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Apple Might Want To Take Notice Of This Massive Opportunity

Apple's (NASDAQ: AAPL  ) expected iPhone 6 launch will most certainly be the biggest device launch of 2014, as the company releases the fourth major refresh to its iPhone family. While the iPhone's hardware, software, and size are all likely to change, consumers and investors still want more from the company.

Since Steve Jobs's passing, many have questioned Apple's ability to innovate and create great products in new markets. Unfortunately, the company has been slow to respond in key industries like wearables, and in one particular space where it is missing a golden opportunity.

The power of Apple
In Apple's last quarter it sold 35.2 million and 13.3 million iPhones and iPads, respectively. Importantly, these enormous numbers came ahead of expected product launches, a period where many thought consumers would wait a few months longer for the newest devices. However, Apple's success demonstrates the power of its brand, where it can release updated versions of existing products and create many billions in annual profit.

Still, in technology, what's in favor with consumers can change quickly. And although Apple has a strong ecosystem filled with consumers and businesses that are interconnected on various devices, we must still wonder when Apple will unleash its next big product.

Planning ahead with new products and services
For all the good things we can say about Apple's hardware, Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) is just as dominant on the Web and Microsoft (NASDAQ: MSFT  ) in software. Yet, neither Google nor Microsoft have grown comfortable in their successful time-tested niche markets, both looking ahead to the next 10 years with new products.

Specifically, Google has taken the broadband Internet market by storm with Fiber, a multi-billion dollar project that increases Internet speeds by up to 100 fold versus the average broadband provider. For Microsoft, it has embraced the cloud, specifically cloud infrastructure and application platforms to become a viable competitor against the juggernaut As a result, Microsoft and Google have their own insurance policy beyond their flagship industries to create growth in the decade ahead.

Apple should take notice
For Apple, it's already late to the wearables market, and even with the Beats acquisition, music isn't really a game-changer for a company with $180 billion in revenue. However, there is one market where it could thrive with its premium pricing and services strategy, a market that is growing especially fast, smart TVs.

Apple has been long-rumored as a company that could enter the TV space, but nothing official yet. Of course, the company has Apple TV, which connects users to movies and shows via iTunes along with photos, music, and Internet content. In total, Apple has sold 20 million of these devices, including seven million over the last year, creating more than $1 billion in revenue from media content in the 12-months prior to April of this year.

Therefore, Apple has the foundation for an entrance into the smart TV space, but desperately needs the corresponding hardware, with now being the time to strike.

According to BI Intelligence, 75 million smart TVs shipped globally in 2013, and 101 million are expected this year. Then, in 2015 smart TVs shipments are expected to surpass traditional TV shipments with 124 million, followed by 148 million and 172 million in the following two years, respectively. Therefore, from 2013-2017, smart TVs are a business that's growing at an annualized rate of 23% -- which is actually faster than the rate of e-commerce growth in the U.S -- and will eventually own nearly 75% of the total TV market.

As a result, with the smartphone and tablet markets both reaching maturity in the U.S. it seems logical that Apple would take such data in stride, and make an aggressive push into the smart TV space as its next big-time market.

Falling prices should not be a concern
Now, one reason that investors reject the idea of Apple creating a smart TV is because the price of TVs in general have collapsed in the last decade. Back in 2005, the average 32-inch LCD TV cost $1,566 , then $729 in 2007, and in 2012 fell to just $435. Today, most 32 inch TVs can be purchased for under $350, and while smart TVs command a slight premium, its prices have also seen rather aggressive declines in the last several years.

With that said, consumers and investors tend to forget that when cell phones were first introduced, they were expensive luxuries that only the wealthy could afford, and gradually saw price declines over time. In fact, Whiteboard Advisors estimates that the average price of a cell phone in 1984 was $4,000 after being adjusted for inflation. Still, Apple has managed to become the most valuable company in the world despite these lower prices, and has been able to demand higher prices due to the luxury of its product.

Foolish Thoughts
In other words, price decline worries are irrelevant as it applies to Apple not entering the smart TV space, and investors should realize that Apple is missing a golden opportunity by not acting on an industry that's expected to ship 124 million units next year. With all of Apple's devices being connected, there's no doubt that a smart TV would be a big hit with consumers, and could be meaningful for the company's fundamental performance.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


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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 August 23, 2014, at 9:29 PM, ekdikeo wrote:

    Remember that Apple was "late" to enter the Mp3 player market. There was a market that existed there prior to Apple entering it. But once consumers got ahold of the iPod, it turned the entire Mp3 market on it's ears.

    They were "late" to enter the cell phone market. There were cell phones for many many years before Apple got there. And they were being sold like gangbusters. There were even smart phones, that combined PDAs and Cell phones, and even pocket computers and cell phones. But once consumers got ahold of the iPhone, it turned the entire PDA/Pocket PC/Cell Phone market on it's ears.

    They were "late" to enter the tablet market. There were people making tablet PCs years prior. There was even a special version of Windows for tablets prior. There wasn't much of a market there at all, despite Microsoft and many other people trying to carve out a market. But once consumers got ahold of the iPad, it turned the entire PC market and mobile device market on it's ears.

    Notice a pattern here? Apple doesn't do anything first, they figure out what they can do better (or at least what they can market better), and then slaughter existing markets with their entries. Apple is the minor player in any market that it entered as one of the earliest players. But Apple completely changes the markets in any category that it has entered as a "late" entrant in.

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Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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