Can Apple survive?
Maybe that is a stupid question. After all it is the most valuable company in the world. It’s first quarter earnings exceeded $10 billion and that is more than the annual earnings of all but fifteen companies in the S&P500.
Berkshire has established a position so that must say something. No doubt it does, they are not fools, but the question of survival still exists. History does not guarantee the future and the part of their history that provided Apple’s present seems more fragile than it once was.
Things to worry about:
- Apple won with pricing power over innovative products. The iPhone, iPad and iPod are now mature technologies. Now they are shedding market share to Android driven devices. The music stream is no longer unique or even the best. The iWatch is fascinating technology but derivative. Itelevision, iCar, become I wonder.
- The computers are spectacular, but for most people they are too capable. As computers become another commodity people will go for the lowest price one that suits their needs. Fashion tools can only go so far.
- Apple devices are essentially luxury goods. Like Coach or Gucci. They are beautiful, elegant and desirable. Eventually people move to utility and theirs is not vastly superior.
- They have a horde of cash. For you and I that might not be a problem, but for a business that relies on growth, it is. Cash earns next to nothing. As the result P/E for the stock is low. Income is high but return on assets is not. Low P/E and cash usually make a company a takeover target. Apple is aiming at buying back huge swathes of stock. That will fix the P/E some, but not address the underlying fabric of the business.
- They have tax problems to access their cash. The American corporate tax system is terminally ill and Apple may not be able to wait long enough to have it treated.
- Tim Cook is a brilliant manager. He can wring the last dollar out of any process. That would have been wonderful when products had a shelf life of 10 years instead of 10 months. How long can Apple maintain volume to support the fixed overhead?
I have owned iPhones and Ipads. The iPhone is long gone and the iPads will be. I have come to hate iTunes. My wife is not yet willing to change from the familiar iOS to Android. Someday she will. It is the old rule of life. No change happens until the pain of change is less than the change of not changing.
For Apple that day is closer than it once was.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org