Apple Is Its Own Worst Enemy

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) has done many things right during their recent incarnation, they have also made some monumental blunders along the way.

A couple of major "right" things were the development and continuing evolution of the iPod to the point where it finally became an iPhone that couldn't make a phone call. The next leap, of course, was to make the iPod into the iPhone, iPad, etc.

One other very smart thing Apple did, whether intentionally or not, was to offer only one model of the iPhone. No consumer confusion, just order the color and memory size and forget it.

Today many consumer products offer so much choice that the consumer can actually shut down and buy nothing. A smartphone kiosk today offers so much choice that many customers simply walk away in confusion.

Those two good things have built a business for Apple the scale of which is hard to imagine. The company produces $170 billion in revenue, produces over 20% net on sales, and has a market capitalization of $471 billion. A good argument can be made that the iPhone represents all of the operating profit of Apple.

It appears that much of the "must have" innovation of Apple is over. All major smartphones have the same features, give or take. This is the point in semiconductor based consumer products where price cutting will set in, as it has in every consumer electronic product known from the calculator to the PC.

Consumer Reports rates the iPhone 5th or 6th on all four American service providers while the Samsung (OTC:SSNLF) Galaxy 4 is rated number one on all four services. Even the galaxy 3 outranked the iPhone 5 on all services.

It seems that Apple has been successful even in spite of some incredible blunders.

How about having Eric Schmidt of Google (NASDAQ:GOOG) sit on your board of directors? Who allowed that happen, let along continue even in the face of evidence that Google was working on a smartphone? The negative consequences of that blunder has turned out to cost Apple tens of billions of dollars in revenue and the pursuit of revenge against Google has caused even more dumb Apple decisions. Schmidt acting as a mole inside of Apple doesn't say much for Schmidt either, but Steve Jobs should have had some idea what was likely to happen. The Apple BoD never did remove Schmidt, he stayed on the Apple Board until pressure from the FTC forced him off for "anticompetitive" reasons.

Using Samsung as the supplier of application processors, memory, screens, batteries, etc.? Who made that decision? Didn't anyone notice that Samsung was already in the non-touch smartphone business? Since the Samsung thing was/is a supply chain decision, I guess Tim Cook gets hung with that decision.

The result of these two massive blunders is that the Google developed Android mobile operating system has gone on to claim 82% of the market to Apple's iOS 12% of the market and Apple continues to fund their worst nightmare of a competitor.

One can only imagine where Apple would be if they hadn't made these two mega blunders.

It doesn't stop there. There was AntennaeGate, an engineering blunder of the first magnitude that was at first covered up and the solved with the mandatory "bumper"… for $20. So much for the vaunted Apple engineering department. Do these guys even try their own products?

How about the Maps debacle? Apple management was so intent on revenge against Google that they shot themselves in the foot over Google Maps. That reminds me of the comment about revenge; "Revenge is like you taking poison, expecting the other guy to die."

There have been features that have been more or less "thuds". When was the last time that anyone made a Facetime call?

The fingerprint sensor? Does anyone use that?

Having said all the above, I and my family have used iPhones for the past three years and have been satisfied with the product.

Now I have to describe a "Close Encounter of the Third Kind" with Apple:

I went to Verizon (NYSE:VZ) to buy/upgrade to 3 new iPhone 5s's. A year ago we all changed our emails. When trying to upgrade our Apple IDs, something got screwed up and they didn't work. You need a valid Apple ID in order to download apps and to even register a new iPhone. The Verizon guy couldn't get them fixed, so I had him put us back to start with our old iPhone 4s. I then made an appointment with the Apple genius bar to get the Apple ID problem straightened out.

I spent 2 hours with the senior Apple genius. We couldn't recover the passwords for the Apple IDs. This poor guy tried everything. He called Apple and had corporate support guys try a few more things… Nothing worked. He finally got off the phone and said, "We can't fix it." I said, "What does that mean?" he said, "We can't sell you new iPhones." I said, "Really? You mean that I am going to have to walk from here to Verizon and buy three new Samsung Galaxy S4s?" With a bowed head, he said, "I guess, if that's your second choice." I said, "I guess it is my first choice now."

Before I left I asked the genius, "How often does this happen?" He said, "All the time." I said, "If that is the case, why did you just waste two hours of my time?" he said, "Sometimes we can recover the password, so I have to try." I said, "Why wouldn't they just wipe out my whole record and start over? There couldn't be any security risk to me anyone else by doing that." He said, "The system won't allow it."

Actively sending existing customers to the competition is an early sign of decline.

I walked away shaking my head and bought three new Galaxy S4s from Verizon. I still have the iPhone 4s (they are now effectively iPods) and have had to transfer some videos and some contacts that didn't get captured by the Verizon transfer. After about three days of going back and forth, the iPhone now seems a little primitive relative to the S4.

My son mentioned that the same disaster happened to his girlfriend and her mother.

I couldn't help thinking that if Apple got hacked by someone who could corrupt Apple IDs, the company would be brought to its knees.


Apple has parlayed a few smart moves into a large and very profitable business. They have also made some company-killing blunders along the way.

Potential shareholders have to keep this in mind: Could what happened to Motorola, Nokia (NYSE:NOK) and BlackBerry (NASDAQ:BBRY) happen to Apple? Perhaps, but not likely. What will certainly happen is that the very high profit of the iPhone will be removed in an inevitable price grind-down by the consumer market. Since the iPhone is, in all respects, the main pillar of the company, Apple and Apple shares will slowly (or rapidly) simply become worth less than today.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.