My brother Mark has done very well by his investment in Apple stock over the past decade. Given the recent, relatively substantial downturn in Apple stock PE ratio he received an investment advisory from ye Editor. Here is the jist of those remarks.
I think Apple is at a crossroads- they could have become the major desktop PC player if Steve Jobs had lowered the price of Macs to within 10-20% of the equivalent PCs and allowed multi-touch to be delivered to Mac screens 2-3 years ago when Microsoft committed the Vista Blunder. However, Steve did not, so Macs still have only 14% of the PC market share. However, Apple financials have far outpaced Microsofts as seen in the table:
|5Yr Financial Comparison: Apple vs Microsoft|
|Criteria||AAPL 2007||AAPL 2011||MSFT 2007||MSFT 2011|
thanks to the overwhelming success of Apple’s mobile iDevices – iPod, iPhone, and iPad. Steve Jobs took the PC and expanded it into the Mobile Client Computing market where highly portable, touch screen controllable, sensor self aware devices came to surplant most desktop and laptop PCs. HPCCs-Highly Portable Client Computing has become the new client computing paradigm pioneered by Apple. But the burning question is why did Steve Jobs short-change Macs and his ultraloyal Mac media design community?
2)Access will be provided to music, other media and app markets where prices will be low with smooth and convenient market access [iTunes, AppStore, etc]such that the alternative of illegal download, copying or other means of acquisition is not worth the time, effort or other security/legal risks;
4)iDevices will be highly portable with dimensions sized for convenience[iPods and iPhones fit in a shirt pocket, iPad in a jacket pocket] and reducing weight as much as possible[iPod Classic= 140gms, iPhone 4s= 140gms, iPad 2=601gms]. Portability coupled with all day mobile usage is a consistent target for iDevices;
5)Unique sensors and devices like accelerometers, GPS, cellphone connectors, altimeters, gyroscopes, digital cameras, etc. These provide unavailable-on-PC features. For example, in 2009, the iPhone becomes the most popular camera used on Flickr. And GPS on smartphones has become the driver of social media outlets like Groupon and Yelp.
Finally do not underestimate the value of Apple’s fast but measured rate of product refinement and upgrade. This may be the “secret sauce” in Apple’s winning Mobile Feature set. Customers are assured that once every year there will be a major refresh of their iDevice. They can upgrade or hold onto the existing iDevice knowing in the latter case that an iOS software upgrades will likely pass along some key enhancements and performance improvements. But iDevice users also know that there is a reasonably strong aftermarket for their gadgets.
There is no doubt that the prime legacy of Steve Jobs is that he so completely and broadly expanded client computing first with his Lisa and Mac GUI 25 years ago and now with light, touch and sensor powered iDevices . His magic has also been to bring a service theme of “it just works” to client computing. In effect, Jobsian magic has expanded client computing twice when it got bogged down in monopoly settings [IBM PC 25 years ago and now Microsoft Windows PCs]. In effect his iDevices finally broke PC dominance and the Windows monopoly on client computing.Microsoft has had to come to the mobile client world not just with ultrabooks but a totally redesigned Windows 8 that supports a second chip architecture, the low power sipping ARM processors, and a raft of Apple-like service theme features.
So with the Metro interface Microsoft has re-envisioned its client computing interfaces by adding dynamic icons; frameless, scrollable panels; touch and gesture expandable/collapsible data hubs/tables; and animated transitions between UI working spaces. Metro is not a carbon copy of Mac or iOS interfaces; but Metro would not have happened without the resounding competitive success of iDevices plus Android smartphones and tablets. Redmond with its monopoly profits, gaming successes, and Kinect interface may still be in denial on the reversal of leadership engendered in post-PC client computing.
However, in creating his iDevice Magic, Steve Jobs instituted a closed proprietary ecosystem. First, only Apple can design and produce iOS hardware and devices. Contrast this with Android or Windows smartphones and tablets that have many vendors among some of the world’s top electronic manufacturers. Second, consider the degree of control Apple exerts over iDevices software. Apple controls what apps can run on iDevices and at what price ranges can be applied to apps while taking a 30% cut for all app sales [apps must be bought from Apple's AppStore]. iTunes is the privileged supplier of media on iDevices. And Apple strictly controls what development tools and languages can be used to write native apps for iDevices. Java, Flash, and most program generators are banned. Finally, Apple has taken out thousands of patents on its iDevices hardware and software and within the last year has engaged in a patent war with Android smartphone and tablet vendors.
