Over the past several weeks, I have laid out what amounts to a long-term bear case for Apple (AAPL). Three main articles illustrate my position:
- MBA's, Gimmicks And Apple's Culture (Editors' Pick, Seeking Alpha, February 27, 2012)
- Why Apple Bulls Are Wrong About The Impact Of A New CEO (Seeking Alpha, March 29, 2012)
- Apple's Downfall Coming (TheStreet.com, April 20, 2012)
I have received criticism from many AAPL bulls for my bearishiness. In this article, I correct some misconceptions and reiterate my case for why an Apple without Steve Jobs will likely lose its luster and enter a relatively slow decline to merely being good, not great.
I think I have been pretty clear about this, but some comments I field from AAPL bulls indicate otherwise. I see very few near-term problems for Apple. While I am a bit concerned about potential weakness in the stock after Tuesday's earnings report, any "negative" that comes out of this quarter will likely be little more than noise that creates a temporary pullback, needless hysteria and a sooner rather than later recovery.
The Competitive Landscape
In the near-term, it's difficult to argue otherwise given the general lack of competition Apple has to deal with. It has become clear that no company, expect for maybe Google (GOOG), has plans to do anything to challenge Apple that looks even slightly different than what Apple and, as a result, everybody else does. Without a game changer coming from a competitor, Apple's pipeline should allow it to dominate for at least the next year or two.
As the landscape is presently structured, an existing company, operating under the existing framework, will need to take the things Apple does and do them as well or better to make any meaningful strategic-competitive impact. In other words, we live in a world dominated by mobile devices and laptops that continue to get lighter and slimmer. Apple effectively created this world and nobody appears ready to step in and change it in any profound way. Apple makes the rules. Others play by them, hoping to come in a respectable second or third with knock-off smartphones, tablets and such.
Apple enjoys the best of both worlds in its dominance.
In some instances, it sells the most of something (iPad) with "the next best thing" coming in a distant second. While Amazon.com's (AMZN) Kindle Fire has been a success, it dwarfs iPad's sales and status. I'm quite confident that Jeff Bezos was not firing a competitive salvo Apple's way when he commissioned a tablet - he tends not to fight battles he cannot win. Rather, he used Kindle Fire as a tool to further facilitate the pervasiveness of Amazon's equally as dominant, but very different ecosystem. When and if Amazon does a smartphone, it will not exist to "take on Apple," as simplistic analyses will surely contend; it will be little more than a means to justify the ends of growing Amazon's immovable e-commerce foothold.
On the other end of the spectrum, with Mac, Apple owns the luxury of not having to dominate market share to dominate hearts and minds. In addition to working really, really well, Mac computers have become less of a cult item and more of a status symbol. When I buy a laptop (we own three of them), I want a nice-size screen, tons of memory, a quick processor and a capable hard drive. I opt for the equally-as-capable Sony (SNE) Vaio for about $1200. For every two people who do something like that (or go cheaper), Apple can count on somebody to buy a computer from them with similar specifications, but for $2,000. And this consumer will not only buy a Macbook Pro, for example, he or she will likely buy other Apple products on a consistent basis.
Without the sort of genius and innovation Steve Jobs brought with him to Apple the second time around, you cannot expect any competitor, even Google, to upend this incredible momentum anytime soon. As such, the near-term future looks bright.
Where The Long-Term Bear Case Comes In
If I could make any one point from the above-referenced articles again, it would be the following. I wish I could find the words to say it exactly the way I want to say it.
For years, and especially leading up to his death, we lauded Steve Jobs as the genius, creative force and one-of-a-kind figure behind Apple's success. It was as if we were all living through an emotional time together. And we came together and gave the man his due. He was more than a man. He changed the freaking world. It's not an overstatement. Steve Jobs literally changed the world.
I do not need to run down every area he created, dictated or altered. We all know the drill. I am not going to spend much time rehashing the connection between Jobs, Apple's culture and how Tim Cook, or just about anybody else for that matter, puts that culture in serious risk of eroding. I have covered that in the three articles I ask you to review.
Simply put, Jobs never reacted to any type of outside pressure - from shareholders, from foreign governments, from non-profits or from consumers. He also made the people around him better. He was, as a long line of former employees have recently noted, an "effective (expletive)". He willed Apple's team to do the impossible. To call Jobs a freak of nature is not a put-down; it's simply a statement of fact.
In many ways, he was weird dude and a mean guy. But, to a person, we rallied around Jobs and Apple when we knew he was dying and at his death. To a person, we expressed deep admiration for a man who accomplished at Apple, and led others to accomplish, things nobody else we know of could have accomplished. His worst qualities and strangest quirks fueled his brilliance.
It was a once-in-a-century man who willed Apple to become the greatest and most dominant company on Earth. As time passes, however, it's a natural tendency for humans to let the emotions and euphoria slowly fade away until we, for all intents and purposes, let go of the past, embrace the present and anticipate an equally-as-productive future.
As time has passed, I think many AAPL bulls have essentially discounted the significance of both Steve Jobs' impact and his presence. I could be wrong. Tim Cook might not miss a beat. Apple might continue to dominate for the remainder of the decade. Maybe even longer. That's plausible, but I am not sure how anybody who makes an honest acknowledgment of this extraordinary past can call such a clean chain of events likely.
We've already seen signs of Apple moving in a relatively "normal" direction under Steve Jobs. It's not the same company. If nothing else, that should give bulls a long-term pause.
The Long-Term Future
It's safe to say that the next several iPhones and iPads will dominate. Mac will continue to increase its market share. However, over the next two years, expect several things to happen.
Laugh all you want, but Microsoft (MSFT) has awaken from its blue chip slumber. And Intel (INTC) is about to bust out as well, partially on the back of the ultrabook it has poured millions of dollars into. This convergence of Microsoft's reinvigorated Windows operating system and Intel's innovation will produce real results. While it's at it, Microsoft might even be able to help turn Nokia (NOK) around and pressure both Apple and Google's Android in the smartphone market.
As these seemingly (and finally) formidable pressures take shape over the next 6 to 18 months, Apple will need to come up with something bigger and better than it ever has before. It will need another monster revenue stream to compensate for what could be declining iPhone, iPad and Mac sales. Remember, these products have more than ably picked up the slack from naturally-declining iPod sales (down 26% year-over-year, as of Apple's most recent quarterly report).
Sure, iTV is likely in the pipeline, but it's a completely new product. And, for the first time in a long time, Jobs will not be around to micromanage the marketing process and insist on key final touches. Remember, there's nobody left "to say no to 'bad' design."
With or without Jobs, there's no guarantee iTV will do what iPhone, iPad and Mac have done in a post-iPod world. I just happen to like the odds a lot better with Steve Jobs around.
If nothing else, Apple's biggest fans should express caution and concern over a future without Steve Jobs. Doing otherwise only shows me another case of bulls putting on blinders. This is not to say the stock will plummet to $100 anytime this decade, but to throw out price targets of $1,000 and such seems a bit much, given Apple's slow, but certain return to relative normalcy amid the coming and inevitable competitive pressures.