Apple Has More Launches This Year, But Will They Matter?

Consumer electronics giant Apple (NASDAQ: AAPL  ) recently announced a pair of next generation iPhones. The iPhone 5S looks like a nice refresh of the previous high-end flagship, the iPhone 5, and the iPhone 5C looks to be a compelling, higher-margin alternative to selling a marked down iPhone 5, but neither of these launches really moved the needle, so to speak (and shares actually fell roughly 5%). That being said, Apple's pipeline is full of new product releases going into 2014. The question, then, is whether this will really matter to investors?

These products are mostly refreshes
The overarching theme here is the products that Apple is set to roll out are all set to be refreshes. The new iPhones simply refresh older models, and I'm sure many are expecting a next generation set of MacBook Pro machines, a new full-sized iPad, and a new iPad mini. I'm confident that these devices will all be exquisitely designed, but that's really par for the course for Apple.

Apple's product launches need to do two things:

  • Regain market segment share (without hurting the gross margin profile)
  • Drive significant top/bottom line growth

The first one is pretty tricky, particularly considering that much of the new and untapped growth areas are actually at the very low end of the market. The problem is that at some point, the high end finally becomes saturated and a slow-to-no growth business at best. The low end, while great for unit volume growth, isn't exactly a gross margin wellspring.

This, of course, means that the second feat would be even harder to achieve. Sure, Apple could conceivably drive market share growth at the high end against the likes of Samsung, HTC, and LG in the phone space, but it already has the lion's share of that market. The same argument applies to high-end notebooks, all-in-one desktops, and even tablets – it's Apple's market share to lose.

Are there any new device categories coming?
There are two emerging device categories Apple does not currently participate in that it could conceivably choose to do so:

1. "Phablets" – these are smartphones with large screens that border on being tablets, hence the name

2. PC/tablet hybrids

The first set of devices is one that I don't expect Apple to leave on the table, although there could be some interesting implications. Apple's product lineup is specifically designed to minimize overlap so as to drive as many device sales as possible. If Apple were to introduce a "phablet," a sale of such a device could potentially replace the sale of both an iPhone and iPad. However, I'm not sure how well this argument holds up as it is just as likely that Apple is gaining back a sale that it would have lost to a competing "phablet."

If anything is going to help spark longer-term growth (rather than a product refresh uptick), then it'll need to be these type of new device categories. A major source of the negative sentiment among investors is that Apple hasn't been the first to these new categories (small tablets, phablets, PC/tablet hybrids), which tends to raise the "innovation" question.

Ultimately, I don't think any of this will matter
At the end of the day, Apple is already a $400 billion giant that enjoys much better than average margins. While it isn't appropriate to say that Apple is "dead" – on the contrary, the company will continue to generate piles of cash for years to come – I do think it is "dead" as a growth story. While the iPhone and the iPad were truly innovative devices, it's nearly impossible to be "innovative on demand," and even more difficult to stave off the hordes of "me, too" competitors willing to accept much lower margins.

Apple's an interesting income play at this point, but for those looking to see large capital gains on shares of Apple may be sorely disappointed. Apple's had a wonderful run, but every company eventually matures, as Apple shareholders are learning.

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  • Report this Comment On September 16, 2013, at 10:41 PM, twolf2919 wrote:

    You mention phablets and PC/tablet hybrids as "emerging" device categories that Apple has, thus far, eschewed. Both of these device categories has been around for awhile - so I wouldn't exactly call them emerging anymore - and the latter (the PC/tablet hybrids) doesn't exactly look like a winner thus far.

    The really emerging device categories are wearables (wrist-based or bridge-of-nose based), intelligent TVs (the kind that can finally replace that stupid cable box under your current TV - as well as possibly your cable subscription), and remotely controlled home automation products (intelligent thermostat, light switches, etc.)

    With any one of these (an iWatch or iTV being the closest to reality), Apple could easily move the needle.

  • Report this Comment On September 16, 2013, at 11:52 PM, CrazyDocAl wrote:

    Apple is following it's business model. Every other year is a refresh. Apple has several ideals in their business model that they follow. Every product must have a high profit margin. Every product and sub product must be under the strict control of Apple. Also Apple get's 2 years out of each product design.

