An interesting report from DigiTimes notes that during the first half of 2014, there will be a shortage of fingerprint sensors -- the key differentiating feature in the iPhone 5s. This is due to the fact that LG and Samsung (NASDAQOTH:SSNLF) will be adopting fingerprint sensors in its upcoming high-end smartphones. This shows the danger to Apple's (NASDAQ:AAPL) business model from a long-term perspective.
Yes, Apple innovates. But everybody can -- and will -- copy
The sad truth is that anything that Apple does, Samsung, LG, Motorola, and so on can copy. If Apple can perpetually find ways to stay a step or more ahead of the competition, then this "innovation problem" isn't really a problem at all. However, the key question that Apple bulls/investors need to ask themselves is just how long this innovation can continue?
Just as the PC markets became largely commoditized, so will the smartphone and tablet markets. Sure, there will be a market for the high end and, if Apple does keep innovating, it can own this fairly lucrative and high-margin part of the business. However, the big fear is that Samsung, LG, and many others will, year-after-year, bring these high-end features at mid-range or low-end price-points -- indirectly hurting Apple's business.
It's all about the brand and the ecosystem
Apple's two major lines of defense as hardware becomes commoditized are the software ecosystem and the Apple "brand." It's clear that consumers love Apple and even seem to be willing to pay a premium over a comparably outfitted device. Further, the Apple "ecosystem" -- from the software to the Apple stores -- is also a real advantage, particularly in keeping the high end.
It's not inconceivable that Samsung and others will go ahead and open their own stores stateside -- Samsung is already very aggressive about doing the "store within a store" thing at Best Buy. But there's still a fundamental gap between the value of Samsung's brand and the value of Apple's that could prove to be helpful in defending sales, even against very aggressive marketing campaigns from Samsung.
Foolish bottom line
Apple is an innovator, but the problem is that the lead that can be had from being an innovator in this fast-paced environment against deep-pocketed competitors such as Samsung and LG is not sustainable. The differentiation needs to continue to come from the intangibles, as it is clear that just about every smartphone/tablet vendor can do nice industrial designs with great internals.