Apple may benefit from slowing economy

Posted:
in General Discussion edited January 2014
While global economic woes certainly aren't good news for retailers this holiday season, a report by Reuters suggests a silver lining for Apple: its key competitors may be hit even harder.



The looming recession doesn't look good for anyone in retail this holiday season, but Apple's past performance with the iPod, expanding new Mac growth, and its blockbuster sales of iPhones mean that the company has both feet firmly anchored to weather the storm. That isn't the case with many of the company's rivals.



A Hollywood Reporter article syndicated by Reuters points out that Blu-ray, having finally defeated HD-DVD to become the exclusive successor to the DVD, is now facing a lull in consumer excitement just when it needed a bright holiday season to seal the deal.



The article cited Lori MacPherson, GM of domestic home-entertainment at Disney, as saying, "The economy is the biggest challenge, because there are just so many pieces to the Blu-ray puzzle that consumers face. You need the high-definition television set, you need the player, you need the cables, you need the software."



Apple's alternative to Blu-ray discs, in the form of iPod-friendly iTunes video downloads, can't really compete with the quality Blu-ray offers, particularly for users with HDTV sets larger than 50" where the increased resolution becomes most apparent.



At the same time however, the economy is dragging down consumer spending on the priciest gear, making less expensive movie downloads that don't require a hardware investment more appealing.



Another fortunate bit of timing relates to the fact that the iPhone has already gained a strong critical mass to become the top selling phone in the US this summer. Apple also managed to roll out its software store and build up a strong series of development partners before the bottom fell out of the market.



Google's Android is just now hitting the market as consumers are less likely to spend their money. Its software store is also brand new and not nearly as active, thanks to the very small installed base of Android phones. Similar efforts to open software stores by Sprint, Microsoft, and others are also going to hit the ground during the global slump.



On the Mac front, Apple also managed to complete its Intel transition and establish the Mac platform as safe for switchers who may still need to run Windows apps, all with enough time to establish sales before the economic slowdown had the chance to pinch that window of opportunity closed.



All of these factors helped contribute to Apple's burgeoning coffers of cash, a critical strength required to continue investments in technology research and avoid employee layoffs during times of tightening credit. Many less fortunately positioned companies will either be driven out of business or have to find a stronger partner that can acquire them and fund their ongoing operational expenses.

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Comments

  • Reply 1 of 46
    cameronjcameronj Posts: 2,357member
    No link to the actual report?
  • Reply 2 of 46
    backtomacbacktomac Posts: 4,579member
    I don't think that an increase in downloaded movie sales will power Apple through this recession.



    Don't forget that Apple have a tremendous number of retail stores in expensive locations. It'll be interesting to see if the high overhead of operating these stores negatively impacts Apple in the recession. I suspect it will. This is an expense that HP, Dell and other pc makers don't have. While I do think that Apple retail stores are a net benefit to Apple I think they will be a double edge sword for Apple. Big benefit during good times and a negative during downturns.



    Throw in the expensive product lines and I suspect the next year will be as difficult for Apple as it will be for everyone else.
  • Reply 3 of 46
    kasperkasper Posts: 941member, administrator
    Quote:
    Originally Posted by cameronj View Post


    No link to the actual report?



    There's a LARGE link to the report in the article...



    K
  • Reply 4 of 46
    Quote:
    Originally Posted by Kasper View Post


    There's a LARGE link to the report in the article...



    K



    http://tinyurl.com/ is your friend
  • Reply 5 of 46
    I posted this comment yesterday in the discussion line about Parallels, but it's best for this discussion:



    Everywhere I go lately (in Seattle), I see people with the new macbook/pro - not only that, but my aunt (who is about to get her job axed because of a buyout by a Canadian company) just asked me which Apple she should buy for her 16 year old daughter for Christmas. I have never tried to sell her on Apple - not once. Of course I advised the Aluminum MB entry model and it sounds like they're going to get it.



    P
  • Reply 6 of 46
    dogcowdogcow Posts: 713member
    Remember the iPod was introduced in October 2001... not exactly the best climate of economic stability and consumer confidence. SJ said then and it still holds true now, Apple innovates it's way out of tough times.
  • Reply 7 of 46
    My wife was in the Apple store yesterday (Damn iBook G4 power supply-- you have to replace it within 3 years). I've trained her well; she always notes how long she is in the store, how crowded it is, and how many people are buying computers, iPods, and iPhones. Three Macbooks in 10 minutes over lunch.



    Apple's profits won't be amazing this quarter, but they should be pretty solid.



    Comparing AAPL, RIMM, and MOT's balance sheets, RIMM has had 20% growth in their cash position, MOT a 10% erosion, and AAPL a 75% growth. HP



    Unfortunately, HTC looks like it is an even better position (although disclosure for Taiwanese companies is significantly different than US listings). Its biggest risk might be in the fact that 70-80% of its sales is Europe and Americas.