    I'm not in a position to say they are wrong but over the years it's brought the company lots of money. OTOH it's cost the company dearly too. Apple was nearly destroyed when the followed this plan back when the PC first started to be a real consumer good. They had a better product but their refusal to allow third parties a part of the MAC market allowed IBM based PCs to dominate for decades.

    The idea of an iPod with a place to buy just the songs you wanted will be seen as one of the most profitable ideas ever. That allowed them to own the market. It also gave them a solid customer base for the iPhone.

    But the iPhone has become more of a status symbol. iPhone holders have cute holes in them so the Apple can be seen. Status symbols don't usually translate well to other countries and most don't last forever. Jobs did a masterful job as a salesman, Cook, not so much (yet?).

  • Report this Comment On September 17, 2013, at 12:19 AM, applefan1 wrote:

    Actually, Apple didn't refuse to allow third parties. Apple did have Mac OS, before OS X, running on Intel processors and they approached Compaq Computers about licensing Mac OS to Compaq so they could offer it as an alternative to Windows 95. The problem was that Microsoft had already signed contracts, which proved to be illegal, whereby the OEM had to pay Microsoft for each box shipped for a license to Windows 95, even it the box shipped without Windows and a replacement OS, like Mac OS instead.

    Ben Rosen of Compaq made a public statement about Apple approaching them and Rosen said that they would probably be better off doing the hardware and software themselves.

    For these OEMs to sell product with a 3rd party OS, they have to support the s/w on the hardware they ship and having to support multiple OSs back then just seemed too much of a support nightmare.

    The biggest problem with running Macs on a generic PC is that Apple typically has things, like different I/O than the PC. Back in the early years, they had AppleTalk and ADB, then they switched and started implementing Firewire as standard, where most PCs didn't have Firewire, and now it's Thunderbolt whereas most PCs don't have Thunderbolt.

    Since the OS is bundled with the computer, if Apple unbundled OS X, they would probably have to sell the first full license for somewhere around $200 to $300 if they are going to charge $20 for the upgrade license. I don't know how many people would buy a DIY PC, or a third party PC and pay $200 to $300 for a full one year license w/support for OS X with yearly upgrades for $20.

    Just as reference, to get Red Hat Linux, 1 year Workstation License with support costs $300 and that's just for one year.

    As far as the iPhone, I think what Apple needs is a nice 4.5 to 5 inch model by April if they can. They'd do well with that.

    The advantage Apple now has is 64 bit. Since the iPhone 5S is now 64 bit, I'm sure the iPads will be coming out with 64 bit models and then it's a simple 2 years to get ALL models at 64 bit.

    Android? Um, Google hasn't announced a 64 bit OS yet. The day they ship it, it will take 6 months for the OEMs to get it out on a device as long as it has a 64 bit processor, which haven't been released... YET.

    Google doesn't know how to do it as quickly as Apple. Apple already, right now, has all of their developers convertering their apps to 64 bit. So Apple is in the cat bird's seat on this one. PERIOD.

    Windows Phones going to 64 bit? When are they going to announce that? Don't know yet. Nokia just released their phones for the year and none are 64 bit, so we'll have to wait another year until Microsoft says anything.

  • Report this Comment On September 17, 2013, at 12:23 AM, SimchaStein wrote:

    The article's author claims to know Apple's announcements for the next 15 months. Arrogance, ignorance, are the most polite terms for this

    No news, no insight. Meanwhile, Apple can buy back shares at low prices.

    The iPhone 5S sets a new bar. It will take the competition a year to catch on, let alone catch up.

  • Report this Comment On September 17, 2013, at 5:16 AM, H3D wrote:

    "The overarching theme here is the products that Apple is set to roll out are all set to be refreshes."

    That is pure guesswork. It may be true. It may not. But stating a guess like that as fact destroys any value in subsequent conclusions.

    "The first one is pretty tricky, particularly considering that much of the new and untapped growth areas are actually at the very low end of the market. "

    That is true. And is exactly why Apple shouldn't be, and probably isn't, particularly concerned about losing overall market share. There is no economic value in that low end of the market.

    Apple should be, and clearly is, focused on those parts of the market where customers look for good value superior products, and are willing to pay for them.

    Google are welcome to dominate the "market" in Cyborg imitation play gear and freebee OSes for OEMs that missed boat and have no tenable OS of their own.

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