In this article I don’t discuss Apple’s valuation, balance sheet, or financials. I covered these topics in great detail in these articles a few months ago (Part 1: Psychology and Part 2: Value of Ecosystem). Nothing has really changed since, except that Apple announced an enormous share buyback. This article focuses on Apple’s products, innovation, emerging markets … and Syrian rebels.
[Hear More: Alex Daley: Apple Transitioning From Growth Company To Blue-Chip Company]
It is easy to understand why Apple’s stock is hated so much (despite this morning’s early rise in its share price). The pain inflicted on investors by Nokia and BlackBerry is still too fresh. Both were spectacular successes that dominated their space, and then they burned out and went from high-growth stocks to disasters.
Apple’s growth has slowed, and in the minds of investors the company has gone from a growth stock to a value trap. But though it’s easy to draw parallels, Apple is neither Nokia nor BlackBerry; it is still the same innovative company that growth investors could not get enough at 0 a share a year ago.
Investors were not swept off their feet when Apple introduced its two latest iPhones during a media event at its Cupertino, California, headquarters on September 10. There were no surprises, no Steve Jobs’s “one more thing” — no iWatch or iTV.
Part of the flatness of the event had to do with CEO Tim Cook’s biggest failure to date: his inability to live up to his promise of “doubling down” on secrecy. As Apple’s supply chain becomes ever bigger and more complex, it gets leakier.Pundits and Apple fanatics knew exactly what Apple was going to announce; we just did not know the pricing. But in reality even this failure is hardly lethal — the surprise factor really matters only for Wall Street. Apple’s success or failure will come down to the quality of the company’s products, in both the absolute and relative sense, and the perception of its brand.
This iPhone product introduction was evolutionary, not revolutionary. But if you look back, the previous versions of the iPhone were also evolutionary; every one included incremental improvements that created an “insanely great” user experience (Jobs’s words, not mine).
The nonrevolutionary, “expensive” iPhone 5s is still getting glowing reviews.The Wall Street Journal’s Walt Mossberg calls it “the best smartphone in the market.” According to Mossberg, with its Touch ID, Apple was able to achieve what others tried but failed at: a reliable fingerprint recognition technology. As always, Apple is moving methodically (though the company would not admit it), and Touch ID is still at the beta release stage, so your fingerprint will unlock only the phone and Apple Store. But it is only a matter of time before Touch ID is opened up to developers, and it will likely revolutionize many industries.
In fact, if you think about it, the genius of iPhone was in creating hardware and software that enabled thousands of developers to innovate on top of it. I can imagine how in just a few months we’ll see hundreds of apps designed to capitalize on Apple’s new motion chip, which packs a gyroscope, compass and accelerometer into the iPhone.
Investors’ nervousness is understandable. Since Jobs’s death in October 2011, Apple has introduced no revolutionary product. Everyone is concerned that world-shaking products like that died with Jobs. That’s unlikely. Over the past two years, Apple’s annual R&D spending has almost doubled, from .4 billion in 2011 to .2 billion. Considering that Apple, aside from the Mac computer line, for which most of the hardware R&D is outsourced, makes only one major product in different sizes (the iPod), the .8 billion increase in R&D must have gone into revolutionary products that are not yet out.
