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About time, in my opinion.
Apple's New Normal
The smartphone has become too interesting a product for one company to dominate.
• By HOLMAN W. JENKINS, JR.
Henry Ford didn't invent the automobile. He didn't invent the assembly line. He invented the mass-market auto industry. In its first full year of production, the Model T captured just 11% of a market consisting of 123,990 cars. Fifteen years later, in 1924, the Model T represented 62% of a market consisting of 3,185,881 cars. To say the growth of the auto market was largely the growth of the Model T would be no exaggeration.
Two years later, the market was still growing but Ford's share wasn't merely shrinking in relative terms. Sales of the Model T were plummeting in absolute terms.
The story of Apple, so far, is the story of Ford before the cliff. Sales of its dominant iPhone are still growing but market share is shrinking and so are profit margins. Apple can continue to be a strong player, but its dominance of the phone and tablet markets has begun to erode and management will have a job just defending its now-diminished share price. This is what the dramatic correction of recent weeks is telling us.
Henry Ford and the iPhone of the auto age.
Apple didn't invent the digital musical player, the graphical user interface or the touchscreen. It invented iTunes and the iPod, added a phone and screen and adapted them to the mobile broadband networks that were already being created. Apple also lucked into the unseen serendipity (even by Apple) of the app revolution.
Apple's accomplishments during its heyday boiled down to a single accomplishment. Its design and engineering teams were leaps ahead of all others in incorporating the latest technological possibilities into a package that could fit in your hand. Apple was unbeatable because of its mastery of the iPod form factor.
What was the likelihood that Apple would remain unbeatable? Zero. Nowadays the newest things being fitted into your hand aren't hardware and operating-system innovations at all. They are cloud services, which Apple hasn't been strong at (Google has) and which Apple isn't necessarily likely to become strong at.
The Model T couldn't have been the Model T unless the automobile were on its way to becoming too interesting a product for consumers ever to be satisfied with a single model, a single manufacturer, a single design statement.
The same is true of the iPhone. Different customers not only want different things from their smartphones, they want difference for its own sake, which explains the otherwise inscrutable shifting of coolness cachet from the iPhone to Samsung's Galaxy S line.
Some analysts still hope that ecosystem lock-in will let Apple lock in considerable dominance of a market that otherwise wants to explode into diversity. But ecosystem lock-in was never the strong force it was cracked up to be. The coming of the cloud was destined to obliterate any inclination toward winner-take-all, as Pandora and Spotify have already begun making iTunes look like a convoluted nuisance.
Nor did the slightest reality attach to the hope that Apple somehow would keep finding new industries to reinvent the way the iPod reinvented music distribution. This was a bet on soft and squishy miracles in a competitive world full of people every bit as intelligent and cunning as Apple's leadership. The desperation with which stock punters have posited TV as Apple's next opportunity has been especially pathetic to watch.
Also true, though, is that these unrealistic expectations never found their way into Apple's share price. All through the company's spectacular run, the stock was priced skeptically in relation to the growth that was actually coming. Indeed, it would not be too strong to say that a skeptical stock market has treated the cash on Apple's balance sheet (currently $137 billion) as if it were a sizable share of all the cash the company would ever earn.
The drop in Apple's share price, down 36% since mid-September, has not been the popping of a bubble or a collapse of confidence in management. The drop is easy to arrive at simply as the multiple of some modest lowering of Apple's expected sales growth and some modest lowering of its expected profit margin on those sales. The world thought Apple (in Model-T terms) was entering 1925. Now it thinks early 1926 may be closer to the mark.
Not that this means some horrible, Ford-like sequel lies ahead—wherein management refuses to adapt to a market where competitors have caught up and in some ways surpassed the Model T. Tim Cook and his management team ought to be up to avoiding self-delusion. No offense to Steve Jobs, but a charismatic founder has more leeway to commit catastrophic mistakes.
But here's a scary thought. By definition, Apple's share price today rests even more heavily on its vast cash hoard. If the company really wants to disappoint shareholders, just keep fanning their fear that they'll never see this cash in the form of dividends or stock buybacks.
A version of this article appeared February 6, 2013, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Apple's New Normal.
- CALLES 0
Yes please go back to making good desktops and stop playing phone company
- The desktop is dead.Frosty_spl
- < joblessset
- so where will we be doing large graphic files? phones? pad?CALLES
- im woprking on a 3300x1330 in ae. where am i supposed to do that!CALLES
- More powerful macbook pros hooked up to big monitors. (future)Frosty_spl
- macbook pro are weak for video workmoldero
- the future is small powerful devices attached to whatever screen size you want right nowribit
- The future is SmartDonkeys and cannibalism.eoin
- GeorgesII 0
Summoning the spirit of Mono___
- ukit2 0
- detritus 0
I'm so glad Apple invented the smartphone.
