The Future Of Apple: Chip Off The Block (Part 9)

9/22/2012 2:59:36 PM

At penny sleuth, Greg Guenther has a novel solution: look outside Apple’s sector. What’s happening in sandals?

‘Following a parabolic ascent that lasted nearly a year, Crocs shares tumbled’. Yet, Crocs. Those Crose. ‘After all, it turns out there actually is a limit to how many plastic sandals a company can sell. From a high of $75, the stock plummeted to less than $1.25 in about 11 months.

Description: In 2011, Apple’s 93 million iPhone units gave it a 6% share of the worldwide handset market

In 2011, Apple’s 93 million iPhone units gave it a 6% share of the worldwide handset market

‘Today, if you swap out neon shoes for iPhones, you can see the writing on the wall. Apple’s spectacular run is all but over’. There seems to be a small gap in the reasoning there, but Guenthner is insistent. ‘Unfortunately, most investors won’t know what’s coming until it’s too late. Just this week, an analyst from Topeka Capital Markets slapped a $1,000 price target on Apple stock. That would value the company at just a little more than $1 trillion. In reality, Apple will never hit the $1tn milestone.

‘In fact, this scenario is downright impossible. If you own shares of Apple, you should sell them immediately. If you’re thinking of buying now, don’t’.

Again, this reflects the assumption that the limits of sales growth must be night. In reality, Apple has an impressive share of business strategy the global smartphone market for a single company, and especially for a single handset brand, but it’s still only a tiny chunk of all mobile phone sales. In 2011, Apple’s 93 million iPhone units gave it a 6% share of the worldwide handset market. That seems to leave a little bit of room for expansion.

Description: Smart phone market share

Smart phone market share

In the UK, Kantar Worldpanel ComTech said Apple’s share doubled from a year earlier to 44.9% in the October to December period of 2011, just beating Google’s Android smartphones, which slipped to 44.8% from 50%. Even in the relatively saturated territory, then, the iPhone still has at least half the market available to target in the future. Every non-Apple smartphone user is a potential customer today, and every human being is a potential customer in the future, economic development permitting – a point not lost on Tim Cook, who misses no opportunity to mention China.

But let’s go back to Asymco’s Horace Dediu for a note of caution on the scale of challenge. ‘The market for mobile phones is approximately 5.5 billion connections, perhaps five billion users. The iPhone has approximately 300 million installed base. Consider a base of one billion users to be a minimum for continuing participation in this market long-term. Licensed platforms will reach this in no more than two years.

‘I don’t know what Apple’s ambitions are, but if they don’t triple their base, I don’t see a strong future for the company in mobile phones. In order to triple the base, the company will need to sell substantially more than an additional 700 million iPhones. The retirement rate can be as high as 50% of installed base. Apple will need to sell at least one billion iPhones in the next few years. But Chinese vendors are not standing still’.

One positive for Apple is that it makes more money on the phones it sells than any-one else. As Dediu recently tweeted: ‘Apple captured 73% of phone industry profits and Samsung captured 26%, HTC took 1% everybody else lost money’.

Description: The retirement rate can be as high as 50% of installed base. Apple will need to sell at least one billion iPhones in the next few years.

The retirement rate can be as high as 50% of installed base. Apple will need to sell at least one billion iPhones in the next few years.

Another is that, while hardware may be its focus, it doesn’t necessarily have to sell millions of few devices to keep revenue coming in. long after an iPhone is sold, it’s still earning money though the 30% cut the company receives from every purchased app, including iBooks and Newsstand magazines.

And, of course, Apple doesn’t only sell phones. A recent Strategy Analysis report estimated the company had a 60% share of the processor market for tablets, thanks to strong global demand for the iPad 2. Touch competition was expected from Android-based tablets in the second half of 2011, but – like the App Store’s supposed trouncing by Android’s open market – it never quite materialized. Many Android tablets have sunk without trace, and even the much-hyped Amazon Kindle Fire’s initially strong sales dropped off catastrophically once Christmas was gone and the new iPad appeared, falling from an estimated 16% to just 4% of the global market, according to IDC.

