On August 5th, I wrote an article titled "Smartphones & Tablets: Winning is All About Ecosystems Where Apple (AAPL) and Google (GOOG) Dominate." I recommended ownership of these two stocks as growth portfolio cornerstones. Both stocks are up slightly over 20% in the four months since August 5th, three times the overall stock market's rise.
Key points in my August 5th article are even more true today. They are:
- The unmatched Apple ecosystem provides a superior customer experience and Apple device owners are very loyal - both in usage (that is far higher than Android and other competition) and repeat buying of Apple devices. App choice is the greatest as well with the U. S. app store just reaching one million apps available.
- Independent software developers focus on creating apps for iPhones and iPads first. Apps for Android devices come second and then more apps for these ecosystems rather than apps for BlackBerry or even Windows mobile devices.
Over the last 2-3 months, Microsoft has put much effort into promoting its second generation Surface tablets, following the failure of its first generation versions that resulted in sales below the roughly $900 million in both write-offs and advertising spent on them. Like last year, MSFT is emphasizing the ability to run Office and other Windows apps, There is some appeal to being able to run these apps on a tablet but little interest in running them on smartphones. As a result, it appears Microsoft may win up to 10% of the tablet market but continuing to struggle to penetrate the smartphone market.
Again, the killer reason Apple and Android are continuing to dominate is they have the unmatched ecosystems and the fact that almost all of the independent app development is for iOS and Android keeps this true.
In tablets, even the Android ecosystem has only a fraction of the nearly 500,000 tablet-specific apps that are available for the iPad. Google's Android now has nearly as many smartphone apps as the iOS ecosystem, but usage of Android devices only about matches that of iPhone despite selling far more units.
A new reflection of this iOS device usage dominance from the past week is that the great majority (75- 80%) of cyber week shopping in the U. S. on mobile devices was on iPhones and iPads. And iOS shoppers spent about 20% more per transaction than shoppers on Android devices. In total, online shopping was up about 20% YTY and shopping on mobile devices and shopping on mobile devices up well more than double.
On October 10th I published an article titled "Apple's Technology Lead Is Set To Extend to More Products." In that article I presented a table indicating the rumored new products coming from Apple through the end of calendar 2014. The subsequent iPad Air and Retina display iPad mini were close to expectations with only minor exceptions like no Touch ID fingerprint recognition in the home button of these new iPads.
Shipment rates have been rapidly improving over recent weeks for the iPhone 5S, iPad Air and Retina display iPad mini so that distribution can be expanded to more carriers in more countries.
One new carrier now confirmed is China Mobile (CHL), the world's largest with 700+ million subscribers. China Mobile just announced it will begin taking iPhone pre-orders this Thursday. Next week, CHL will announce its 4G LTE service that will include iPhones. Good iPhone sales at China Mobile alone could add $4+ to AAPL's earnings in 2014, taking them to the $48-50 area. This announcement (with iPhone shipments in January for Chinese New Year) could drive AAPL shares up an additional 7% over the remaining 3-plus weeks of this year to $600.
I do expect strong December quarter sales of the iPhone 5S, iPad mini and iPad Air will generate Apple earnings above the $14 current Street expectations. That plus a favorable China Mobile iPhone launch in January could keep Apple shares moving higher beyond the $600 area. Of course, these events need to come to fruition.
And then for Apple shares to continue higher toward a reasonable target of $700 by next fall, new products and expanded versions of current products like those suggested in my October 10th article need to in fact emerge. And hopefully before the latter part of the 2014 year so that strong momentum continues in the March and June quarters instead of falling back like they did this year with few major new launches. A larger screen iPad Pro, larger screen iPhone 5 and iWatch appear possible in H1 calendar 2014 with the probabilities in about that order.
Apple continues to maintain its ecosystem lead as reflected in its dominant share of Cyber week shopping on mobile devices. The scenario presented here for the balance of this quarter and next year is an optimistic case, but one that has realistic potential to be realized.
I own Apple shares and continue to suggest them to you as well.
Google continues to be the other strong ecosystem provider with its Android dominating smartphone and tablet volumes, if not usage. Google also has many other strengths starting with its leadership in online advertising and providing of cloud based apps and other services.
Apple and Google are two of the most innovative of all companies and are reasonably valued as well.