Apples and Fears

posted in: Wisdomination on Wallstreet | 0

Note: this article was originally written and published in October 2013 before a database reset necessitated this re-posting.

On September 10th 2013, something historic happened.

The first “meh” Apple product launch event ever.

For investors in Apple and people who enjoy using the company’s products, that is very worrisome.

For the two people in the western hemisphere who missed it, here’s what happened: Apple unveiled two new iPhones, a “cheaper” 5c, and a high end 5s.

The business reasoning behind the products is either so genial as to be beyond mortal ken, or flawed. This is because the 5c is cheap enough to cannibalize higher-end sales and hence Apple’s own profits from the 5s, but at the same time, not cheap enough to fulfill its intended role of meaningfully capturing more significant emerging market share, which is still dominated by cheaper devices. It is still too expensive for most Indians and Chinese, yet it is interesting enough for American customers to get in lieu of the 5s, especially at the bargain price of $99 with a contract.

That kind of pricing would be a great strategy for capturing the mid and lower segment of the mobile market, it it weren’t that the 5s is not a significant enough improvement over the 5 to warrant an upgrade. The only difference beyond the improved camera (which does not justify the expense) is increased processor power – however, even the old model already has multiple times more computational power than the vast majority of users are ever going to need, so it is not a compelling argument, either. Speaking as a guy who pretty much got a new iPhone every year thrice in a row, the 5s is just not worth it this time, and I’ll be holding out for the 6 (or whatever enters the market from elsewhere – I may like the brand, but fanboy I am not). I strongly suspect that in this regard, I am not the only one by far – in fact, many other Apple customers probably feel that way with me.

Apple also needs to present a convincing argument that the fingerprint sensor will, in fact, not forward the collected data to government agencies. Verbal assurances are no longer good enough, and we all owe Mr. Snowden a beer.

So as far as pricing as features go, the two phones this time – Worst. Business. Move. Ever.

Is Apple going out of business? No. Figures are good, sales are good, profit margins are great. But that’s not what Apple’s strong suit historically has been, and that is precisely what has investors worried.

The reason Apple’s stock plunged 5% the next day is, the company has confirmed the widespread concerns that the innovative edge has left with Steve Jobs and the company was left in the largely inept hands of bean-counter stewardship, just as it did previously, resulting in two lost decades. Except this time, forever.

Apple’s management is still great at maximizing profit margins and getting people to buy their stuff, albeit presumably on momentum created by greater men. They no longer seem to be able to introduce disruptive innovations, however. That was Apple’s strong suit under Steve. The company isn’t on the way out, but it’s certainly on the way towards mediocricity – the epochal difference between Apple and its competitors is narrowing.

It is not yet closed. Samsungs continue to feel flimsy and cheap when compared with an iPhone. It is a Mercedes vs a Dacia experience – the functional difference is negligible, if considered only on the level of most elementary, crude utility. But the user experience, solidity, comfort and feel of the product are incomparable. This is partly due to Apple’s brand image and its ability to project exceptionality – but for the most part, the difference is real, physical and technological.

The 5c is however a step in the opposite direction.

What’s to take away here? Tim Cook sucks. Apple needs a new CEO with innovative vision, but the worry is that the custodian class currently running the company will not let such a character into any position of power, even if such a person were to appear – the problem with all organizations founded by visionaries in human history. Let’s not forget Steve Jobs was ousted out of his own company by the same type of circlewanking bureaucrats.

I have an iPhone, an iPad, a MacBook Pro and am strongly tempted to get a MacBook Air – for you guys, so that I can write everywhere, you understand. That qualifies me as an applist. Still, I am worried about the company’s future fortunes.

What are the actionable conclusions? Now is a good time to buy the stock, because no matter how lost the management appears to be, Apple is still undervalued. The market is simply butthurt because of past unrealistic expectations placed on the company. The current price (high 400s) is an overreaction. The stock’s reasonable market value based on earnings per share and other nerdy metrics is around $ 550.

If you happened to buy at below 450, just sell it whenever. It’s probably not worth waiting around for, and growth above 500 is unpredictable and uncertain.

If you bought it at 600+, well shit. As a rule of thumb, a doubling of value in the last year is indicative of a speculative bubble and a signal not to buy. Don’t worry, I did, too. Product launches and sales in the holiday quarter will tell you whether there’s any point in holding onto the stock. At this point, I recommend selling when it gets back into the 550-600 range, because any price growth beyond that is highly unlikely in the next year.