    Right now, you see a number of entry-level consumers buy anything as a smartphone. Dissatisfied, many of them want to upgrade to an iPhone or Blackberry when they understand the difference.
  • Reply 8 of 46
    Quote:
    Originally Posted by backtomac View Post


    ... Don't forget that Apple have a tremendous number of retail stores in expensive locations. It'll be interesting to see if the high overhead of operating these stores negatively impacts Apple in the recession. I suspect it will. ...



    Apple also does sickeningly well at retail however, so your assumption about costs is not warranted.



    Apparently (I don't have the figures handy), Apple sells more product per square foot of store than almost any other retailer, and this is a key marker of retail success or profit/loss. The overhead (even though it must be high relative to other lower service operations), is nothing compared to the wheelbarrows full of cash they are carrying out the back each night.



    If any Apple stores close, it would have to be a very deep recession and the store would have to be a new one in a new location that didn't respond as well as might be hoped.
  • Reply 9 of 46
    elrothelroth Posts: 1,201member
    Quote:
    Originally Posted by Kasper View Post


    There's a LARGE link to the report in the article...



    K



    I think the confusion is that the AI article is only speculation by Prince McLean. The "reports" linked to are only about the Blu-ray situation and iPhone sales. The conclusions of what this means for Apple all come from McLean.
  • Reply 10 of 46
    richlrichl Posts: 2,213member
    My local Apple store on Regents Street, London is always too packed to be worth going into. If this recession hits Apple, I might actually be able to buy something without queuing up for half an hour.
  • Reply 11 of 46
    robb01robb01 Posts: 148member
    Quote:
    Originally Posted by Dogcow View Post


    Remember the iPod was introduced in October 2001... not exactly the best climate of economic stability and consumer confidence. SJ said then and it still holds true now, Apple innovates it's way out of tough times.



    They are one company that others should look to in tough times, they seem to weather the economic climate very well



    ___________

  • Reply 12 of 46
    VALUE



    For all of the talk of style, versatility, great UI design, etc. Apple products are very well built and have proven an excellent investment for me.



    I got an iBook just days before 9/11/01 and it is still going strong. Sure, it is not "teh snappy" but it sure performs solidly on many everyday tasks. I had to replace the battery because I accidentally let the original one overheat.



    I have a dual 2 GHz G5 that I bought in October 2003 (The Night of the Panther) and it is still doing great. After about five years, the original video card went out, so I replaced it with a cheap Radeon (and lost some of the cool Quartz Extreme features ;( ). Other than that, it has worked like a champ and I've been able to do great video work with it.



    And the iPhone can save you time, money and frustration. I was with some friends in a strange part of town and we needed to find a pet store (I'll tell you the whole story if you want to know it). Using the iPhone I found one nearby, we were able to call and see if they had what we needed, and got the directions from the iPhone (we would never have found it otherwise). My friend got what she needed at a super-cheap price and very quickly. No wild goose chases!



    My problem is convincing my wife (and myself to some extent) that I need to upgrade to a new Mac. In the day of rapid technological obsolescence, wouldn't you like to have my problem?
  • Reply 13 of 46
    mactelmactel Posts: 1,275member
    One thing people might miss is that watching movies on the laptop and a device like the iPhone is acceptable. My non-techie wife does it all the time. While the kids watch TV on the big screen she watches a movie and TV shows downloaded to the laptop.



    I can see consumers forgoing the TV in the bedroom and instead using iPhones and the like to watch television and movies also. So I certainly believe TV sales will be slow this season. Downloads will only get become more popular and get better quality believing that I will not be buying a blu-ray device ever. I'll stick with Netflix and the iTunes store and any free content from the networks.
  • Reply 14 of 46
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by elroth View Post


    I think the confusion is that the AI article is only speculation by Prince McLean. The "reports" linked to are only about the Blu-ray situation and iPhone sales. The conclusions of what this means for Apple all come from McLean.



    Yeah, I saw the link about Blu Ray but I didn't click because I didn't think that was the main thrust of the Reuters article, based on the headline of the AI article.
  • Reply 15 of 46
    Quote:
    Originally Posted by Virgil-TB2 View Post


    Apple also does sickeningly well at retail however, so your assumption about costs is not warranted.



    Apparently (I don't have the figures handy), Apple sells more product per square foot of store than almost any other retailer, and this is a key marker of retail success or profit/loss. The overhead (even though it must be high relative to other lower service operations), is nothing compared to the wheelbarrows full of cash they are carrying out the back each night.



    If any Apple stores close, it would have to be a very deep recession and the store would have to be a new one in a new location that didn't respond as well as might be hoped.



    Apple has done very well in their retail stores. That point is indisputable.