Three key benefits are cited for Apple’s proprietary control:
1)Because apps are developed with only two major development tools there is less fragmentation in design and operations of software on iDevices;
2)Because apps have to be tested and approved by Apple there is reduced risk of viruses and security threats;
3)Because apps are delivered exclusively through the AppStore and are subject to review and update controls, Apple can promise a)a higher level of app reliability and security plus b)a more uniform update cycle;
So far this control has meant very few virus or security risks on iDevices and a unified look and feel for the basic interface and iOS apps. But it may have restricted the rate of innovation for iDevices as Android phones and tablets have managed a)to develop a wider range of hardware designs and b)have caught up on the smartphone side in the number of apps after having conceded a 50 to 1 app advanatge to iPhone at the outset[see below for details]. With Android Ice Cream Sandwich and Windows 8, the same may inevitably be happening in the tablet space – a rapid catchup in number of apps and OS software features.
So the irony is that Steve Jobs, having broken the Windows monopoly hold in client computing, may have gone too proprietary with the iOS ecosystem – and thus created an opportunity for Google, Microsoft, Samsung, Asus, HTC, and others to succeed in “his” market. Steve Jobs may have sewn the seeds for Apple slipping into a secondary status in some of the new Highly Portable Client Computing markets which he largely created. But that market is moving and changing fast creating opportunities that any major player from Apple through Google to Microsoft may seize on — the die are certainly not cast on the Post-PC era.
Client Computing: Changed Forever
The Jobsian Highly Portable Client Computing-HPCC is now known as the Post PC era. This is seen in the fact the PC is no longer the sole delivery tool for client computing. Web browsing is available on iPods. But with Moore’s Law improvements in chips, storage and even batteries and communication bandwidth, some mobile devices are turning in on themselves and are becoming the next generation of “better PCs”. Smartphones and tablets are becoming so powerful that they are becoming equivalent to netbooks and laptops but better. With quadcore processors and ever better batteries and storage devices, smartphones and tablets are becoming as powerful as laptops of 1-3 years ago.
First HPCC devices are not just portable but highly connected. For example, the venerable iPod Touch has Bliuetooth, Wifi, plus USB and HDMI [through special Apple 30pin connector]. The Samsung Google Galaxy Nexus smartphone is the latest Android reference implementation and it has Bluetooth, WiFI, 3 cellphone 3G/4G connections, NFC, microUSB, GPS, 2 audio, 2 video, and UPnP-Universal PlugnPlay connections. Literally mobile client computing devices are teeming with programmable connectivity on a short range [Bluetooth, microUSB, NFC, audio+video connectors] and long range basis[cellphone connectors, WiFi, GPS].
So the emerging generation of mobile devices go beyond media consumption plus communication/messaging centers back to broader PC tasks like creation and analysis required in business and other organizational settings. Web client server and Cloud Computing systems that are fast emerging provide the additional scope and power while using the mobile devices as client computing interface of choice. Currently, even smartphones [Samsung Galaxy Nexus]are reaching 1280 x 720 pixels of display space while tablets at 1360 x 800 pixels with 11.6 in screens are appearing And if Apple or Samsung delivers the retina displays on the smartphone or tablets that display space could jump to 2500 x 1600 – as good as most giant PC laptop screens.
