Apple Must Fix These Issues to Reach New Highs

It's time for Apple to pay up and become predictable, and I don't mean with the company's dividend.

Jan 9, 2014 at 11:00AM

Investors and consumers expect a lot from every Apple (NASDAQ:AAPL) earnings report. With many questioning if the company is still a growth story, or more of a growth and income play, Apple is hurting itself by avoiding two fairly obvious choices. With Google (NASDAQ:GOOGL) growing and expanding, and Microsoft (NASDAQ:MSFT) trying to reinvent itself, Apple can't afford to continue on its current path.

The Tim Cook plan
One of the strengths of the Steve Jobs era was the company's ability to introduce innovative products and surprise the market. Though Apple has taken evolutionary steps with each of its products, the company hasn't produced anything completely new or category-defining in a couple of years.

Apple has maintained its ability to generate billions in cash flow by moving products forward. However, at some point, the company must create something new to continue growing at a respectable rate. Tim Cook has claimed that there are exciting products in the pipeline. But, will these products be revolutionary (or at least evolutionary)?

Time to pay up
Technology companies must spend a significant amount of money on research and development to keep their edge. It just makes good logical sense. A company that spends on R&D has the opportunity to produce several hits from these ventures.

If Google didn't spend on R&D, we wouldn't have projects like Android, Glass, and more. In the company's recent quarter, Google spent 14% of its revenue on research and development, and has consistently spent over 10% on R&D in the past.

While Microsoft might not be known for strong innovation, the company is the only one of the aforementioned three that offers the same operating system on its computers, tablets, and smartphones. Google's Android can run on all of these systems, but Android on a desktop is still in its infancy.

Microsoft also has innovated with its Office software in the most recent iteration. With Office 365, users can download and use Office on PC, Mac, and even use web apps to create, edit, and share their documents with others. Similar to Google, Microsoft spent 15% of its revenue on R&D in the current quarter, and it's this type of spending that should allow the company to continue to innovate in the future.

By contrast, Apple only spent 3% of revenue on R&D in the current quarter, and has consistently spent less than 5% over the last several quarters. It's not hard to argue that Apple's lack of real innovation over the last few years could be directly correlated to the company's relatively low percentage of R&D spending. The company needs to increase its R&D spending to try and create the revolutionary products that both consumers and investors expect.

Problem No. 2-Boring is a good thing
The second issue that Apple needs to fix is the company's unpredictable product release schedule. In the last few years it has been difficult to figure out when Apple would release updated versions of their two biggest products, the iPhone and the iPad.

In 2013, Apple released the updated iPhone in September, and updated the iPad lineup in November. In 2012, there were two different updates to the iPad lineup. In 2010 and 2011, the iPhone update varied between October (2011) and June (2010). Updated iPads have come as early as March 11 (2011) and as late as November 12 (2013).

The point is, Apple's unpredictable release schedule creates lumpy demand and makes consumers question when they should upgrade. This frustration can cause customers to jump to other devices because they don't know how long they will have to wait for Apple to release the "next big thing."

News outlets are already beginning to guess about Apple's next releases. Some are expecting a new iPhone 6 as early as May 2014, and a new larger iPad by October. The bottom line is, consumers have trouble buying a new device if there are rumors of a better device right around the corner.

Google doesn't have this worry because its army of device manufacturers each have different release schedules. Microsoft's Windows Phone is supported by different manufactures as well. Only Apple has the blessing and curse being the sole provider of both its hardware and software.

Losing patience?
When you combine Apple's relatively low R&D spending, and lumpy demand due to uncertain product releases, you get nervous investors. Apple's yield of over 2%, and the hope that Apple's "next big thing" will breathe new life into this growth story seem to be supporting the stock.

However, if Apple continues its unpredictable release schedule, and doesn't surprise critics and customers alike with great new features and devices, the company's loyal customers may decide to jump ship. Lackluster new product development, and the potential for frustrated customers, could spell the end of investors patience with the stock.

Getting in on the smartphone revolution
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Chad Henage owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information