Back in October of 2001, Apple (AAPL) introduced the first iPod. Apple’s press release read - an “Ultra-Portable MP3 Music Player Puts 1,000 Songs in Your Pocket.” Priced at $399 a pop and aided by really slick advertising, it was an instant hit, that put Apple on the fast track - from a company whose stock was in the cellar for almost two decades - to a growth stock with excellent long-term potential.
AAPL - who famously rejected Intel’s (INTC) chips and went with Motorola (MOT) back during the birth of the PC in the early 1980’s, finally picked Intel as their choice of CPU in mid-2005. But Apple had already re-written their operating system, and its guts were UNIX [BSD 5.x] - making the switch from PowerPC to Intel rather painless [for Apple]. At this point, Apple had a mere 5% share of the PC market - with a focus on education, artists, and graphic/industrial design.
By mid 2006, all of Apple’s computer offerings had Intel CPUs and Intel chip-sets. Files were interchangeable easily between Apple’s and other systems, and Microsoft’s (MSFT) Office ran [runs] on the Mac. With the narrowing gap between the PC and the Mac, and with the cachet of “coolness” that the Mac had, Apple’s market share rose to the high single digits by 2007. Former PC owners [like me] switched to the Mac - because the OS was more generic [UNIX], and file transfer issues of the past do not apply to the current generation of Mac hardware and software.
What Apple did correctly [till now]:
1. Slick new devices like iPod.
2. iTunes
3. Mac O/S went from proprietary to UNIX based [easy file sharing with other OSs].
4. Slick new Macintosh designs - based on Intel CPUs and Intel chipsets.
5. iPhone/iPod Touch.
But, Apple is getting complacent. The latest revision of iPod Nano was evolutionary, heck, it was cosmetic. The feature most requested by Nano users was built-in FM with recording, but Apple chose to not include FM with the Nano; instead, one has to buy this option separately, and there is no way one can record a tune playing on the radio - as there is no “record" button on any iPod.
While the next generation of Macs will have an Intel CPU, they will have an Apple-proprietary chip-set , making things more problematic for boot-camp hackers - the only bunch of happy Vista users. Apple shifted resources from OSX-Snow Leopard to iPhoneG3. This has already ticked off a bunch of Apple faithfuls, who look forward to every revision of the OS and the Mac - like Porschephiles do, the 911. Apple’s survival through the 1980’s and 1990’s was under-written by these faithfuls, who bought Macs despite the fact that they had to jump through hoops to transfer a file to someone who owned a PC.
Apple chose to not market the iPod Touch as aggressively as they do their other products, so as to not cannibalize iPhone sales. The Touch is probably the best compact mobile internet device [MID], yet it isn’t marketed as such. Yet, in the last two quarters, iPod Touch growth has outpaced the growth of other iPods, keeping AAPL’s gross margins for iPods in-line with what it was in 2007! Impressive.
Recently, a small company called Psystar made a [and still makes a] generic Mac, and Apple immediately filed a copyright infringement suit [Psystar has countersued Apple and has charged Apple with restraint of trade, unfair competition and other violations of antitrust law]. C'mon Apple, a certain amount of "generic" competition is OK, plus these guys package their computers in a generic box - no slick "I have an Apple" packaging.
Finally, Apple is the Cult of Jobs wrapped into a publicly traded company. The day that Jobs was rumored to have been sick, the stock dropped 5%.
Things Apple is not doing right:
1. Not being brave when updating the Nano.
2. Slighting their faithful.
3. Not marketing iPod Touch as a MID.
4. Gravitating towards proprietary hardware.
5. Once again, thwarting generics [which did them no good the first time around].
6. The Cult of Jobs - dependence on one single person.
Apple’s current line of products is still awesome, and I expect the company to not falter for the next twelve to eighteen months. But the end isn’t far from now.
Disclosure: Long Intel. No positions in Apple, MOT, IBM (IBM), MSFT.
This article has 39 comments:
G, the iTune and App Store, and the success of market area for accessories that were created after iPod, iPhone?
Is there any other computer or smartphone company beside Apple, that is capable to design both hardware and software together to make a complete self contain unit?
Sorry, but these "wrong doings" are picking a fight - it's a brave statement aimed at a company who scores a perfect A+ for branding, marketing, technology and performance.
They are Teflon baby, and will remain such for a while..
