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.
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.
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’.
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.
