The Apple price has popped almost 39% in the past year, including 10% in the days around the result a couple of weeks ago. This has less to do with the underlying numbers, which actually weren’t that great (more on that later) and more to do with the building excitement around the iPhone 8, which will be released around the tenth anniversary of the first iPhone in September of this year.
There is a lot of speculation about the world’s biggest listed company, and because Apple’s supply chain is so long (meaning that its component providers need plenty of warning to tool up) it can be pretty well informed.
For example, there was plenty of chatter before the current iPhone was released about the removal of the headphone jack, and it turned out to be more than chatter. For the new iPhone, there is discussion about the phones augmented reality capability, the incorporation of the home button into the screen itself (rather than below it, which is where it is now) and wireless charging.
At least some of this will be correct (most likely the change to the home button, as well as some form of Pokemon Go-like augmented reality).
And then there is the stuff about the wireless charging. Inductive charging (putting a device on a charge pad, rather than charging it through a wire into the device) has been around for a while – it works in toothbrushes, for example, where water is problem, and on the Apple watch.
The next generation in wireless charging is a step beyond that – there are companies which have technology which will charge a device while it’s in your pocket, using a radio signal beams power into the device.
One pundit opined that wireless charging is deeply disruptive, and indeed could be the next wi-fi, with all the disruption this entailed. Without in any way being critical, I would respectfully disagree. Wireless charging technology and wi-fi both operate on the idea of connecting without wires – but one is highly disruptive, while the other is, well, just a neat bit of technology.
Wi-fi is disruptive because it reveals the position, buying habits and identity of the user, which radically changes the business model of every company that cares to take advantage of it. Wireless charging, by contrast, is just a more convenient way to charge, kind of like a more powerful flashlight, or a cd compared, say, compared with a record.
Why is this important? Because new technologies, in their own right, aren’t really all that investable – they can go up quickly, but also drop just as fast, a result of missed numbers or a falling multiple. So the wireless charging company (Energous, by the way, its listed on NASDAQ if you care to bet) could be interesting, but it doesn’t make the cut as a disruptive company with all that entails for fast value creation.
So not all technology companies are disruptive.
And not all disruptive companies are about technology, which we outlined here in a piece on the Dollar Shave Club. DSC is disrupting the razor blade industry in a major way, not by being a better razor (it isn’t) but by marketing the product outside of main media, in the process cutting by 60% the price a consumer pays for a premium product ($10/month not $30). It just got bought for US1b.
It isn’t that we think that disruption is the only way to make money – it isn’t. It’s just that right now, there are a slew of variables pointing to wealth creation through further disruption whether in cars, energy or life sciences. And all of these will bring forward to new business models in retail, media, transport, medicine to name just a few.
As for the Apple numbers, they really do look like a problem. There was an extra week in the quarter, relative to the prior corresponding period, adjusting for which leaves the revenue numbers down, not up. iPad sales also went backward (again). Services were good, but from a low-ish base.
Apple is losing the battle on a number of critical disruptive fronts. Its cloud offering is way behind Google and even Microsoft, ditto its machine learning. Amazon (which is showing triple digit revenue growth in cloud) is creaming both companies in the home with its related Alexa (a voice search assistant which is gaining traction, and against which Siri’s un-contextualised suggestions just sound absurd). Apple Music isn’t doing especially well, Apple TV is looking more like a dumb pipe (Netflix has the bundle, and is making real inroads as a studio). The company has scaled back development of the car, which is looking like the next battleground. And Apple is sacrificing performance for form in its latest laptops, which are underpowered relative to those running Windows.
Sometimes, companies go up even as the strategy falls apart – it can be related to cutting back development costs to boost the bottom line, which in Apple’s case is a huge expense. In that sense, Apple could be the ultimate private equity play – just imagine how much a PE syndicate could extract in earnings if the company just stuck to core iPhone sales, maybe with a few laptops thrown in.
October 2023 UpdatePlus28 Nov 2023
‘If you can do anything, embrace AI’: Graham Rich’s Portfolio Construction Forum and Loftus Peak02 Nov 2023
Loftus Peak wins ‘Best Australian Based Global Equity Manager’ at 2023 Australian Fund Manager Awards26 Oct 2023
Geopolitical shocks keep markets on edge26 Oct 2023
Share this Post