Has the Innovation Curve Come and Gone for Apple (NASDAQ:AAPL)?
With the release of the iPhone 5, it's hard not to wonder if the awe is gone.
In fact, much like the last iPhone release I think a small but growing crop of attendees felt the features of the iPhone 5 left something to be desired. The product looked great, as always, and as I said the day of the release was good enough. But the release left little in the way of surprise and and the full product announcement missed the "Oh, and one more thing" factor. Perhaps, we just won't see the "one more thing" anymore since the passing of Steve Jobs. If so, I'll freely say I'm bummed -- to use a technical term.
Now before we stick a fork in Apple as a leading innovator, we need to see what it has up its sleeves with the next round of computing products, not to mention this "TV thing." If it hits a homerun with a fully gesture/voice/iOS controlled nextgen TV, then well, we can say it will now milk the "cash cow" smartphone market and that it will have moved innovation to the next big growth market for the company.
I have said for some time that the Android (NASDAQ:GOOG) platform is innovating faster than iPhone and the latest iPhone very much confirms this. However, none of this changes the fact that Apple excels at 1) outstanding build quality and, ergo, design 2) maintaining one of the best ecosystems 3) choosing the right time to ramp up marketing and release upgrades, and 4) offering strong security in the App foodchain.
Some might say I'm wrong, and that Apple has the best ecosystem. I now think that view is dependent on the user. Some users will prefer the closed Apple system while others prefer the more open Android ecosystem. I vastly prefer the Android ecosystem and view it superior in a number of ways. However, I can see how others prefer Apple's and view it as superior. Guess what -- they are both right. I will also note Android global share, which many think peaked between 48-52%, is still gaining share and in the most recent quarter was close to 65%. To me this is not just indicative of the value proposition of various Android handsets, it's also indicative of the quality/flexibility and use cases of the Android ecosystem.
So let's look exactly at the "innovations" in the iPhone 5. I'll note that Tim Cook stated, "This is unlike anything we or anyone else in our industry has made before." That's at a minimum an "interesting" statement and possibly close to completely inaccurate considering the advancements already seen in innovative Android OS and hardware designs.
A quick take at these "new" features: 4G LTE, 4-inch display, 8 megapixel 1080p HD camera, HD front-facing camera, A6 processor, etc..... OK, yes, I'm deep into the research for this pace and I think even the average smartphone consumer has seen all these things before.
New 4-Inch Display: Nothing new here. In fact, I'm trying to think back to how "old" 4-inch plus display's are at this point. I know my Samsung Galaxy S (PINK:SSNLF) has a 4-inch (or greater) display in June of 2010 and this may have not been the first. I still own one of these and it's now rolling with Android Jelly Bean. And folks, that's two full years ago... so strike one against "new" here.
4G/LTE: Again, the Android foodchain has been pumping out true 4G (LTE) since early 2011 as both HTC (TPE:2498) and Samsung were producing 4G/LTE Android Phones. Again, I'll note the Galaxy S mentioned above had 4G and was out in June, and I remember that phone not being the first one with 4G.
A6 Processor: OK, it's new, but Quad core isn't. I don't even want to say a lot here as I've expressed how ultimately dangerous it is for Apple to cut out the semi makers on this key processor socket.
8 Megapixel 1080 HD camera: We have a developing theme.... Not new to Android as I've seen this in a variety of Android designs for some time. The Motorola Atrix 4G (NYSE:MMI) -- and Moto XOOM -- had this nearly 18 months ago. As for panorama? Sorry that's not new either. This was out in Android in 2010. By the way, I wonder if anyone is patenting these "firsts." I know that Motorola has that vaunted patent portfolio. My suspicion is we have not seen the last of the patent wars. And Moto's portfolio has yet to be brought to bare.
Siri: While Siri isn't a "new release" in this version I feel I should mention it as Android Voice actions have been around longer and frankly work a lot better than Siri.
Micro SD: Oh wait, that's not yet available on the iPhone.
NFC: Well I've still yet to fully determine if the new iPhone will not be NFC capable. The more I look at that BRCM chip in the phone the more I think it might be the new combo chip and give the iPhone NFC potential. However, this is another area where Android has a huge lead.
Maps: Apple does have new mapping here and frankly I'll be shocked if it's a needle mover. In my view, it's just a matter of time before the "Google Maps App" is released for iOS6 and it will be one of, if not the most used App in the platform. Here again, does Google have any "patent priority" here? I know that Microsoft (NASDAQ:MSFT) has recently purchased patents from AOL (NYSE:AOL) (for a cool billion) and some think this was to avoid patent issues with Google Maps in relation to Bing Mapping.
Cloudsync/iCloud tabs: Again, a new feature? Android browser (now Chrome) and Firefox have had tab sync for years. Pretty sure Opera has had this as well, but I'm not an Opera devotee.
I'm sure I could add a good number of additional features but the point is well made.
Now does this mean that Apple stock is doomed? Not in the least. To me it means that Apple can actually sell a less innovative, extremely high margin device to a mass of people and make 55-60% gross margins on it. In TechStrat, I have already stated that I expect iOS to gain share for a couple of quarters as iPhones sell very well, and then the Android share will start to surge again.
Given this, Apple will have a mammoth Q4. I think Q1 will also be very strong but we will need to see the iPad Mini for it to be another "monster." Then past Q1, I expect to see some deterioration in the phone segment.
For me, all this means that many of my prior views are being confirmed.
1. Android share is still on a path to the moon.
2. I'm finally being rewarded for swapping Google into my largest position slot.
3. I think this move of Google outperformance is just getting started.
4. I've been prudent in taking Apple out of my top-5 positions. Though I admit I did so too early.
5. And I've recently said that I think Motorola becomes the No. 2 Android seller. While very early here, I think this will be confirmed as well.
6. Lastly, if correct on the "Moto to No. 2 call", that is a huge catalyst that isn't anywhere in the Google numbers currently.
Sean Udall is the author of the TechStrat Report, a tech focused newsletter. The following is a free sample. Take a free trial!
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