Is Apple Doomed?

Which is the real Apple (Nasdaq: AAPL  ) ? The one that laid off 50 salespeople last week, or the one that's reportedly stocking up on 10-inch screens to create an answer to netbooks from Dell (Nasdaq: DELL  ) , Hewlett-Packard (NYSE: HPQ  ) , and Taiwan's Asus?

That's a question worth asking. Apple hasn't exactly been a font of good news lately. A recent study from Pinch Media found that very few of those who download iPhone software use it regularly. And, in January, Mac retail sales fell 6%, more than the average decline for its PC peers. Seeing that, observers can't help but wonder whether the iEmpire faces impending doom.

It doesn't. Here's why.

Why netbooks are a huge threat
First, let's address the problem. Analysts and investors fear netbooks. They should, and so should Tim Cook, Apple's chief operating officer and stand-in for sick CEO Steve Jobs. The super-low-priced Atom processor from Intel (Nasdaq: INTC  ) supplies enough horsepower to create a good sub-$500 laptop substitute.

Not in every case, of course, but IDC research has estimated that 11 million netbooks were sold during 2008. Manufacturing executives interviewed by BusinessWeek further estimate that between 8% and 20% of those sales might have gone to laptops had netbooks not been available.

Netbooks are that popular. Take a look at Twitter sometime. See who's talking about netbooks. See what they say. Few, if any, loathe the idea of a Mac netbook or netbooks in general.

Neither do you, our Foolish readers. "I'd love a $699 NetMacBook and would buy one in a heartbeat," wrote one Fool in response to my plea that Cook address the netbook threat before it's too late. "It should have an 11" or smaller screen, weigh 3lbs or less and be capable of running OS X. It should be smaller than current MacBooks, less powerful, though powerful enough, and can get by with many cheaper components." 

The opportunity is huge. We know from recent IDC data that users find dumb devices, well, dumb. Specifically, research shows that the market for "converged devices" -- that is, smartphones like the iPhone, Research In Motion's (Nasdaq: RIMM  ) BlackBerry, or Palm's (Nasdaq: PALM  ) forthcoming Pre -- grew 68.2% last year. By contrast, the traditional mobile phone market contracted 13.8% over the same period.

Now imagine how consumers and business users would take to an oversized iPhone with netbook functionality. Says one Fool in response to my letter to Cook:

An iTablet is what's needed. Just take the lid off the aluminum MacBook, thicken it just a bit to accommodate a modest processor and hard drive and battery and wireless, and run OSX on it with all the great finger-stroke features of iPhone.

Look back to look forward
And let's not discount the role of history. Those of us who are Mac users, unlike our more utilitarian PC brethren, remember the failures and successes of the past with clarity. We remember the unique look of the first Mac. We coo at the Cube, even though it was never a commercial success. And we fondly but sadly remember the Newton, which also was a commercial failure, yet retains a cult following to this day. 

We expect Apple to deliver an iTablet. Jobs knows this. So does Cook. Anyone who's followed the iEmpire for any length of time and isn't terminally addicted to SpongeBob cartoons knows this.

An iTablet is even more important to us than satellite radio on the iPhone. Sure, we're happy to see Sirius (Nasdaq: SIRI  ) get serious about streaming over the iPhone but we've been waiting for an iTablet ever since the Newton died in 1998. We pine for it.

Therein lies your advantage, sirs. This is a Field of Dreams moment; if you build it, we will come. So, Apple, will you build it? Please?

Dell and Intel are Inside Value picks. Apple is a Stock Advisor selection. The Fool owns shares and covered calls of Intel. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Tim had stock and options position in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is hungry. (Hangs "Out to Lunch" sign.)


Read/Post Comments (14) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2009, at 4:45 PM, Nadaq wrote:

    If you build it they will come

  • Report this Comment On March 12, 2009, at 4:46 PM, Nadaq wrote:

    If you build it they will come

  • Report this Comment On March 12, 2009, at 7:31 PM, rrrllrrrll wrote:

    Motley F*O*O*L*S

  • Report this Comment On March 13, 2009, at 6:30 AM, majordm wrote:

    no cred.

  • Report this Comment On March 13, 2009, at 9:06 AM, VoodooLoons wrote:

    "Oh, I pine for an iTablet!!!"

    No offense, fella... but you sound just a tad gay for Apple (not that there's anything wrong with that)...

    Put the 17" MacbookPro down for a bit... maybe go outside and throw a ball around or something.

  • Report this Comment On March 13, 2009, at 9:18 AM, TMFMileHigh wrote:

    >>No offense, fella... but you sound just a tad gay for Apple (not that there's anything wrong with that)...

    Hahahahaha. None taken. My point stands -- there's a rich market for this product if Apple wants to make it.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On March 13, 2009, at 9:55 AM, snakesladders wrote:

    I have to thank you fools. For years you've been bashing apple and along with a lot of other nonsense in the financial press you've helped to artificially depress the apple stock.

    Of course when sales numbers and market share proved you wrong, the stock increased in value.

    You've helped me to make a LOT of money on apple stock and you're still doing it :)

    keep up the bad work fools.

  • Report this Comment On March 13, 2009, at 10:29 AM, TMFMileHigh wrote:

    Good morning snakesladders,

    Thanks for writing.