Apple Under Competitive Pressure
Samsung’s clever The Next Big Thing Is Already Here ads
So client computing has changed and that is seen most clearly in the smartphone. Ye Editors favorite fliptop Razr does not hold a candle to today’s smartphones. And as the clever Samsung ad underlines, Apple is no longer at the head of the class. The smartphone market has moved ever faster. Many rival mobile OS foundered as in the case of Palm and then HP with a well designed webOS, Nokia with Symbian and Meego, and RIM barely keeping head above water with QNX. Google took the expedient of using two open systems OS designs- Android and Chrome while Microsoft has tried three times with Windows Mobile 6.5, Window Phone 7 and now Windows 8. Only Android has indisputably succeeded as seen in the chart below showing Q2 worldwide smartphone marketshare as measured by Gartner:
iPhone Now Playing Catchup in key Mobile Markets
But Google with its free Mobile OS offered major consumer electronics suppliers the opportunity to increase their profits by delivering smartphone and tablet devices directly to consumers. The net result has been an ironic repetition of what happened with Macs nearly 30 years ago when Microsoft copied the interface design and let dozens of PC suppliers use it in their clone PCs. With a freely accessible Windows API, Redmond got thousands of developers to do exactlythe same by developing for Windows preferentially . History is being repeated as shown in the comparison of the latest iPhone 4S versus the top of the line Android 4 Galaxy Nexus and Razr phones:
|Comparison of iOS5 and Android 4 Mobile OS – Where each OS Leads/Dominates|
|Feature||Apple iOS5||Google Android 4|
|UI Operations||-Simple, Easy to Use UI leader
-First and standard setter
on touch and gestures.
|-Widgets UI and customization
-Menu and tile navigation fits
reveals multi-tasksing apps.
-Better customization of UI.
|Communications||-Siri answering and control.
-Facetime is Apple only.
-Integrated Apple and IM.
|-Text auto-reply for call refusal.
-Google+ video phone to any device.
-Voice keyboarding of messages.
|Apps||-More Apps on iPad, less on iPhone
-Better Apps appear first on iOS
-More Secure apps
|Take the lead on phone apps
Way behind on tablet apps
Promise to be first choice for developers
|Media+camera||-Improved camera in iPhone4s
-Poor cameras on iPad
-Gallery for direct camera control
|-Better image edting effects, features.
-Panorama picture taking and other
direct camera controls.
-Video editing features and effects.
|Multitasking||-Multitasking is privileged state
-All tasks are suspended for battery life
|-Multitasking is robust Linux model
-Running Apps List easy control
-Deeper integration with Web services
|Cloud Integration||-iCloud catchup with syncing, backup.
-Auto syncing to iTunes assets.
-Auto app, contact etc updates.
|-First to cloud with media and info syncing.
-Now beyond Gmail & Picasa with Google+
and many Google/other cloud services .
|Utilities||-OS Firmware upgrades
-iOS Mail App for multiple mail accounts
|-Data Usage Monitor
-Gmail better search, contact integrattion
-better notification Ui and services
-Google Search more complete
|-Surprise – no support.||-The key to Android Beam to Share
and Google Wallet apps
|Web Browser||-Improved but big Flash hole||-Chrome is tops in features, HTMl5, speed|
|Development||-Closed and highly proprietary dev.
-No Java, Flash, nor cross platform tools
|-Open Source base atracts HW
and SW developers
-Reference implementations prevent
-Many development paths and tools
-ADK, NDK acessory & Native Dev kits
|Color Coding: Leading in spec, Significantly lags in spec|
Second,Apple has limited development of apps in iOS severely. For example, development of apps for iOS is restricted mainly to two tools- proprietray Objective C and a still immature and slower HTML5în October of 2010, Apple opened development to other languags. In addition, by eliminating cross platform development tools like Java, Flash, and many cross platform generation tools, Apple is saying to both businesses and software vendors – you will have to develop your software for our platforms in a strictly Apple approved way. This was fine when Apple was the only smartphone or tablet game in town; but as the table and chart above show, the smartphone game has changed such that developing only for Apple has become a drawback and burden.
Third, Apple is not leading in key emerging technologies. In mutitasking, cloud computing integration, notifications and voice control Apple’s iOS5 has been playing catchup [and with Siri for voice control, go ahead ]. But just as fast as Apple catches up, Google Android forges ahead with WiFi Direct, NFC control API, pen/stylus advancedAPIs and expanded encryption and face detection options. True, Apple leads in some mobile OS options, but that lead is smaller than ever before and behind in key emrging technologies.