- smh....yeah PALM didn't have anything to do with it did they?sublocked
- What are you talking about? How else would one be able to hold a phone without a palm?detritus
- I think you mean Handspring, the company Palm bought for their Treo devices.zarkonite
- GeorgesII 0
Summoning the entity known as Steve Jo___
- ernexbcn 0
Apple just had the best quarter in their history and they are getting over 70% of all the profits of the smartphone industry and that's without being the #1 platform which is Android now.
That and having 120 billion in cash and cash derivatives says they have a lot of options. It seems some people pretend they have to produce a fancy new product every year like a magician pulls a rabbit out of a hat, it's delusional.
- 137 billion according to the articleernexbcn
- Expectations are fucking delusional, that's right. Apple needs to keep ignoring people and just do what they do.monospaced
- You missed the part where they are going to give back most of that cash to their investors.zarkonite
- It's going to level off in the next decade, look at Sony. Still alive but not the powerhouse it used to be.zarkonite
- Apple is missing the next generation of users with the poor uptake of the iphone 5.monNom
- iphone6 will be make or break for them.monNom
- monospaced 0
About time. I can't wait until Apple is the underdog again and the only people using their products are ones getting stuff done. This whole "I have an Apple so I'm cool and creative in a coffeeshop" shit is getting old. I seriously hope the masses move away complete from them, that the spotlight shifts to say, Microsoft or Google or whatever, and that Apple can go back to taking their time to make good products instead of pampering the vocal internet masses and wannabe stock analysts.
- monospaced 0
What's cool this time around is that Apple has tons of cash, so they're at no risk of going under like they almost did in the '90s. They have the kind of money to move in totally new directions if they wanted to.
- fate 0
Wallstreets perception != reality
They think without Jobs, the company is doomed.
I don't even like Apple, but their recent change of fortune isn't based in reality.
- monospaced 0
"If the company really wants to disappoint shareholders, just keep fanning their fear that they'll never see this cash in the form of dividends or stock buybacks."
Trust me, stockholders don't give a shit about the .005% dividends—they never had them before and they have only been issued once in history—and it's statements like this that make the WSJ look more and more everyday like a gossip column. The real investors only hope Apple uses their money wisely, not give it back.
- *correction, offered dividends twice in recent historymonospaced
- They actually announced last year that they were going to offer dividends and buybacks, $10+ bil a year.zarkonite
- and that was just about the time they stopped being a growth stock. They know what they're doing, the only reason institutional investors tolerated not seeing a dime is because of the growth of the stock.zarkonite
- institutional investors tolerated not seeing a dime is because of the growth of the stock.zarkonite
- Okay, good. That means the WSJ is even more batshit crazy than I thought.monospaced
- sine 0
Samsung Galaxy outsold iPhone 5 last quarter of 2012...
- and Samsung makes Apples touhscreenssine
- No they didn't. Apple beat them and it was a big deal.monospaced
- Why do you even write stupid shit like that? There are countless articles stating the exact opposite.monospaced
- Just in case you don't accuse me of being a fanboy, I pulled this from an Android site: http://www.androidau…monospaced
- utopian 0
- GeorgesII 0
Why do you care so much about Apple,
- CALLES 0
- Frosty_spl 0
I was eating with friends the other day. 3 of them had the new huge Galaxy note or other huge Android device. And I had a serious case of phone envy.
- Because of the size or because Android is better?monospaced
- That phone is too big. The End.mg33
- i would laugh when i see someone holding a massive phone like that.pango
- Well maybe it wasn't a note, but they were much bigger than mine. Big bright screen looks sweet. And the iphone tiles are stale.Frosty_spl
- ...getting stale.Frosty_spl
- mg33 0
Anyone have stats on how many people were iPhone users that switched to something else? Probably hard to find I guess. Would just love to know the reasons by a variety of people - tech addicts, common folk, early adopters... and reasons for switching like cost, features, etc.
- if it weren't for the fact that I have an apple laptop at home, at work, ipads, etc. I would have switched.identity
- But for what reason?mg33
- I know other devices have different/better features these days. I just have no time to ever ponder making such a change.mg33
- mg33 0
What incredible timing! Two guys I work with just within earshot of my desk are talking about selling iPhones, other phones, etc. One of them is the most absurd switcheroo master of devices ever. He used to hate Apple, then got an iPad, then an iPhone, and at the same time one of those little Google laptops. His wife got an iPhone and iPad and loved it. He was converted. Then new shit started coming out and all of a sudden the Apple stuff wasn't good anymore. I've seen him buy a couple non-Apple phones that ended up really not being that great. All he talks about sometimes is how great whatever new phone he has is because he can do development or something on it (which he doesn't even do) as if a feature of the phone he won't use somehow makes it better for him. Totally dumb.
- pang 0
It doesn't take a financial analyst to work out that stocks must come down at some stage. They can't just keep going up endlessly. So that article is a bit OTT in its purpose.
And as for all the rivalry nonsense... same old, same old.
One time it was Microsoft, now its Samsung. "Whop-de-friggin'-doo". If the hipsters want to hold a phone that's the size of skate board (or hover board in the future - **nod to mg33) and go "Wow, look at the size of my screen"... good luck to them and it going into their pockets...