There whole business plan is based on innovation and staying 2 to 3 years ahead of
competition. No one is close, in any aspect.
You should be looking at 4th and 1st quarter
sales and earnings growth and the likely
potential of just a blowout.
The stock is heavily shorted. Just look at
the action yesterday. You should be writing
about the outcome of unrealized revenue
and the likely upward explosion when is is
suddenly realized. Wall street is a herd.
The stock will move at once
And this is how the value of a company is decided? Madness.
a recent switcher indeed .. sharing files between platform was always easy for example since the early 80's
WRT Pystar, why can't Apple protect their intellectual and physical capital ? And how can antitrust hold up against a company that has developed and created it's own market and goods ?
Regarding iPods, do you recall how Classic Coke came about ?
So tell us, what does "the end" look like for Apple in a year-1/2 ?
Very strange and unfounded opinions expressed in this article.
Seeking Alpha should reflect on the criteria they apply to selection of their contributors.
Faithfully,
%$#@!
Not to be taken seriously I suggest.
Not to be taken seriously I suggest.
Did the last couple of words get cut from the article? The end isn't far from now for microsoft and their 90% market share!
Apple never could have gone with Intel in the old days! It couldn't handle the Mac software. It took decades to get a decent Intel chip. The Motorola chips of the day ran circles around the little, toy Intel 8-bit chips. The PowerPC processor Apple invented with IBM and Motorola DUSTED the Intel chips for many many years. But because so many people were mindlessly going with Wintel for all those years Intel had far more money for development and finally caught up.
Finally, it was a PAINLESS move to Intel for Apple? Get a clue, once again. It was painless for US to use an Intel Mac, is that what you meant? It's most devinitely NOT painless to move your entire system to another chip. Apple's done it twice, and done a remarkable job both times.
Seriously, if you want to learn about Apple before you write this kind of tripe, go read RoughlyDrafted.com. You may learn something.
as was said above, a list of AAPL's real negatives would surely be a much longer list than what you've captured above...the issue isn't "whether" AAPL's doing everything "right."
...it's whether the volume and magnitude of its successes outpaces or minimizes its shortcomings.
on this front, i'd have to say absolutely...
- its computing hardware platform receives tremendous reviews not only for its capabilities but for its cutting-edge design
- the operating system platform is head and shoulders above its peers from both a usability and functionality standpoint
- from an application standpoint, you can't argue with the success of products like iTunes...a tool with no relevant comparison anywhere in technology today
- the iphone is quite literally the most revolutionary technology product since the intro of the ipod in 2001...and the app store only extends the reach and capability of the product in such an organic fashion that it's nearly impossible for competitors to reproduce
- companies have been chasing the mythical dream of the digital hub for years now...and despite the fact that it's been "toying" with an admitted "hobby" in this space, it's clear that there isn't another company that's better poised to dominate the living room than AAPL over the next 5 years...the appleTV is a fantastic concept that exists purely as the result of the popularity of the ipod and the capability of ecosystem components like iTunes and critical content deals with big media partners
- and let's face it, AAPL entered the retail space with little fanfare and extremely low expectations in 2001...but has quickly become a juggernaut in the space. few chains, despite many more years (if not decades) of retail experience, can approximate AAPL's retail success from an operating or execution standpoint
...so, in the grand scheme, i won't drone on about "how wrong" you are on the points you make...i just take issue with how you made them...the negatives you cite are real but don't come close to counterbalancing AAPL's dominance of the marketplace on so many other fronts.
...methinks this was an opportunity to attract some eyeballs to an article/POV that really wasn't as much "news" as it was "entertainment" or "discussion fodder."
The Cult of Jobs - dependence on one single person is just and only in your head, nowhere else.
Thanks!
Give Apple and all of us a break; what about the million other things they ARE Doing Right?
Unfortunately I was not an investor at that time, but I'm quite sure, without even checking, that the stock went down that day.
1. The OS switch had absolutely nothing to do with the exchange of file formats. There were other benefits to switching to the UNIX base but this wasn't one of them.
