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Apple Is the Least Worst, and That's Why It's the Best


Apple is sticking to a tried and true strategy.

The reaction to Apple's (NASDAQ:AAPL) iPhone 5S and 5C unveiling this Tuesday was ambivalent at best.

The high-end 5S is predictably beautiful and packed to the brim with smart updates to its functionality, but it doesn't quite have the transcendent appeal of previous models like the 4 or 4S, which used features like Facetime and Siri to get people talking.

But the real talk of the town is the 5C, which has just about everyone scratching their heads, as it was rumored to be a low-price device, possibly targeting emerging markets like China.

On Apple's China website, the iPhone 5C is listed at a starting price of 4,488 RMB, or $733.

Keep in mind that Peking University said that the average annual income for a family in China was just $2,100 last year. In urban areas, that number rises to just $2,600. There are a lot of millionaires in China, but there are a lot of poor people, too.

Now did Apple shoot itself in the foot here?

Should it have headed straight for the bargain bin with a low-priced iPhone?

I've done a lot of thinking about this, and as an investor and buyer of Apple products, I want to scream, "No!"

Think about what's going on in the smartphone market. Apple's path may not be perfect, but it's the least worst strategy in the industry by a long shot.

The Google (NASDAQ:GOOG) Android market is absolutely booming from a units perspective, but it's also kind of a mess. In Q2, Android had 79.5% market share, up from 69.1% the year before, fueled by 73.5% growth.

The rest of the industry grew by an anemic 1.7% as BlackBerry (NASDAQ:BBRY), Linux, and Symbian fell off the map, offsetting growth in Apple and Microsoft (NASDAQ:MSFT) Windows Phone models.

But how are Google Android phone makers doing?

Not well; as I wrote back in August:

Samsung (OTCMKTS:SSNLF) and HTC (TPE:2498) both reported lower-than-expected earnings in July. Samsung's stock is down 20% year-to-date, while HTC is down a whopping 50%.

Samsung is seeing profit pressures due to increased costs for new product launches, R&D, and retail channel investments. In its earnings presentation, it also said that it expects "competition to intensify."

HTC is not only seeing its sales slide, but it also has collapsing profit margins and may actually post a loss in Q3.

And year-to-date, Motorola has actually posted an operating loss of $397 million for Google.

These companies are suffering because there are far too many high-end Google Android phones on the market, and the high-end Android market itself is coming under assault from the low end.

When everyone has access to the same hardware components, the same software (in this case, Android), and the same contract manufacturers, what you get is a whole lot of phones that look an awful lot alike.

And that's why Android is not working for anyone except Google itself and the folks making money on the physical component and software/app sides -- the Qualcomms (NASDAQ:QCOM) and Facebooks (NASDAQ:FB) of the world.

Who else is out there?

BlackBerry is exploring a sale -- the latest rumor is that it may be taken private -- after a disappointing quarterly earnings report and ongoing market share shrinkage, while the Microsoft / Nokia (NYSE:NOK) marriage will be lucky if it results in 5% market share by year-end.

Apple's the least worst -- and according to my math, that means it's the best.

Apple is not growing the way it once was, but it has one thing none of its competitors does: a premium brand name earned over decades of making high-priced, innovative products. That reputation didn't start with the iPhone, and it can't end with it, either.

If Apple enters an idiotic pricing war with Samsung, then it will be sacrificing not only current profit margins, but future ones as well.

In the event Apple turns into a discount brand, how's it going to charge premium prices for whatever product class comes after the iPad?

Now to be fair, Apple may be at the end of its rope; maybe it's getting to the point of exhaustion in terms of adding new customers to the family.

Who really knows?

But one thing's for certain: If Apple changes its course and starts competing on price, then losing is not a possibility; it's a guarantee.

See also:

Apple Inc.'s New iPhones Have Arrived, Now What? 4 Investing Experts Respond

What Is Net Neutrality, and Why the War of Words?

Apple's Most Boring iPhone Event Ever

Twitter: @Minyanville

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Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
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