conduct a race to the bottom.
Source: comScore Media Metrix Multi-Platform, U.S., Aug 2013
Healthy Earnings per Share Strong Indictor
In the U.S. smartphone market Apple market share grew from 39.9% to 40.6%. Apple reported FY 4Q 2013 revenue of $37.5B with net profit of $7.5B, or $8.67 EPS. This brings the FY 2013 EPS total to a healthy $39.75. To put the health of the Apple EPS into perspective, Microsoft (MSFT) generated only $0.63 adjusted EPS in their FY14 Q1.
Apple also managed to set a new record for opening weekend iPhone sales when they launched the iPhone 5S and iPhone 5C. Their growing presence in international markets is an indicator Apple aims to stay relevant globally without tarnishing its premium brand. Apple even bucked the street consensus that the iPad Mini needed to be priced lower to take on mini tablets like the Nexus 7 and Amazon's (AMZN) new Kindle Fire HDX. Both of these tablets are priced well under $300. The iPad Mini starts at $399 for the base 16GB WI-Fi only model. Apple also enjoys a healthy profit margin boost when customers purchase larger storage options. Mobile storage has fallen dramatically over the years yet Apple charges an addition $100 for upgrading memory with the highest iPad Mini costing $699 for 128GB. Simply put, each time a customer buys any of the larger storage capacity iPad Minis Apple and investors get a nice premium bonus.
The premium pricing and profit Apple continues to generate helps position it as the most powerful force in the mobile device market. Android OEMs, Google owned Motorola included, have started to battle on the lower end of the market and are seeking to change the pricing expectations for flagship phones. Nokia (NOK) has changed the expectation of what a low cost smartphone experience looks like with the Lumia 520. Apple's continued investment in their premium brand positions them to invest more into facilities, research and development and marketing. This is something that Android OEMs fighting over scraps in their race to the price bottom won't be able to do. The resulting fall out will see many Android OEMs leaving the market and Apple generating strong profits and Earnings-per-share going forward.