Scott Francis W...'s  Instablog

As a technologist, I own or have owned almost every item that Apple (AAPL) makes. All of my companies are exclusively Mac from cell phones to Apple TV's piggybacked to projectors. I have been a supporter that has bordered on religious since the release of OSX. I was in Apple at $15 - I love this company and that is why it pains me to say this: It is time to get out of Apple.

Apple became the market leader by leading. They built markets where none existed. They took good ideas and made them into great products. It was all about the product - It was all about changing the world.

I decided to write this article after spending the afternoon playing with my new Google (GOOG) Nexus 7 tablet running their slick new Jelly Bean release of Android. Previously, I have been a huge critic of the Android operating system. I still have reservations about how they plan to provide a consistent user experience across all devices and screen sizes but most of my concerns have been resolved and then some. iOS was once the leader, showing the mobile market what they had to include in their next release - now it appears to be a follower. I have seen and used the iOS6 preview - it is not revolutionary. In fact, iOS has not substantially changed since version 4. Just as Microsoft's (MSFT) Windows grew stale, the Mac operating systems have also. Another paining statement: The iPhone is not the best device on the market any more.

Some people may not realize the potential impact this will have on the Apple share price. I hope that most credible investors will have just witnessed the collapse of a mobile giant, Research in Motion (RIMM).

The mobile market is something that I do not believe most technology analysts have sat back and pondered. In the traditional tech world: infrastructure contracts, deployment base, and all forms of market share generally imply a longer life cycle of products. The mobile product lifecycle is on average 22 months in the USA (Recon Analytics 2011) with many people changing with the product lifecycle (12 months for Apple). If you start to think about how this could affect earnings, it becomes very scary very fast.

Apple has an "ecosystem" - products and services that all support each other off a single customer. For example, if you own an iPhone, chances are you use iTunes, the App Store, iCloud, maybe own an Apple TV or an Apple Airplay device, purchased AppleCare and you probably shop in Apple Retail stores. The earnings for that entire stack of products and services depend on one thing: People use iPhones.

If people notice Android is now the superior product, a significant portion of the market for iPhones/iPads can disappear inside of twenty-four months. This will only be accelerated if the developer community makes the same determination and focuses on Android over iOS. As per a previous article (What Technology Companies Can Learn From The Key Factors Behind The Mobile Revolution), the loss of current applications means that the entire platform begins to lose relevance.

A 10% decrease in the iPhone user base should reap a much larger impact on the earnings, as the infrastructure will mostly remain. If anyone can optimize overheads, it is Tim Cook - but they cannot escape the fact that they have created an ecosystem that Google can reproduce inside of a year (Nexus Q, Google Play, et al.). Their competitive advantage will be only industrial design but Google appears to be taking away that edge with an aggressive pricing strategy (sub-$200 for a Nexus 7 tablet!).

Apple is currently sitting at $600 and change. That is 14.75x an earnings of $41 per share. If Apple loses 10% of its customer base, and feels a further 10% reduction across the ecosystem, the multiple will collapse right along side the earnings.

Unless Apple manages to bring back the spark that made them the market leaders we love, it saddens me to say this about an old friend but: I think it is time to get out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.