AppleTablet Leadership Also in Danger
Already Android phones have nearly doubled the market share of iPhones. With the new iPhone 4s glitches[Siri misfiring, battery drains, muted or tinny voice, etc] the Apple “it just works” reputation in the smartphone market is under fire. Android 4 Ic eCream Sandwich’s winning features may widen that gap in favor of Android smartphones. In tablets, Apple has a big lead with the number of apps; but the hardware advantage , as seen in the table below, follows the smartphone pattern and is swinging towards Android tablets.
The problem is Apple’s exclusive on iPhone hardware. There are so many good innovations from so many Android hardware vendors, Apple is hard pressed to keep up.It must be chilling for Apple users to see the same situation that happened in the contest of Macs versus Windows being repeated in iOS versus Android and Windows 8. Hardware innovation is happening faster and more broadly among the many Android vendors. Consider such varied Android devices like Motorola’s Atrix 4G, LG’s DoublePlay game console and phone, Asus Transformer and then refined Transformer Prime as dockable tablets, Acer Iconia dual touch display, Sony Ericsson Experia game+phone, the dual purpose Asus Padfone, and HTC Status Facebook Phone. What is really interesting about all these design prototypes is not the danger of fragmentation but rather the opportunity to hit/grab the brass ring of market design success. Literally innovation is about trying, missing, but getting closer each time. And Asus Transformer Prime, the 4th or 5th dockable tablet, appears to be honing in fast on one of the best dockable tablet designs which should please businesses looking for the multi-value – a notebook that transforms into a very capable tablet.
|Tablet Hardware Comparison
Apple iPad 2 vs Asus Transformer Prime
|Category||Apple iPad 2||Transformer Prime|
|Facing Size||187 x 242mm||181 x 262mm|
|Display type||9.7 in IPS||10.1in Super IPS|
|Display area||1024 x 768||1280 x 800|
|Display Dots Per Inch||132 DPI||150 DPI|
|Display glass||oleophobic Gorilla glass||oleophobic Gorilla glass|
|CPU||1GHz Dual Core||1.4GHz Quad Core|
|CPU add-on||none||5th low-power core|
|Storage||16GB, 32GB, 64GB||32GB, 64GB|
|Storage add-on||None||Micro-SD card slot|
|Camera – rear||video at 30fps 720p
stills at 960 x 720 pixels
|video at 30fps 1080p
stills at 3264 x 2448 pixels
|Camera – front||video at 30fps 480p
stills at 640 x 480 pixels
|video at 30fps
stills at 1250 x 960 pixels
|Camera features||5x digital zoom, geotags||autofocus, flash, f2.8|
Stereo speaker jack
2in1 stereo and mic jack
Specialty stereo speakers
GPS in 3G device only
|Input/Output||30Pin adaptor for HDMI, USB,
left and right speaker out.
Requires special adaptors.
micro HDMI connector
|Network Connectors||WiFi 802.11(a/b/g/n)
No 3G/4G connection yet
|Battery||25 watt-hour Li-polymer||25 watt-hour Li-polymer|
|Docking Feature||None||Docking Station with
USB +SD Card connectors.
6h battery supplies tablet,
no draw on tablet power.
|Color Coding: Leading in spec, Significantly lags in spec|
|Sources: Geek.com, AndroidCommunity, Apple, Asus|
In tablets Android devices also begin to lead hardware race
Just as in case of the iPhone, Android tablets have caught up with and now better iPad in some basic tech specs. Now some will say this is the give and take of competitive announcements that are “out of sync”. And others may cite the disupting effect of Steve Job’s death. Finally others will say that the soon-to-be iPad 3 and iPhone 5 will turn the advantage distinctly back in Apple’s favor with retina displays, Apple’s own improved CPU chip, better 4G LTE support, NFC capabilities, TV support, etc.
But the Bottom Line is this: Apple no longer dominates in smartphone or tablet hardware. Nor does Apple dominate in mobile OS software. Yes Apple holds an impressive lead in tablet apps; but not so smartphone apps. Yes, Apple currently leads in first development of new Apps; but Google’s Schmidt expects that to change in 2012. And if the number of new Android -based client devices [see 2nd sidebar, Client Computing Trends], continues to proliferate, then the apps battle advantage may swing to Android mobile devices simply because there are so many providers for so many different Android mobile device submarkets.
