It's quite ironic that despite the cries that Apple (AAPL) has seen its "innovation" wane, nothing could be farther from the truth. Apple is innovating very heavily on the engineering side, even if it isn't putting out a radically new form factor or device. Unfortunately, investors are generally not as swayed by low level technical innovation as they are by the "innovation" that happens at the device/form factor level. Nevertheless, Apple shareholders should be aware of the fact that Apple is still a very innovative company, but just not in a way that the masses can appreciate.
Apple's A6 and A6X - Visually Stunning
On a technical level, Apple's products have always been quite good, but they have traditionally lagged their PC and until recently, smartphone/tablet counterparts. While devices in the Android world were utilizing a number of new and fast processors and graphics chips, sporting more memory, and coming with more storage, Apple's products have seemed quite tame in comparison.
Sure, it designed its own system-on-chip that essentially blended together ARM (ARMH) processor cores and Imagination Technologies' "PowerVR" graphics processors, but competitors in the Android world had been using shiny new products such as Qualcomm's (QCOM) "Snapdragon S4" and Nvidia's (NVDA) Tegra 3. However, starting with the A5, Apple began to really start to innovate in a subtle way: graphics.
That's right. Apple began to really kick it into high gear on the graphics side of things, opting to use the very best graphics cores that its partner, Imagination Technologies, had to offer, even if it meant having a relatively large die size. While other SoC vendors would use the lower power, lower performance parts that were smaller and cheaper to make, Apple very aggressively focused on its graphics performance.
Now this made perfect sense in light of the fact that the iPad 3 and the iPad 4 came sporting absolutely beautiful, super high resolution 2048x1536 displays. In order to actually support real games on these devices at native resolutions, the graphics power needed to go up considerably. And it has.
According to Anandtech, the iPad 4 uses the very latest and greatest PowerVR SGX 554MP4 graphics processor. In the benchmarks, there's absolutely no competition. The offerings from every other system on chip vendor use either custom graphics, graphics from ARM Holdings, or lower end PowerVR products. On the performance level, there's really no comparison as Apple's iPad 4 is over twice as fast as the next best competitor.
What Does This Mean?
Quite simply, having the best graphics does wonders for the ecosystem in terms of game developer support. While it may not seem like much to the average investor, gaming is a huge reason for people to want to buy an iPad. And being able to game at ultra-high resolutions without dealing with performance problems is a very tangible user experience perk.
I, of course, suspect that more games will become available on the Google (GOOG) Android and eventually the software ecosystems reach parity. However, the catch is that Android devices need to span the wide gamut of hardware capabilities (with most generally far weaker than the Apple products) while game developers can optimize and target a handful of different hardware platforms for iOS.
Apple's Designing Its Own CPU Cores Now, Too
In addition to having the brilliant idea to make no compromises on the graphics side, it is clear that the company is dead serious about developing the "perfect" chip for its devices. It now designs its own CPU cores which can be tailored exactly to the needs to the iOS devices. While the off-the-shelf ARM cores are quite well designed, the latest "Cortex A15" seems to be designed to serve a dual purpose - compete in both convertibles/tablets, smartphones, and even micro-servers.
Apple's sole goal is to have the slimmest, sleekest smartphone and tablet devices around, so it now has the capability - thanks to its enormous cash hoard and its very shrewd acquisition of PA Semi - to design its own, custom ARM-compatible cores that suit the needs of its products perfectly. This is yet another example of innovation that the general public will not really give Apple credit for.
Apple Is Innovative, But It Is No Longer Obvious
Don't buy into the hype that Apple has "lost its innovative touch with the passing of Steve Jobs." It hasn't. The company brought to the world a number of logical and well-done form factors and managed to raise the bar on the quality and usability that should be required in every computing device.
The fear now is due to the fact that Apple will likely be unable to maintain its margins and market share. This may be true - in fact, it is very likely to be true, especially as tablets and smartphones generally become a commodity market - but the P/E of 13.06 and the cash pile of $121B make this company a very value-oriented play at this point. The company earned $44/share in its most recent fiscal year, and even with modest growth, it will be able to increase its dividend, buy back lots of shares, and bring significant value to its shareholders over the long term.
If you like the Apple story, right now - when everyone really hates it - may be just the right time to buy, even if in the long term it won't grow 20%+ per year and margins will compress. It's still a great company with solid management, an excellent balance sheet (the best), and products that people generally can't get enough of.
Additional disclosure: I may initiate a long position in AAPL over the next 72 hours.