2. FM on an iPod isn't really necessary and would increase the cost of the iPod for a very small minority of people who would use the feature. Apple makes money selling content. If you're going to write about your silly personal pet peeves you should be restricted to the comment section (like I am) :)
3. Your speculation that Apple creating their own chip set could somehow make things problematic for Windows users on Mac hardware is just that - speculation. Intel is not the only manufacturer of PC chip sets and Windows seems to operate just fine on the others - in fact some NVIDIA-created chipsets work better than Intel's. This is simply a function of Apple creating Windows drivers for their chipsets just like they've done so far for other Apple-specific hardware on Boot Camp. Apple must certainly realize that having Windows compatibility has been a huge driver of market share and they're not going to jeopardize this now.
4. Your assertion that the iPod touch is Apple's best MID is just plan wrong. The iPhone is Apple's best MID and they're marketing the hell out of it as such. The iPod Touch isn't a useful MID when you're away from a wi-fi hot spot. It is a great iPod with great MID capability when you're in range of a hot spot but the iPhone3G is a far better MID because it works anywhere.
5. Apple is well within their rights to go after Phystar and they should go after Phystar. Previous attempts at supporting clones proved to be disastrous. Apple is effective because of their top-to-bottom control of the hardware platform and someone porting their OS to questionably-compatibl... machines, with crappy support, could seriously harm their brand.
6. The new Nano looks great and will sell extremely well. The Genius feature sounds kind of goofy at first but actually works really well - especially on iTunes where it will help customers discover, and rediscover, songs and albums they will want to buy. That makes a lot of sense for both Apple's iPod business and their iTunes business.
7. Yes Steve Jobs is an important CEO but to think for a moment that he's the only one executing on product strategy at Apple is just silly and an insult to the thousands of Apple employees that build all this great hardware and software.
You speak like someone who has zero insight into this industry and even less insight when speaking about Apple in particular.
You're best move is to look into a career change...selling at the mall, taxi dispatcher, magazing ad sales are a few that come to mind.
Nothing technical or in the IT space is what I recommend.
Big deal, its down almost that much today on NO news at all.
Are these people paid for their articles? If Mr. Bapcha was, I want to get in on the action. The only difference is that I actually understand AAPL and Apple products.
Wait for the Grand Slam!
I definitely understand how tiring it can be to continually sing the praises of one company. Eventually fatigue sets in and people want to try and find negatives. But poorly written and defended articles like this are proof that the only real issue is that writers do not want to be the ones writing another positive Apple article. The problem with this is that Apple is not giving them enough negative material in order to write credible articles.
Your list:
1. Not being brave when updating the Nano.
-- I and a lot of users do NOT want an FM tuner/recorder built in to my iPod. Who really wants to listen to FM on an iPod? I want to listen to MY music, not random sub-standard-quality stuff. And I don't want to pay more for those unwanted features nor do I want added bulk to accommodate it. The update to the Nano is nice in my opinion - good form factor, features and value. I have been a faithful iPod user over the years and I feel Apple has been spot-on with their lineup, always evolving into more for less, while maintaining the bling-factor.
2. Slighting their faithful.
-- Leopard is still the world's best OS - what's the problem here? If they chose to shift some resources to allow for the 3G to come out sooner, I'm OK with that - especially since I bought a 3G and have been able to enjoy it because they did so. I'm still confident OSX will continue to be the best OS as we go forward (Apple knows how important the Mac is to it's portfolio, don't you think?).
3. Not marketing iPod Touch as a MID.
-- Despite your perceived lack of marketing by Apple, they are selling well and are readily available for anyone who wants one, so what's the problem here? Because you think they should try to position it differently in the marketplace? Apple is clear about the feature-set of the Touch and users I know have no trouble discerning how to apply them.
4. Gravitating towards proprietary hardware.
-- Depends on how the user-experience is, not the proprietary vs. open nature of specific chips. The Mac user experience is as enjoyable as it is due to (among other things) the Mac-unique features. Having a somewhat "closed" system is an advantage for Apple, for a lot of us users, vs. the wild-west PC-type openness you seem to want to engender. Besides, Apple is obviously promoting the ability to run MS OS (XP-Vista) and I don't see them abandoning that anytime soon, with or without a proprietary chip or two.
5. Once again, thwarting generics [which did them no good the first time around].
-- So they should not protect their intellectual property? Apple has competition already (PC's) which has kept them honest on pricing. I'd rather not see a dilution of the Mac-experience by having a slew of bottom-dwelling Mac-clone OEM's in the mix.