    But I'm looking forward and not backward. The Apple retail stores have a high overhead associated with them, IMO.



    If it is a short recession then it won't make an impact. If it is a long and deep recession, which is what I believe (did you see the Best Buy outlook for the holiday sales season?), then I think that the high overhead of the Apple retail stores will negatively impact Apple earnings.



    Now I'm not saying that Apple is going out of business or that the sky is falling. But they are not immune from the macro economic events that are occurring. I think earnings will decrease and the stock price will adjust accordingly.
  • Reply 16 of 46
    Quote:
    Originally Posted by AppleInsider View Post




    A Hollywood Reporter article syndicated by Reuters points out that Blu-ray, having finally defeated HD-DVD to become the exclusive successor to the DVD, is now facing a lull in consumer excitement just when it needed a bright holiday season to seal the deal.



    The article cited Lori MacPherson, GM of domestic home-entertainment at Disney, as saying, "The economy is the biggest challenge, because there are just so many pieces to the Blu-ray puzzle that consumers face. You need the high-definition television set, you need the player, you need the cables, you need the software."



    Apple's alternative to Blu-ray discs, in the form of iPod-friendly iTunes video downloads, can't really compete with the quality Blu-ray offers, particularly for users with HDTV sets larger than 50" where the increased resolution becomes most apparent.





    From the reading I have done on this site and going to the Blu-ray licensing site and Steve Jobs saying that Blue-ray is a "bag of hurt", it's the Blu-ray association itself that seems to be the greatest roadblock to it becoming more widely distributed. The fees they charge are enormous -- thousands of dollars just to get a license to distribute. The major Film Studios can absorb it better compared to the little guy because the fee drops when you are making a great deal of disks. That's only one side. The other is the fees for the equipment and compatibility issues among manufactures to be able to play anyones disk on any player as you can now with DVD within regional limits.



    If only Steve Jobs is his role with Disney and being a Blu-ray association member, maybe he can help resolve all of this. I for one would buy a MBP with a BR drive if the cost is reasonable. As of now, drives can cost mucho dollars where the license fee for it really drives up the price. So if more pressure were put on to lower these fees, I am hoping that will really help clear the way for it to be more generally adopted as DVD is now. I can only guess that there is greed in there (my opinion-haven't read this directly) to get as much as they can while they can.



    The bottom line for me is just to be patient. I love the HD quality. You can see it in the Movie Preview section at Apple. Those just look so great with my 23" Mac display. I haven't found one DVD yet that can equal that detail and sharpness in those HD previews and I rent many films. I want the extras on the DVD and downloading just to see the film is not for me. They can't get that HD quality with downloads and they don't have those extras. Yea, when everyone fiber optics is available, then the download speeds can handle HD. That will many years away even in the major cities. I am rambling now. So that is my dime for getting it out there.
  • Reply 17 of 46
    adjeiadjei Posts: 738member
    Quote:
    Originally Posted by backtomac View Post


    I don't think that an increase in downloaded movie sales will power Apple through this recession.



    Don't forget that Apple have a tremendous number of retail stores in expensive locations. It'll be interesting to see if the high overhead of operating these stores negatively impacts Apple in the recession. I suspect it will. This is an expense that HP, Dell and other pc makers don't have. While I do think that Apple retail stores are a net benefit to Apple I think they will be a double edge sword for Apple. Big benefit during good times and a negative during downturns.



    Throw in the expensive product lines and I suspect the next year will be as difficult for Apple as it will be for everyone else.



    We've been hearing about this recession for a year now, Apple is supposed to have been affected for a whole year now but their sales keeps on growing, when will they start to get affected?
  • Reply 18 of 46
    Quote:
    Originally Posted by Adjei View Post


    We've been hearing about this recession for a year now, Apple is supposed to have been affected for a whole year now but their sales keeps on growing, when will they start to get affected?



    Were you climbing Mt. Everest last month?
  • Reply 19 of 46
    adjeiadjei Posts: 738member
    Quote:
    Originally Posted by backtomac View Post


    Apple has done very well in their retail stores. That point is indisputable.



    But I'm looking forward and not backward. The Apple retail stores have a high overhead associated with them, IMO.



    If it is a short recession then it won't make an impact. If it is a long and deep recession, which is what I believe (did you see the Best Buy outlook for the holiday sales season?), then I think that the high overhead of the Apple retail stores will negatively impact Apple earnings.



    Now I'm not saying that Apple is going out of business or that the sky is falling. But they are not immune from the macro economic events that are occurring. I think earnings will decrease and the stock price will adjust accordingly.



    But Apple is not Best Buy.
  • Reply 20 of 46
    Quote:
    Originally Posted by Adjei View Post


    But Apple is not Best Buy.



    Agreed. But they are the largest retailer in the USA for electronics.



    You think their opinion of holiday electronic sales is irrelevant?
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