The Mac, which first catapulted Apple into the big league, is easy for analysts to overlook now that iOS products sell in so much greater numbers, and nobody sees desktop computing as a growth area any more. Within it, however, there’s no bigger success story: year by year, the Mac reports double-digit sales increases while the sector as a whole stays flat at best. Dediu summarises: ‘The PC market is in decline. It will continue to decline as its disruption continues. It will still exist ten years from now but, similar to the mainframe market, it will be hard to notice.

‘It would be better to track the share of profits captured or even share of value rather than units. Units were important 20 years ago because platform dynamics determined whether a marginal platform could survive. Would a 5% share (such as Apple’s at that time) be enough to attract developers? That is no longer an interesting discussion.

‘As the PC is now a commodity product, the best performers are those who can capture a larger margin. Those margins should subsequently be invested in new platforms. PC vendors who neither capture margin, nor invest in new platforms are strategically insolvent’.

And that’s exactly the fate that Apple, as a PC maker, has avoided. Macs, sold on build quality, a unique OS and the Apple logo, still command high margins; and the biggest threat to their sector comes from Apple itself, with the all-conquering iPad. The PC pie may be getting smaller, but Apple is eating everyone else’s lunch.


  •  Microsoft Tries To Flatten Competition With Surface (Part 4)
  •  Microsoft Tries To Flatten Competition With Surface (Part 3) - Dropbox drops Public Folders, SSD Prices Way Down, AMD Adopts Arm for Armor
  •  Microsoft Tries To Flatten Competition With Surface (Part 2)
  •  Microsoft Tries To Flatten Competition With Surface (Part 1)
  •  Microsoft Dynamic CRM 2011 : Sharing a Chart
  •  Microsoft Dynamic CRM 2011 : Creating a New Chart
  •  Microsoft Dynamic CRM 2011 : Setting Additional Filters on a Saved View, Using Charts to Analyze Microsoft Dynamics CRM Data
  •  System Center Configuration Manager 2007 : Configuration Manager Solution Design - Testing, Stabilizing During the Pilot, Deploying
  •  LINQ to Objects : How to Sort the Results
  •  LINQ to Objects : How to Get the Index Position of the Results, How to Remove Duplicate Results
    Most View
    Watch Web TV Anywhere (Part 1)
    Video Goes Personal (Part 1) : Sony HMZ-T2, Epson Moverio Bt-100, Sennheiser Momentum, LG ND8520
    Widescreen Projector Shootout Bright And Wide (Part 1) - EPSON EB-1945W, NEC P451W
    Devolo dLAN 500 AV Wireless+ - Is This The Ultimate Homeplug?
    Oracle Database 11g : Database Fundamentals - Learn the Basic Oracle Database 11g Data Types, Work with Tables, Work with Stored Programmed Objects
    Deploying to an iPhone, Debugging, and Testing : Distributing Your Application
    Educational Software Tools (Part 1)
    Pro-Ject Pre Box RS - AMP Box RS Preamplifier - Power Amplifier $900 Each (Part 2)
    Build A Home Theatre PC (Part 3)
    MSI GX60 Gaming Notebook - Great Looks And A Fast GPU
    Top 10
    Mitsubishi Hybrids – One Direction
    Race To The Clouds – Honda R&D’S ’91 NSX (Part 2)
    Race To The Clouds – Honda R&D’S ’91 NSX (Part 1)
    Volkswagen Plug-In Hybrid Up – Double Act
    Pre/Power Amplifier Marantz SA8005/PM8005 Review (Part 2)
    Pre/Power Amplifier Marantz SA8005/PM8005 Review (Part 1)
    Smart TV Finlux 50FME242B-T Review (Part 2)
    Smart TV Finlux 50FME242B-T Review (Part 1)
    The Best Money Can Buy: Motherboards (Part 2) - Asus Rampage IV Black Edition, Asus Crosshair V Formula-Z
    The Best Money Can Buy: Motherboards (Part 1) - ASRock X79 Extreme 11, Asus Intel Z97 ROG Bundle, Gigabyte Z97X-GAMING G1