Category Archives: HomeKit

The iPhone company

iphone-fallingWith its most recent earnings announcement, Apple experienced its first year over year decline in iPhone sales in 13 quarters. The conventional wisdom has been that Apple is “the iPhone company,” so when iPhone sales drop, the stock must decline.

In light of earnings, Apple stock dropped to its lowest share price—around $89—in over a year. Surely, this must be all she wrote for this once great company.

Listen, the stock market is going to do what it’s going to do. I’ve long since given up trying to understand it, beyond my sense that it’s driven by emotion and a herd mentality. Nor does it seem to matter that Apple met its own guidance for the quarter. It only seems to matter that the company missed some made up number from Wall Street.

Contrarian view

Nonetheless, I continue to take what is now the contrarian view. Perhaps naively, I still cling to the belief that if you invest long term in great companies, your patience will ultimately be rewarded. And it’s inarguable that Apple is a great company.

Warren_Buffett_KU_VisitApparently, Warren Buffett agrees, and lately Apple’s stock has turned around a bit, moving again toward the $100/share valuation.

If you accept the conventional analysis, however, that the iPhone has seen its best days and will continue to decline quarter over quarter, year over year, that’s fine. I think there’s a plausible chance of this scenario eventually playing out.

Although, if you read today’s rumor—that Apple is ordering 72-78 million iPhone 7s to be manufactured for next quarter—you’d be forgiven for doubting that scenario. Inherent in that thinking, which often goes unsaid, is that Apple doesn’t have other great products in it. The iPhone was a once-in-a-lifetime product for Apple.

The analysis goes that Apple has sold over a billion iPhone units in its nine years of existence, and the phone will continue to sell, but in declining numbers. Therefore, Apple must decline. Therefore, sell the stock and move on.

New tricks?

But what if Apple has a few tricks up its sleeve? What if the company is developing some new technologies, some new products, that will push its growth back into overdrive?

There are indications of improvements in Apple Watch and related forays into new vertical markets such as healthcare.

trick-up-apple-sleeveApple is said to be producing its own original programming, which would seem to indicate an enhanced entertainment offering in the cards for its new Apple TV.

There’s the putative Apple car, which has fueled all kinds of speculation. I’m envisioning more of an all-encompassing Apple transportation initiative, but that’s only speculation at this juncture.

Elsewhere, Apple has been quietly acquiring companies and is said to be working on augmented and virtual reality technologies.

With HomeKit, the company, as well as third parties, have been slowly building out an IoT (Internet of Things) portfolio.

Pivoting?

There are other rumors and analysis, but in the aggregate, they amount to little in the way of imaginative predictions—the elevator version, if you will, of A Song of Ice and Fire.

got-dragonIf only one of those technologies turns into a product that is groundbreaking, a product that becomes highly desirable, that becomes—dare I say it—insanely great, then Apple sits atop the throne once again. (OK, a little much on the GOT theme, I know.)

An industry journalist recently posited that Apple’s significantly increased R&D expenditures over the last year signal not just accelerated development on its current product lines, but a pivot—a massive shift in the company’s focus and energies on new industries.

To me, this is not just plausible, it’s inevitable. It’s in Apple’s DNA to think big, to behave like a start-up company in many respects. It’s been said that Apple says ‘no’ to a thousand ideas for every one that it says ‘yes’ to. But when it says ‘yes’, it goes all in.

Something grand

What does it mean when a company that has $230 billion sitting in its war chest goes all in? Surely, something grand. Apple is not an outfit that throws money at the wall to see what sticks.

grand-canyonAs I’ve written in the past, great companies rarely disrupt more than one industry. Apple has disrupted multiple industries—personal computing, music and entertainment, mobile and smartphones, tablets, and wearables, to name a few.

The company continues to release desirable new products. The iPad Pro and MacBook are two examples. Both have gotten stellar reviews.

Nonetheless, it’s easy to argue that no company can continue what Apple has achieved. The company is running out of ideas, say the doubters. Steve Jobs is gone, and Tim Cook is no Steve Jobs. Apple products are too expensive. Other companies are grabbing larger market share. New companies are coming along to displace Apple. On and on.

Apple is an extremely secretive company. Management doesn’t tip its hand. At the company’s most recent quarterly earnings conference call, Tim Cook did refer to “exciting new products in the pipeline.” I’m guessing that he’s referring to the iPhone 7, Apple Watch 2, and updated MacBook Pros and iMacs.

Cook also stated that in a few years, people will be saying “what was I thinking not getting a Watch sooner?” He also said that the next iPhone will have technologies that “people won’t be able to live without.”

Make no mistake, Apple will continue to compete in the markets it currently plays in. The million dollar questions are which new markets will Apple disrupt and redefine? And what products will we find we can’t live without?

Watch this space.