6. The Cult of Jobs - dependence on one single person.
-- So they have a visionary leader who has successfully navigated the company into new markets (creating ones that did not even exist, and expanding the definition of others that did). What do you propose? Get rid of Jobs so they aren't "dependent" on him? I see good leadership as an advantage in the marketplace, not a liability. If some day Steve moves on, I guess Apple will be looking to find a new leader - is that different from any another company or organization that has good leadership in place today?
It just seems to me you are looking to slight a company that in spite of very difficult times, has shown an amazing ability to continue to read the marketplace and position itself as a provider of wonderful and fun user experiences in cost-effective ways that happen to always be a step ahead of anybody else.
1. Not being brave when updating the Nano.
Where was it reported that FM radio was the most requested feature? The Nano does record, quite well, but if there's no radio, why would you need to record it? If you want radio, just get a Touch. There's AOL Radio, Pandora, Simplify, Stitcher and others I'm sure I can't remember.
2. Slighting their faithful.
What?!? Apple didn't move engineers from Snow Leopard to the 3G iPhone. Apple moved Leopard engineers to the EDGE iPhone. I don't know of any Apple faithful who didn't think that was a good idea.
3. Not marketing iPod Touch as a MID.
Dude, it's the same reason why Apple didn't market the iPhone as a MID. The cellphone market is huge, while the MID market is tiny, so market to the huge market instead. Likewise, the MP3 player market is huge compared to MIDs, so market to the MP3 player market, and as people get used to the idea of the Touch and iPhone, gradually let them in on the secret that they're actually using a MID.
4. Gravitating towards proprietary hardware.
This is STILL RUMOR. No one knows how the PA Semi engineers will incorporate SOC chips into an iPhone or a iMac. There's no reason to conclude that they won't be compatible with x86 instructions.
5. Once again, thwarting generics [which did them no good the first time around].
The generics almost killed Apple. Are you daft? You don't realize that the true cost of Apple OS software development is not incorporated in the retail price, because those are UPGRADE boxes. $129 is an UPGRADE price. Pshyster is using an UPGRADE piece of software on their generic boxes. If it were to pay full retail on OS X, it would be double. Have you looked at how Windows Vista is priced?
6. The Cult of Jobs - dependence on one single person.
Apple does NOT Depend upon just Steve. The media has created a cult around one figure.
Apple succeeds precisely because it deserves that elusive 'less that is so much more'. IT does not produce for landfill demand. Dell and PC makers do. Apple has a brand. No PC manufacturer has a brand because none of them produces the whole widget. Why complain about the lack of features when there are so many lacklustre alternatives to iPods, MAcs and iPhones that are crammed chock-full of every conceivable extra that no one wants? It's not as if you don't have a choice. Broadcast FM, like published media, has no future beyond 2020 so why bother? FM will prosper on the net if enough people like to have someone else make up their playlists for them.
Apple will make the Mac (expecially) proprietary and they will be right to do so. I don't see any other corporation from Mercedes to Boeing to HP to any other genuine brand value holder tolerating encroachment on their intellectual property. Why expect it of Apple. PowerComputing was a disaster for Apple. Everyone who knows their history knows that. Chandra will studiously avoid any future articles from this source. Apple hater can go look in the mirror like every other SJ wannabe.
Apple cannot be suppressed forever. It is called evolution and democratisation. Look how much freedom you have gained in the way you can buy music. I can't wait for the day when the real artists that are out there can sell their songs on iTunes the way Apps are sold with no self-interested record companies taking an unearned squeeze out of the middle. Yeowch. It's about time the fat got trimmed and the artists regained control of their work. Apple did that. Apple will do the same to publishing and the mobile markets. I benefit from that easing of the marketplace. I get what I want and nothing more. So less is truly more. That is why AAPL will thrive. It champions the user. Rant over. Buy Apple and buy AAPL. It is an American Treasure. Name another, if you can.
Apple will keep the next generation stuff in their pocket until it is clear that the demand will exceed what they can generate with small and sexy improvements.
When makeup fails to make the women attractive, then she may result to expensive plastic surgery. When that fails then it is clear it is time to go shopping for a new arm piece.
"But the end isn’t far from now."
I know the term "far" is relative but I have been hearing this same sentiment since 1994!
It's cool though.. keep writing this crap, keep talking the smack, get your message out enough to actually bring the stock price down!
That way I can buy more shares before the next big Apple product kicks the world in it's big stupid butt!