    >>I have to thank you fools. For years you've been bashing apple and along with a lot of other nonsense in the financial press you've helped to artificially depress the apple stock.

    You are, of course, welcome to your opinion but I'd rather you post some specific data about how I was "bashing" Apple unfairly.

    This and other articles like them represent my personal view of the stock and the business. Of course I've been wrong before and will be again. But on the subject of an iTablet, I think I've called it pretty well thus far:

    http://www.fool.com/investing/high-growth/2008/12/11/say-nye...

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On March 13, 2009, at 5:05 PM, SSchlesinger wrote:

    Apple is a retail ATM machine. It has a cult following for all their products, not just the Newton. It has more of a following than Sony had in the 1980's. They are running into one problem however, the recession has caused their zealots to go on a bit of an Apple consumption diet. Though many would like to buy the new Macbook, they are making do with their ancient one from 15 months ago. And though the new IPod is certainly nifty, are there really compelling reasons to buy one other than smaller size, more space, and new design? Apple needs to not only come out with the netbook, and tablet, but a few dozen other hardware items like car stereos, home stereos and a larger line of Apple TV's. They need to expand the depth of their product line.

    The larger issue you didn't address is the fact that Apple has enjoyed growth at the expense of PC sales. There was a huge mess Microsoft made with the introduction of Vista. "Fix Vista" was what the Apple switch commercials suggested. Well, that's what Microsoft did. The switch campaign will be quick to point out that Windows 7 is a new paint job for Vista. Yeah, it may scare some, but not all. After all, Microsoft will have done what Apple suggested, that is, they fixed Vista.

    If you look at Apple's typical marketing tactic you'll see they have avoided low end laptops. Their have been sub-$500 laptops for a few years now in the PC market, and Apple never played in that market. The netbook market is a temptation for Apple, but I don't think you'll ever see them down in the $300 price point market.

    With all this being said, I think you'll find Apple sticking to making a classy netbook in the $600 to $1200 range designed for Apple enthusiasts and not price sensitive PC buyers. Even if it has IPhone apps it still won't be a market leader like Ipod or IPhone. It's going to fall in line with the rest of their computer sales with 10-15% market share which is still respectable. The sub $500 category will be a tough market with machines running Linux, XP and Windows7 (Windows 7 will require better hardware thus it won't be good for stripped down lower end models). Overall, Apple computer sales will start slipping to PC sales as Windows 7 rolls out later on this year.

  • Report this Comment On March 13, 2009, at 10:20 PM, snakesladders wrote:

    Thanks for responding Tim.

    Let me quote the beginning of the article...

    "Which is the real Apple (Nasdaq: AAPL)? The one that laid off 50 salespeople last week, or the one that's reportedly stocking up on 10-inch screens to create an answer to netbooks from Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), and Taiwan's Asus?"

    This unfairly frames apple as either a company that may be downsizing, or if not downsizing, following the innovation of other companies.

    Neither characterization is accurate. This is what is often referred to as false focus. A more accurate focus would be to look at apple in terms of its fundamentals. A boatload of cash in the bank, several very successful product lines, and more innovation likely in the future.

    I remember reading about the "beleaguered" apple for years on the fool. This was when apple was refocusing and growing at a astounding rate.

    Again, I am not complaining, this kind of coverage has been very profitable for me personally.

  • Report this Comment On March 14, 2009, at 8:43 AM, TMFMileHigh wrote:

    'Morning snakesladders,

    Thanks for the comment.

    >>This unfairly frames apple as either a company that may be downsizing, or if not downsizing, following the innovation of other companies.

    No, it doesn't. Apple has laid off staff and has experienced slowing growth in the first quarter.

    I, too, believe that Apple is extremely well-positioned -- that's why I own shares. But it wouldn't be fair to deny that these problems exist. They do.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On March 14, 2009, at 10:45 AM, chopchop0 wrote:

    Netbooks are great. If apple sticks its head in the sand and refuses to sell/build any portable PC in the price and size range of a netbook, they are going to miss out on some serious emerging market share.

  • Report this Comment On March 14, 2009, at 11:10 AM, peterjlist wrote:

    You do know that Apple *always* tries to do what we don't expect, right? Or if we expect it, they wait long enough to make us think they've really given up, then they do it in some way that we don't expect, as with the Might Mouse with its two buttons that wasn't really two buttons.

    Too bad they didn't keep Firewire on the Macbook, then they could offer a non-FW lower Macbook and that would be one of the differentiating features. Ah, well.

  • Report this Comment On March 21, 2009, at 10:09 AM, snakesladders wrote:

    "No, it doesn't. Apple has laid off staff and has experienced slowing growth in the first quarter."

    And that warrants an article titled: "Is Apple Doomed?"

    A more reasoned analysis would recognize the following...

    1. The year on year numbers do not take into account the 2008 introduction of the the MacBook Air.

    2. The Bush recession.

    3. The new product lines introduced recently that will sell well. iPhone 3.0, iMac, mac mini, and Mac Pro.

    As usual the "beleaguered" Apple crowd will try to fool people into a negative outlook on Apple, and as usual they will be proven wrong again and again...

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