Why we buy Apple

apple-or-androidAn online article from CNN Money nicely compares, in pictorial format, the iPhone versus Android. The comparison is not to a specific Android phone, but to Android, the smartphone operating system.

The article itemized a dozen or so functions, and opined on which platform performs each function better, and why.

As you might expect—at least according to the CNN writer—iPhone does some things better, and Android does some things better.

So the question becomes, does it really matter which type of smartphone you use? Shouldn’t you just buy the least expensive smartphone, because you’re going to get pretty much the same capabilities regardless? Apple’s iPhones are expensive, while you can get some Android phones at a serious discount.

On the precipice…again

That reasoning, I believe, is at the crux of how Wall Street views Apple stock (AAPL), and why the stock has been under so much pressure lately. Apple is in the commodity business, says Wall Street. Customers are realizing this and will not keep paying premium prices for Apple products. Therefore, the company can’t keep up its torrid earnings pace. Therefore, it has to eventually fall back to earth.Apple_on_precipice

However, Apple just announced another stellar quarter, with the largest quarterly profit the company has ever earned ($18.4 billion).

Predictably, the stock price went down. Why is that predictable? As someone who has been watching the stock for two decades, I’ve seen this pattern over and over again.

The quarter that includes the holiday gift-giving season is always Apple’s best quarter. People wish for and buy a lot of Apple gear as gifts. Apple announces a huge quarter, but guides that the next quarter will be lower. The stock goes down. Lather, rinse, repeat.

Competitive headwinds

Of course, when you are the one of the world’s wealthiest companies, you are going to get competitive headwinds from all directions. Market competitors. Economic downturns. Currency fluctuations. Government interventions. Lawsuits. Negative press. The court of public opinion.

apple-headwindsPersonally, I’m keeping the faith regarding the company and its stock.

There are only a select few companies that have as valuable a market presence as Apple.

The company has as strong a product portfolio as it has ever had. Practically any new business that Apple enters quickly becomes a billion-dollar business, the latest being Apple Watch and Apple Music.

And no company has a the war chest as large as Apple, currently weighing in at about $210 billion (see Apple’s most recent 10K statement here).

In addition, Apple management has said that only about a third of iPhone customers have so far upgraded to the latest iPhones. This represents a tremendous opportunity for Apple, whose customers tend to be very loyal.

Providing perhaps an even more promising trend, Tim Cook, Apple’s CEO, claimed that in Q4 2015, 30% of iPhone buyers were Android switchers.

Despite some naysayers, Apple just keeps keeping on. In this way, I think Tim Cook is the perfect leader for Apple. He doesn’t have the marketing and visionary genius of Steve Jobs, but he has the good sense to hire extremely talented people and let them do their thing. He believes in the company’s brain trust and strategies, and has the patience to allow those strategies to unfold.

Expanding universe

It’s been a very tough year for most technology companies, but I think Cook is managing Apple’s financial picture creatively, with timely stock repurchases, dividends, and re-investments.apple-expanding

In addition, Apple has purchased a number of technology companies, and increased its R&D budget over the last few years. Apple is branching out into a number of promising technological areas, as well, including information technology, augmented and virtual reality, automotive, and entertainment.

Some won’t yield fruit for years, if ever, but Apple is not standing still. It’s challenging itself, like a visionary company should.

In the short term, meanwhile, the company continues to refine its market-leading product portfolio—iPhone, iPad, iPod, Macintosh, Apple Watch, Apple TV, Apple Music, and, of course, iCloud, the underlying ecosystem that powers Apple devices and customer data.

Have their been hiccups? For sure. But iCloud and its many associated services work pretty darn well for me.

Rational decision-making

So, there are good reasons why we buy Apple products. Most are well-designed and well-made. They’re aesthetically pleasing. They function for a long time, and Apple supports them as long or longer than any other vendor.

rational-choiceWhen there are issues, Apple generally fixes them quickly with software updates that often add value and are relatively easy to apply.

And Apple stands behind its products. Although anecdotal, there are numerous stories of people walking into an Apple store with a complaint and walking out with a free repair, or even a new device.

Personally, I had a year-old MacBook Pro that ran hot and occasionally shut itself down (as overheating machines are supposed to do). This was more a nuisance than anything, because the product functioned well and enabled me to get work done.

Still, it was annoying, so I brought it into an Apple store. The Apple “genius” diagnosed the problem and installed a new $1100 motherboard in the computer. Problem solved. Quickly, efficiently, and at no cost to me.

Call me a sheeple. A zealot. A fanatic. I don’t care. I know which products best serve me. And that’s the key. They serve me, not the other way around.

And Apple stock (AAPL)? I’m holding on to that, as well.

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