—I started this post weeks ago, but work won’t let me finish. I’m just going to edit it without removing the prior writing. Why? Because I can but also because I want to show how quickly things can change in a few weeks.—
I haven’t bought Apple stock since God knows when, so I largely ignore it these days when I’m looking into companies. However, in the light of some interactions with my timeline and the company’s recent earnings announcement, I figured I’d let out some thoughts. The gist of it is that Apple might still be the most valuable stock on the market (well now it’s not. Alphabet, the Google parent company is even though Apple announced more profit in one quarter than anyone thought was humanly possible), but these days, Apple just ain’t what it used to be.
I remember tweeting, after Steve Jobs died, that Apple was done (if I wasn’t so busy, I’d link to those tweets but my twitter name is eldivyn, if you search some you’ll see them). Naturally, I didn’t mean the company wouldn’t go ahead and keep making money, it obviously did that at record levels in the intervening years and will probably do that for many more years. What I meant was that the creative gene in Apple was gone. Not the design gene, Jony Ive is still there, front and center. Not the operations gene, Tim Cook is obviously a stellar manager and executor and he’s mined the company’s assets for what they’re worth, and rewarded shareholders handsomely in the form of dividends and stock buybacks. All well and good.
However, we ex-Apple fanboys and long time investors know what the magic was at Apple that inspired such fanaticism as the company used to command, and the source of it’s vaunted climb to the top of the corporate hierarchy. It was the company’s own fanatic commitment to the future of computing, human-computer interface and the search for the Next Big Thing. The company was absolutely dogged about making computing a perfect, seamless, powerfully pleasing human experience.
Going back to the days of the Apple I, II, the Lisa, the Macintosh with it’s mouse and graphical user interface, the introduction of the iMac, the Macbook series, the iPod, iPhone and eventually iPad. The goal has always been to put soul, and beauty, and art into computing. To compute with intuitive gestures, natural feel, radically simple aesthetic and ease of use that even a little child would ‘get’. Apple didn’t really make its own technology, it showed others what their technology was capable of, put into human hands. The launch of Siri was the natural next frontier of Alan Turing’s work, Artificial Intelligence.
And then Steve died. And Apple’s innovation died with it.
Now, you can’t teach innovation because innovation is borne out of vision. You have to have a place in mind you want to go and have the will to overcome any obstacles in order to find creative ways of getting there. What Apple considers innovative right now seems to be Apple Pay, Apple Music (which I love btw), the Apple Watch and a flatter, bigger iPhone. In the meantime, the Mac is becoming pointless, the iPad is losing share to Microsoft Surface, the iPhone is representing a growing share of Apple’s entire business (now at 65%+ up from 54% a few years ago) which increases the company’s vulnerability when that business hits a wall (which it seems to be approaching) (edit: it is actually hitting as the company announced the first decline in iPhone sales ever) and the company is running out of options on what’s next.
There are rumors of an Apple Car, as well as people calling for Apple to buy Tesla. I think both calls would be a disaster. Aside the damage the car business with its dependence on metals prices and inventory issues would do to Apple’s margins and costs, it’s just a bad idea period.
Apple has always been in the business of delivering the next era of personal computing. Having brought us this far, the next stage should be Internet of things (which Google made ovr $4bn on with Nest), virtual reality and Artificial Intelligence. Siri was not supposed to simply be an iPhone add-on. Look at what Amazon is doing with Echo (Amazon has proceeded to steal the show at Consumer Electronics show, and is signing partnerships with home appliance companies, content marketers and what have you to have Echo be the command interface for everyone and their mom). Or what Google is doing around the Google Glass, Cardboard or so. What Microsoft is doing with HoloLens. Or most importantly for me, what the company Magic Leap is doing (which Google already invested in) (they recently released evidence of their unique augmented reality technology and raised over $700m at a $4.5bn valuation, and are exploring content partnerships with everyone including Alibaba. It’s only anyone’s guess what Apple could’ve done with that and Siri).
With it’s presence in the home with Apple TV, and its personal assistant, Apple should have taken the leap into IoT and home AI, securely managed through your iCloud to deliver a full virtual assistant that represents the next step of their “hub” strategy. Look at the beauty that is Magic Leap, seriously, check them out and tell me if that’s not the future. And while this isn’t my favorite development, driver-less technology and automation is still a promising frontier although it has less to do with direct human computing than any of the preceding two. It’s simply the biggest AI market there is.
Instead of delivering radical innovations in these areas, Apple is offering us iPhone 7. Their biggest concern now is to buy back shares and find any business that can open another $5bn in revenue. Instead of any business that will open the next frontier. Think about that. The company built by the man who gave us “Hello World”, the Macintosh, the iPhone, Pixar and Toy Story, the company whose entire blueprint was creativity and the power of beauty in technology is now worrying about something as banal as the bottom line.
If that’s not a failure, I don’t know what is.
I’ll leave you with this quote from Google’s earnings announcement. “Incremental improvements in existing technology is the path to obsolence because true change is not incremental. It’s a paradigm shift.”
Apple may be pursuing all sorts of radical ideas, but we don’t see that. Google on the other hand not only has over 6 properties with over a billion users, they’re also at the forefront of the next frontier, and they’re even putting research into absolute moonshots like life extension, genetic research, deep mind etc.
Is it a surprise then that they’ve overtaken Apple as the world’s most valuable company?
Apple Rating: Still a long term buy (because they have more cash than they’re being valued for but unless they switch things up, they’re going to end up like the IBMs and GEs of this world.
Google Rating: Buy on a dip because the current multiple is too high for their expected earnings and growth, but they have a good road ahead.
Back to work for me.