And do not discount Microsoft and Windows 8. The design and interface ideas are ahead of iOS and Android rivals in design and have critical acclaim. But the delivery tasks for Redmond are formidable and were fumbled badly in the case of Windows Vista. What is delivered in the Windows 8 public beta planned for February 2012 will be most revealing. Microsoft is promising to be at CES in Las Vegas in January and what they reveal will move markets. As can be seen in the chart below Windows 8 certainly does have six languages for developing for Windows 8. But like Apple, all Microsoft tools are proprietary while getting Windows 7 and Windows 8 Metro working together it still is an enormous integration task complicated by ARM chip instructions being added to the x86 development stream.
Will Redmond be able to deliver a radically diffferent UI – yes. Will Windows 8 be well integrated in with good response time and reliability ? From Missouri. Will the ARM software be a part of the beta test and work well? From Missouri. Will Windows 7 programs works as well in Windows 8 as they do currently in devoted Windows 7 ? From Missouri. However, the change in executives at the top of Windows 8 development so late in the game is not entirely encouraging.
What Can Apple Do?
Tim Cook has the unenviable position of succeeding an innovation legend. And before he died, Steve Jobs insisted that Apple had a plan for 3-4 generation of devices. So what does Tim do? Steve was able to focus and work fiercely while getting many of his troops to do the same. Will Tim want to imitate that style? Will the Jobs strategy and plan become The Law? Steve was able to reverse himself on key issues[reputedly on no 3rd party apps for the iPhone for example]. Does Tim Cook have the same leeway? If ever a superb case study of executive management leadership could be constructed for later MBA analysis, this is it.
This leaves the question of what to do about Apple`s Luxury and Proprietary branding. Make no mistake, for the past 10 years Apple has been the luxury car brand in electronics and computing. Apple`s consistent profit margins around 25% are pipe-dreams for Cisco, Dell, and HP. But if Apple starts to play a consistent game of catchup in its iDevice markets, then its luxury brand and margins are in danger. That is why this advisory has spent so much time establishing the fact that Samsungs jibe that The next big thing is already here has substance in fact. Apple cannot afford to lose is its innovation leadership for say 8 to 10 quarters or more, lest it fall victim to more than the jibes it threw at Microsoft for the Windows Vista disaster just 3 years ago.
A lot of acceptance of Apple client computing solutions will depend on two factors. First, will software and hardware vendors continue to turn first to Apple when they now have a very viable Android development path. And possibly the same precaution will be taken with newly Open Sourced webOs and Microsoft heavily promoting its Windows 8 [remember Business would much prefer a Windows-compatible solution for its huge archive of Windows programs]. Likewise will developers continue to program first for iOS and Apple? They have to give up 30% of their revenues and have a much more limited set of development tools to use. HTML5 is not top-tier performance and feature ready on iOS [or any other mobile OS]. So programming for iOS and iDevices is primarily in one language, Objective C, which is a non-trivial learning exercise even for seasoned C programmers. Contrast this with Android`s diverse set of tools with a wide range of pedal to the metal NDK based C/C++ or more developer and cross platform friendly languages like Java, Flash and other tools available from Google and Android.
Will Tim Cook move to change any of these development hurdles? Or will he rely on Thermonuclear patent wars against Android. And for Windows 8, straining under a much bigger development task than Windows Vista, can Tim Cook rely on Redmond to produce enough slip ups to effectively take Microsoft out of most if not all of the client computing emerging markets. Take a 5th on ye Editor if you can accurately predict Tim Cook`s choices. Double that if your and Tim Cook`s choices prove to be winners over the next 1-2 years.
1)What Android client computing smartphones and gadgets including Google TV 2 get revealed at CES or the Mobile World Conferences in January.
2)Microsoft`s Windows 8 first full beta in February.
3)Apple`s iPad 3 announcement in Feb-March, and
For what its worth, ye Editor is following his own advice and has no position in any of the stocks mentioned in this posting.