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"Everything changes, nothing remains without change." -- the Buddha

Steve Jobs, with his interest in Zen Buddhism, would have appreciated the meaning of the following charts better than many Apple (NASDAQ:AAPL) lovers:

Click to enlarge images.

These are all-time stock price charts of six American companies. As you can see, each company has a point where it peaks, comes to its all-time high, and then falls from there, never to regain that stature. For some, there's a second or third peak, but none as high as that first one. Eventually, ultimately, there is a fall from which the stock never really regains.

Now, here's another similar chart, this time of three other American companies.

What do we have here? We have no very definite peaks. The price starts low, goes up, and then forms an extended plateau with bumps and drops; however, unlike the six stocks in the last set, there's a difference here -- these are plateaus, not mountains. There's no sharp rise except once at the beginning; there's no great fall. Of course, I am generalizing somewhat; chart reading is not an exact science. However, the difference between this set and the one before is hardly trivial.

Now, the interesting disclosure: The top six charts are for Cisco Systems (NASDAQ:CSCO), Research In Motion (RIMM), Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO), Nokia (NYSE:NOK), and Dell (NASDAQ:DELL), in that order from top left to bottom right. All are from the technology sector.

The three charts below that are for Pfizer (NYSE:PFE), Merck (NYSE:MRK), and Johnson & Johnson (NYSE:JNJ). All three are from the healthcare/drug manufacturing sector.

A little common sense about the fundamental difference between the two sectors will give us an idea about what the charts are telling us. In the drug manufacturing sector, the first few years in the life of a company are spent bringing a drug to the market. Once that drug starts making a profit, a company usually diversifies into an entirely different drug or set of drugs. As capital flows in, R&D develops and the company branches out into various streams, and entirely new markets open up with each new drug or healthcare-related product. The stock price reflects that diversity in the product pipeline of the company.

A technology company, on the other hand, has a different history. A technology company is built around one type of product and one market. In the beginning years, the company focuses on developing and marketing that product. As the product is perfected and its appeal becomes general, the market opens up and that is reflected in the stock price where it peaks. However, at some point, the market becomes saturated for that product. Since, historically, a tech company will focus on only one type of product (very broadly speaking), once the market for that product becomes saturated the stock collapses, never to return to that peak again.

Very broadly speaking, that is the brief history of a technology company.

One can raise some objections against my admittedly simplistic model. It can be said that it is too simplistic to say that a technology company only makes one kind of product. Zenith Electronics -- the great American pioneer of electronics manufacturing that has been acquired by LG -- made not only televisions but also remote controls, shortwave radio, and other products in its heyday. Cisco makes many types of products, including routers, switches, antennas, and a hundred other things. How can I classify them as one type of product?

My response is that almost every technology company has a core business area, and all its products are centered around that. Microsoft, for example, principally makes operating systems and office software. Although it does make hundreds of other things -- like the Xbox, media players, mouse, keyboards, etc. -- everything is centered around the Windows OS. Dell makes desktops, laptops, switches, and even tablets. However, everything is centered around making computing devices. Cisco's business is broadly classifiable as networking systems. Zenith's used to me entertainment hardware.

Look at it another way. Drug products have a longer-term consumer market. I could need anti-obesity drugs and diabetes drugs from the same manufacturer, and I could need them for years. Even if there are competitor drugs, I would probably not switch drugs in the same way I switch smartphones, or laptops, or other technology hardware. However, I need to constantly keep buying the drug to survive. This isn't the case with technology products. I could switch from competitor to competitor within months. I could consider laptops obsolete and switch to smartphones altogether, thereby moving from one company to another. It is in this precise sense that I consider technology companies as producing one type of products.

Therefore, as the graph amply demonstrates, technology companies last in the limelight (peak stock price) only as long as the world does not outgrow their single product type. They might survive -- most do -- but they do not dominate the market. They simply switch to a lower key. Drug companies, on the other hand, dominate a niche market for a short while, and then branch out into many markets, where they become one among a few dominant players. As the graph shows, they never climb too high, and they never fall too low -- not the strong players, that is.

This tells me something about technology companies in general; they are big moneymakers, but you need to know when to quit. Alternately, they need to find a new model where they can keep up with the consumer world by entirely reinventing themselves and keeping pace with the times.

Now look at Apple's graph below.

Doesn't this look familiar? This looks just like the other six tech companies when they were just around their peak zones. Notice the same slow movement for years, then the huge peak. If history repeats itself, this looks like the next step for Apple will be that big fall from which it will never recover.

However, there are two differences. One, which may look like a puzzle, is that the slow period of Apple (from looking cursorily at this graph) seems to be very extended. However, there's no real puzzle here. Look at the numbers on the right, and compare those to the ones for the other tech companies. Numbers we have here are 100, 200, right up to 600-plus. Numbers we had before were 10, 20, 40, 100, and 150 max for the six companies. So, if we are to compare Apple to these oranges we need to look not at its current chart, but at its chart from when they have similar numbers.

Now this chart resembles the other tech companies, more or less. It has slow initial growth, then a peak, a fall, another shorter peak, and then a big fall not shown in the chart.

The only difference is that after this fall in early 2009, there's this huge, huge rise as you can see below:

What has Apple done differently?

Apple has done something that, at least in my model, no other major technology company has done before. It has constantly reinvented itself, starting from the original Macs, to the iPods, then the iPhones, and then iPads, and a variety of lesser products along the way. Each product, in its niche, has dominated the market, and therefore the stock has never fallen from grace for long.

Right now, however, Apple is at a crossroads of sorts. Its stock is falling, its iPhone 5 hasn't made the market go as gaga as its previous iPhones, and its latest iPad Mini will be called by many detractors as an idea borrowed from other tablet manufacturers, at least in the form factor. Apple needs not a new iPhone, or a new iPad, but something entirely, completely, breathtakingly different.

Can it do that? If it can, it will not go the way of all technology companies, even in this extended version of that common story.

How about a holographic phone, Apple? Like we see in the movies? Or a biologic phone, an organic phone that becomes part of the human body? I don't know; these are pipe dreams. However, I am almost certain that, despite my simplistic model and many problems that commenters will definitely find in my arguments above, Apple will not ride much higher on the iPhone/iPad wave. It needs to find another wave to ride the markets and go beyond all estimates.

Source: Apples And Oranges - Is There Anything Beyond The iPhone/iPad Story?