I Love Apple: So Let's Talk About What Could Really Go Wrong
Apple could eventually face disaster. But how accurate is your crystal ball?
Yesterday, I briefly outlined what's going right with Apple in the here and now:
(See Apple's Butterfly Effect: The iPad's Gorgeous Retina Display Is Propping Up the Stock Market.)
1. It is completely and utterly dominant in the tablet market.
2. It has crushed the entire smartphone industry, with the exception of Samsung.
3. It is steadily taking market share in what's left of the PC market.
4. it has enough cash to, well, do just about anything.
5. It has a slate of competitors lacking the ability and/or will to produce interesting products.
6. it has captured the general public's imagination like no gadget company in recent history.
7. It is the best reatailer on Earth.
On Minyanville, we strive to help people see both sides of every situation.
There's certaintly no shortage of Apple naysayers out there; some rational, and others, not so much (see Correcting An Apple Bear, One More Time).
So it's time for me, a vocal Apple bull, to step up and play Negative Nancy.
Let's discuss six things that could go wrong -- even though it is new iPad day around the world!.
I'll leave it to you to decide the likelihood of each. But stay tuned -- I will be presenting you with a very, very important question down the page.
1. Tim Cook Flops
Steve Jobs was by far the greatest CEO in modern history, based upon Apple's creation and/or disruption of multiple industries under his watch. Tim Cook is certainly capable from an operational standpoint, but it's obvious that he isn't the charismatic master salesman Jobs was.
I may be in the minority here, but I don't see much evidence that Jobs was particularly creative. He was, however, a brilliant curator with impeccable taste and an uncanny ability to bring the best out of his product design and engineering teams. There is not yet any indication that Cook measures up in these areas -- and the confusion over the new iPad's name (is it just iPad or is it the new iPad?) doesn't seem like something Jobs would allow.
2. The Smartphone Market Reaches Maturity
Apple received 53% of its revenues from its fast-growing iPhone business last quarter. However, as the smartphone market reaches maturity, Apple's revenue growth could slow simply due to a leveling off in the rate of expansion of the addressable market.
According to Strategy Analytics, smartphone industry unit growth was an impressive 64% in 2011 -- but that was indeed a slowdown from 2011, which saw 71% growth. That ain't a good thing!
3. The Television Just Doesn't Happen
Wall Street is getting hot and heavy for an Apple television, meaning that long-term growth expectations for the company are starting to incorporate a product that doesn't actually exist yet (see Apple iTV Really, Really Happening This Time, Says Analyst).
Now, it seems likely to me. The boring nature of existing televisions, the huge size of the market, and Apple's expertise in displays make it seem like a highly profitable no-brainer, especially since Jobs famously proclaimed "I finally cracked it" in reference to a television.
But there is a distinct possibility that this product just doesn't exist or won't exist any time soon.
4. The Competition Squeezes Apple on Price
So far, cut-priced competition doesn't appear to have hurt Apple much in smartphones or tablets. However, it is possible that as these businesses expand beyond tech-friendly enthusiasts into the inner depths of the mass market, Apple will increasingly find it hard to get people to pay premium prices.
5. Samsung Says, "No Chips for You!"
Samsung (SSNLF.PK) is not only Apple's only real competitor in smartphones, it is also a major supplier of key components for the iPad and iPhone. For example, Samsung makes the high-resolution Retina display and the A5X processor included in the new iPad.What if Samsung decided one day to drop Apple as a customer? Apple would likely be able to engineer workarounds with alternative suppliers, but it would no doubt suffer a significant disruption to its byzantine global supply chain.
6. It Could Get Hit by Litigation
The web of litigation in the mobile-device industry has ensnared Apple at multiple turns, as it is currently locking horns with the likes of Samsung, Motorola (MMI), Google (GOOG), HTC, Kodak (EKDKQ.PK), and even some dude that claims Siri doesn't work as well as claimed. (He's right...)
Given the sheer numbers of lawsuits flying around, it is possible that at some point, Apple loses big time and is either forced to pay a huge settlement or royalties or both to a competitor, or is forced to pull an important product off the market.
These are just six of many possible things that can go wrong for Apple.
However, even if you are 100% certain of Apple taking a major hit, there's still one question you have to ask yourself if you're going to bet against this company, which is...
No empire rules indefinitely, in business or otherwise.
But in investing, if you can't pinpoint the when, you haven't got a case -- regardless of whether you're a bull or a bear.
Think Apple's earnings will fall apart?
OK. We've all got the right to our opinions. But why should I bet on that right here, right now?
If you can't answer that question with something other than "well, it can't get any better than this...", then maybe it's time for you to consider the other side of the trade.
At Minyanville, we often discuss the importance of not only understanding the "what," but the "why."
But I tell ya, the older I get, the more I think that the "when" trumps everything else.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter