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China offers Apple vast new growth potential

post #1 of 21
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Morgan Stanley analyst Katy Huberty described China as an "unappreciated" potential growth driver for Apple, setting a $375 "base case" target for the company's stock and a "bull case" scenario where Apple shares could reach $500 by next fall.

The report summarized Morgan Stanley's "increasing confidence in our bull case" by noting that "despite steady upturn since February 2009, we continue to believe investors underappreciate the AAPL growth story, which is driven by one, iPhone market share gains and expanded distribution; two, the iPad market opportunity; three, rising enterprise adoption, and four, the Chinese consumer."

Apple's "aspirational brand" in China

In the report coauthored with Mathew Schneider, Huberty stated, "we see 27% incremental revenue and 44% operating income potential in 2012," based on a variety factors including "China strategist Jerry Lou's view that China is undergoing a 'megatransition' from being the leading producer of goods to the leading consumer of them."

Morgan Stanley also cited "evidence of strong uptake of Apple products among higher-income China consumers from our November 2009 AlphaWise survey," along with recent success demonstrated by BMW, "which we see as a template for Apple's growth. If our numbers are right, Apple then would have to grow revenue by just 19% and operating income by 11% in the rest of the world - a marked deceleration from LTM 43%/37% ex-Asia growth - to hit the current consensus two-year EPS growth forecast of 21% (and our 22%)."

The report also noted that China's "baby boomers" are increasing consumption. "Jerry Lou believes this segment, which will be over half the Chinese population in 2015, will continue to trade up to higher-priced 'aspirational brands.' We expect AAPL to be a key beneficiary of this trend."

The report notes that Apple's brand is "already preferred by urban Chinese: Our Nov '09 survey of Chinese handset users in tier 1 / 2 cities suggests Apple already has greater mindshare among higher-income China consumers than in the US. This population is 3x as likely to own a Mac, 1.7x as likely to own an iPod, and 1.8x as likely to own a Smartphone."

The report added that "Apple held 5% market share of handsets [in China] at the time of the survey, but 31% of surveyed consumers said theyd consider Apple for their next handset purchase, higher than any other brand."

Apple targeting China with large retail expansion

Huberty also wrote that Apple was "on a trajectory similar to BMW China," describing both as 'aspirational brands," that are expanding distribution in China. "Despite the lack of financing and overall lower average income, China will account for 11% of BMW revenue and 17% of OpInc this year, according to our European auto analyst Stuart Pearson, due to a 4x increase in dealers over the past five years. Apple is making similar investments in distribution and is on track to hit similar contribution rates by FY12, in our view."

Apple has significant retail expansion plans in China, with publicly announced intentions to add 21 new stores in China by the end of 2012. The company currently has four; two stores in both Beijing and Shanghai. Apple is reportedly working to open a third store in both cities as well as a new store in Hong Kong.

The company said it intends to open 40 to 50 new retail stores in 2011, making its plans in China roughly 25% of the company's global retail expansion. About half of Apple's new retail stores are expected to open in the US.
post #2 of 21
any of the stock market savvy guys here want to chime in as to if this is a valid statement?

$500, that sounds like a whole lot.
post #3 of 21
I've been going to China on business trips since '93 and still go there every 2~3 months. I also visit Korea regularly and the iPhone mania amongst the affluent and the growing upper middle class is only just getting started. And Far East Asians are even more brand conscious than the people in the West. They want American or European brands like Apple, BMW, Mercedes, Audi, Tiffany, Giorgio Armani, Chanel, Louis Vuitton, Rolex, etc. They absolutely lust after this stuff.

On my most recent trip to Hong Kong and China in Sep, I saw iPhones and iPads everywhere. And these were probably ones bought in the US or elsewhere since the official distribution of these products in China is only now getting started. Most of the iPhones I see in China are still the 3G and the 3GS variety that traveling business people bought from overseas, but you visit any factory and you'll see a lot of executives and upper level managers with one. While I was waiting in an airport in Xiamen to fly to Beijing, I saw at least a dozen iPads.

Of course, we're probably only talking about 5% of the population at this point in time, but that's still 70 million people. And the affluent consumers of that upper tier don't want Asian brands - especially Chinese, Taiwanese or Korean brands (they are more partial to Japanese brands) - so Samsung, LG, and HTC aren't very "aspirational" or desirable over there. Apple is also becoming huge in Korea with the iPhone despite Samsung's all-out effort to defend their home turf with their silly "be-patriotic-and-buy-Korean" marketing campaign. Apple has already sold well over a million iPhones since its introduction to the Korean market about a year ago and the iPhone 4 is only starting to ship there in very limited quantities with a huge backlog. I have relatives and friends in Korea who are just itching to get their hands on the iPhone and the iPad.

You can be assured the same will happen in other emerging markets such as India (nearly 1.2 billion in population and soon to overtake China) and Indonesia (nearly 300 million people). The upper class will want Apple, not Samsung, not LG, not Sony/Ericsson, not Motorola and not Nokia, even though Nokia is huge in Asia as a feature phone. As a Korean-American who grew up in Korea and has traveled extensively throughout Asia (especially China), I can tell you that they love what are perceived to be high-end American/European brands. I have to admit it's rather silly, but hey, that's just the reality over there and that only points to an even brighter future for Apple. Asia is going to be a major market for Apple over the next decade and it'll be the ones with the money (and the number of these people is growing exponentially) buying up iPhones and iPads.
post #4 of 21
Quote:
Originally Posted by myapplelove View Post

$500, that sounds like a whole lot.

Sure, it's a lot, but AAPL is trading at a reasonable premium to its earnings. Compare it to AMZN or Netflix and the present $300 seems cheap. Apple's growth potential in the US remains huge, and China's market represents several times the growth potential of the US market. Then there's India (see above post).

I have no use for analysts, but Morgan Stanley's report doesn't seem to contain much to disagree with.

Consider all you know about the the company, its products, their market, their future plans (that we know about), the US dollar and what's likely to happen with it, and the overall economic and business climate. Then, consider Apple's future plans that we don't know about. Consider one in every five computers sold today is a Mac. Look around and see that even people who don't appear particularly wealthy all seem to have an iPhone. Finally, ask yourself what's most likely a year from now: AAPL $200, $300, $400...?

Then, decide for yourself.
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post #5 of 21
I don't know much about China (other than it is a huge market along with India) but I know that Apple is not an expensive stock at its current price of $300. The P/E ratio, which is what a lot of people use to determine if a stock is expensive, is only at 21. This isn't bad. For example, this makes Apple a cheaper stock than Amazon which has a P/E of 65. Apple is also cheaper than Netflix with a P/E of 63 and a bit cheaper than Google at 24. The stock has had a recent run from 250 to 300. One reason why the stock hasn't gone higher is because Apple is the second biggest company next to Exxon/Mobil. A lot of people don't think that a company that big can have much growth left. I don't think that is true with Apple. We are just at the beginning of a very successful product cycle for the iPad. The iPad was recently touted as the best selling electronic gadget ever. They opened a new category. The iPhone continues to sell really well. These will both help sell more Macs. The margins that Apple gets on their products are really high. Although these will decline slightly over time. Now, Google is a big threat but I think there is plenty of room for two players in this field. Whoever comes in second place will still be making a lot of money.

A year from now it would not be unrealistic to have Apple stock sitting at $375. It would also not be a big surprise if it is substantially higher than that. Apple did just have its first $20 billion quarter ever.
post #6 of 21
Forget the price forecast. That's the least important part.

The underlying analysis about the growth potential for 'aspirational brands' in China (and, I believe, followed a few years later by India) is spot on.

Investors ignoring these two countries do so at the risk of considerable future regret!

(Add: I agree wholeheartedly with alexkhan2000's analysis. Didn't read that before I posted.)
post #7 of 21
Quote:
Originally Posted by myapplelove View Post

any of the stock market savvy guys here want to chime in as to if this is a valid statement?

$500, that sounds like a whole lot.

I can't respond to whether $500 for AAPL is a whole lot, but I can say that it assumes a growth in earnings of 65% over the coming year, which is a whole lot -- but not impossible. Last quarter represented a 55% increase in EPS over the same quarter in the prior year. So what she is saying is, the most bullish case for AAPL is a moderate acceleration of EPS growth over the coming year, based mainly on market opportunities in China, with no change in investor sentiment (i.e., constant P/E).

These are not totally unreasonable assumptions, but if you read between the lines, you will also see an acknowledgment that the markets currently are not bought into the idea that Apple can continue growing at the current rate, let alone at an increasing rate. So even if Apple does achieve the best-case scenario growth rate of 65%, it doesn't mean that investors will bid up the stock price accordingly. They may well bid the P/E lower to reflect skepticism that such rates of growth can continue.
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post #8 of 21
Excellent post alexkhan2000.

Hasn't Apple guided that margins will be slimmer in the coming year? Will that tightening be enough to hold down EPS? Or will Apple be able to sell into lower margin markets with enough volume to make up the difference? Do advertising costs come into play at all? Or is Apple well known enough and "premium" enough that the products sell themselves?

I'm tempted to pick up a few more shares even at this high a price. And looming over it all is Steve J's health. I fear once we lose the founder, Apple shares will plummet until the new management can prove themselves. I hope Steve follows Bill Gates and gets out while he still has his health.

- Jasen.
post #9 of 21
This stock supposedly has a lot of potential what with Verizon iPhones and expansion into China, plus average analyst target price is about $370, but the shares are just sitting there like a lump of clay with almost no upward movement at all. I wonder what type of catalyst is needed to get Apple back to $320 which it had before earnings. I was sure surprised that a shortfall of iPads sent the stock down as it did. How many freaking iPads is Apple going to have to sell to satisfy investors? Apple is going to clean up at holiday season and I'll bet the rest of the computer industry will have lousy sales. It's going to be an iPad Christmas.

I still can't imagine Apple at $500. Not because they can't sell enough products, but because the stock is so flaky and there are so few individual buyers of this stock. The hedge funds have this stock so well-controlled it's hard to imagine they'll just let the stock run free to the stratosphere. If the stock reaches $350 by the end of the year, I'll be really shocked.
post #10 of 21
Quote:
Originally Posted by Constable Odo View Post

This stock supposedly has a lot of potential what with Verizon iPhones and expansion into China, plus average analyst target price is about $370, but the shares are just sitting there like a lump of clay with almost no upward movement at all. I wonder what type of catalyst is needed to get Apple back to $320 which it had before earnings. I was sure surprised that a shortfall of iPads sent the stock down as it did. How many freaking iPads is Apple going to have to sell to satisfy investors? Apple is going to clean up at holiday season and I'll bet the rest of the computer industry will have lousy sales. It's going to be an iPad Christmas.

I still can't imagine Apple at $500. Not because they can't sell enough products, but because the stock is so flaky and there are so few individual buyers of this stock. The hedge funds have this stock so well-controlled it's hard to imagine they'll just let the stock run free to the stratosphere. If the stock reaches $350 by the end of the year, I'll be really shocked.

AAPL is a volatile stock. Always has been. If you're an AAPL investor, you either get used to its erratic behavior, or you don't hold it. It isn't any more "controlled" than any other stock. The price is set by trading.

The iPad shortfall was significant because it was somewhat less than analysts had predicted -- not more, which would been celebrated. That the analysts forecasts were off the chart was not Apple's fault, but this sort of thing generally gets baked into the stock price. This fact alone can account for the run-up pre-earnings and the slight deflation afterwards. Apple also warned lower on margins for next quarter, which is never warmly greeted by investors.

Also, the markets have been marking time for the last couple of weeks awaiting the next move from the Federal Reserve. You can't expect AAPL to be immune to the overall market conditions.
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post #11 of 21
Quote:
Originally Posted by Dr Millmoss View Post

AAPL is a volatile stock. Always has been.

Volatility is good. It's better for traders than it is for investors, but markets are irrational and react in ways that cause completely unjustified price swings. It makes no difference in the long run but I like buying on irrational declines - it's kind of like buying something "on sale", and who doesn't like that?

The lower margins report was a case in point - it's old news. Apple's margins have traditionally been influenced by its high computer margins. With more of its revenue now focused on the mass-market iDevices with their lower margins, this was no surprise to informed investors.

Apple doesn't separate its margins by product, but even with their overall 36% margin forecast, they're still far and away more profitable than anyone else. Apple's (presumably) much higher margin computer market is still growing, so that will only help. Contrast that with other companies that are willing to sell their products at a loss so as to increase market share. Despite a lot of criticism, Apple has steadfastly refused to do that - it's never been required. This limited their potential market growth, but I think their strategy has been to build a reputation as a high-end company like BMW or Porsche. You don't want to diminish your brand.

Quote:
Also, the markets have been marking time for the last couple of weeks awaiting the next move from the Federal Reserve. You can't expect AAPL to be immune to the overall market conditions.

The Fed has been devaluing the dollar, and I expect this will continue. I'm not in favor of a weak dollar, but it can only help Apple's Asian markets.
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post #12 of 21
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Originally Posted by john galt View Post

Volatility is good. It's better for traders than it is for investors, but markets are irrational and react in ways that cause completely unjustified price swings. It makes no difference in the long run but I like buying on irrational declines - it's kind of like buying something "on sale", and who doesn't like that?

We've discussed this before, I think. Volatility is neither good nor bad -- it just is what it is. I try not to think of price swings as justified or unjustified, because as you imply, it presupposes some sort of logic being at work over the short term, when over the short run, emotion is the overriding factor. No matter how you see it, I think it's worth keeping in mind that AAPL was "priced for perfection" before the last earnings call. If perfection isn't delivered, then the markets will react emotionally, at least in the short term.
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post #13 of 21
Quote:
Originally Posted by Dr Millmoss View Post

We've discussed this before, I think. Volatility is neither good nor bad -- it just is what it is. I try not to think of price swings as justified or unjustified, because as you imply, it presupposes some sort of logic being at work over the short term, when over the short run, emotion is the overriding factor. No matter how you see it, I think it's worth keeping in mind that AAPL was "priced for perfection" before the last earnings call. If perfection isn't delivered, then the markets will react emotionally, at least in the short term.

Well, I don't consider a $20 price swing significant, but a trader may. I think it's amusing to read about justifications for daily price fluctuations. Usually there is no reason. However, I've noticed that each passing day without news (from Apple) its price tends to slowly decline. It climbs on news - which is usually favorable - and with the broad market. Those events are hard to predict.

I think the price run up to $318 wasn't justified, nor was the (aftermarket) decline to $300. However, a trader would take advantage of just that. For that matter, even smaller fluctuations than that may be significant to a trader.

I was looking to take advantage of an opportunity at $290 or $280; it didn't materialize. From an investor's perspective though, it really doesn't matter.
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post #14 of 21
Quote:
Originally Posted by john galt View Post

Well, I don't consider a $20 price swing significant, but a trader may. I think it's amusing to read about justifications for daily price fluctuations. Usually there is no reason. However, I've noticed that each passing day without news (from Apple) its price tends to slowly decline. It climbs on news - which is usually favorable - and with the broad market. Those events are hard to predict.

I think the price run up to $318 wasn't justified, nor was the (aftermarket) decline to $300. However, a trader would take advantage of just that. For that matter, even smaller fluctuations than that may be significant to a trader.

I was looking to take advantage of an opportunity at $290 or $280; it didn't materialize. From an investor's perspective though, it really doesn't matter.

To a trader, a few cents change can be significant. Most explanations for daily swings are post hoc, and mainly meaningless, I find. I've still yet to hear any financial journalist write or say that a stock made a move today for no known reason, as refreshingly candid as that might be.

The market, voting with its dollars, says the run to $318 wasn't justified, at least not yet. But as of today, we're back to within 3% of that all-time high. So what does that mean? Beats me.
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post #15 of 21
Sorry to interrupt the stock price discussion but I'd like to expound on the high "aspirational brand" factor in Asia. As I mentioned in an earlier post, Far East Asians are really into the glamorous Western brands and Apple exemplifies that image more than any other tech/CE company in the world. There really is no other company that is even close to matching Apple's buzz and pizazz in this area. Someone like Ballmer will say that Apple has "$500 logo", but the reality of the situation in the burgeoning Asian markets is that the brand matters a lot.

Why, you may ask. Why more so there than here in the States or over in Europe? Of course, we certainly have our share of people in the West who like to flaunt their riches but it's not such a mainstream thing as it is in the urban population centers of Korea, China and other nations in east Asia. The Japanese people, though, do not seem quite as desirous of Western luxury brands as the people in Korea and China tend to be. It's an interesting thing to observe from a cultural perspective. I know that this is a bit of generalization, but I think Japan's society has always cultivated a culture of frugality, modesty, and savings over spending, consumption and displays of wealth for many centuries and perhaps that's why the aspirational brands aren't quite as highly regarded there.

As for Korea and China, I think the societies there allow a little more individuality while being very hierarchical at the same time. And that hierarchical structure has a lot to do with the upper class wanting to display their social status through the products they own - the cars they drive, the clothes they wear, the handbags that women carry, and the phones they use. Also, the population density in these countries is much higher than the vast swaths of the US and even Europe. Whether it's the crowded subway trains or packed downtown streets, there'll be many more people looking at what you wear and the phone you carry. People who are affluent or have a little more income than the majority want to show that they are in that upper range of the social and financial hierarchy.

I suppose when one is just another face in a sea of millions in a very compact area, the desire to set oneself apart from the rest in a "respectable" manner becomes an overriding need. Countries like Korea and China are still very conformist societies. Setting yourself apart by sporting a mohawk or piercing your nose isn't really a good way to get noticed and earn the respect or envy over there. Having spent much time in both the East and the West, I've always wondered why Far East Asians seem more prone to irrational brand lust than their counterparts here in the West. I've come to the conclusion that the society itself simply encourages this kind of behavior. And now that Korea is an economic powerhouse and China is starting to taste what the good life is all about after decades (even centuries) of miserable poverty and putting in 70-hour workweeks, the flood gates have opened to unbridled consumerism.

Well, all this works extremely well to Apple's advantage in the years ahead. Apple's focus on China is self-evident. We've already read about the pandemonium when the iPhone 4 was introduced and about the scalpers who will easily sell the phones at ridiculously inflated prices. I mean, you don't hear of such things happening in the States or in Europe. How many people here would buy phones off of scalpers no matter what kind of an Apple nut they are? And the affluent and the relatively well-educated also know very well about the rampant counterfeiting and fraudulent business practices that still infest their societies. In fact, this makes the real deal even more desirable and aspirational. You can be assured that Apple has a big top-notch legal team in place in China to go after the counterfeiters, trademark violators, fraudsters, scalpers, etc.

This is well beyond China just being a big market of nearly 1.4 billion people. It's about the economic growth trajectory as well as the psychology of the growing middle class. The implication of these factors cannot be underestimated and it's clear that Apple is definitely not underestimating the potential and what they can accomplish there over the next decade. Now this is well beyond hardware-software integration, the ecosystem and the technical specs. It's about the power of the brand holding sway over many hundreds of millions of consumers with growing purchasing power. To this day after all my years traveling there, I still find China mind-boggling. To put China's population in perspective, it's roughly equal to two United States and all of Europe combined.

In regards to branding in China, Apple already has the competition stumped. Competitors like Samsung, LG, HTC and even Sony and Nokia do not stand a chance. The small local Chinese brands will feed on the very bottom with the cheapest handsets possible using the free Android. The bigger guys will grab a good chunk of the lower middle class and do their best to move upstream, but the reality is that Apple will be the aspirational brand in the tech space. Millions and millions will never bother to compare the specs with phones or tablets from the competition. All they know is that they must own an Apple.

So, although I really don't care to speculate on AAPL's price in the years ahead and I have little interest in the matter, I think it's safe to say that Apple's continued fast growth is virtually guaranteed for the foreseeable future - even quite far out to 2020 and beyond. After China, India is waiting in the wings with a society that takes social hierarchy to the extremes with its famous entrenched caste system based on the Hindu religion and a population that will be even larger than China's and an economy growing even faster... I guess it still makes sense to go long on AAPL.
post #16 of 21
Quote:
Originally Posted by alexkhan2000 View Post

This is well beyond China just being a big market of nearly 1.4 billion people. It's about the economic growth trajectory as well as the psychology of the growing middle class.

Thank you for your perspective alexhan!
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post #17 of 21
I second the motion. Very thoughtful and informative observations.

One point I'd add, on the cautionary side, is that fashion is a fickle beast. Apple is riding the crest of a wave now, but they could still blow it, or someone else we maybe have never even heard about yet could steal their mantle of coolness. I mean, where did Apple get it?
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post #18 of 21
Quote:
Originally Posted by Dr Millmoss View Post

I second the motion. Very thoughtful and informative observations.

One point I'd add, on the cautionary side, is that fashion is a fickle beast. Apple is riding the crest of a wave now, but they could still blow it, or someone else we maybe have never even heard about yet could steal their mantle of coolness. I mean, where did Apple get it?

Thank you and to john galt as well. Glad that I can contribute something here that's informative and insightful.

Yes, I agree that fashion is fickle and that fads and trends come and go amongst the masses. But, I'm sure you'll also agree that it's not easy to unseat the likes of BMW, Mercedes, Rolex, Cartier, Chanel, etc. These aspirational brands have been around for decades and they're as strong and entrenched as ever. There's a confluence of factors when developing and sustaining a "luxury" high-end brand. Now in this massive consumer electronics sector it's a bit trickier since we are talking about some huge numbers and economies of scale. Still, Apple sits on a very sweet spot of having been around long enough for most people around the world to know what Apple is and also being "cool" compared to the dour and decidedly unexciting image of other mega-conglomerate consumer electronics firms like Samsung, Sony, LG, Panasonic, HItachi, Toshiba, etc.

Also, Apple's long-standing image and reputation of appealing to the creative types, the ones who "Think Different" and of building something that you won't find at the local auto mechanic's shop or on the front desk of a hotel or at a government agency building is what the affluent and upwardly mobile crowd can appeal to. When you think about it, no one is going to come in and change that overnight. We are talking about a culture that Apple has carefully cultivated over decades - even when Jobs was in exile. And it's also about the OS software platform and the vast ecosystem that serves as the technical foundation below the brand and the gleaming image.

Who has the resources to really start a new platform/ecosystem? The ones who are going to give it a try while having their feet planted in reality are the two largest tech firms in the world with over $130 billion in annual revenues: Samsung with their Bada and HP with their recently acquired webOS. Now what are the chances of even these behemoths to gain a meaningful foothold against Apple, Google and Microsoft or even Nokia/Symbian? One will need massive economies of scale and coming up with something truly revolutionary as well as the current platform dominators concurrently screwing up in an unimaginably epic manner.

The Chinese are proud but will never find something homegrown (or nearby like Korea and Japan) as cool. They despise home-brewed brands and are as suspicious of them as we are about tainted products from China that may poison our children. Yes, we get the beautiful Apple products manufactured at the state-of-the-art plants in China but imagine the 1.3 billion people there relying on much less-glamorous products made there to just get through the day. The Chinese begrudgingly respect the Koreans and the Japanese for their particular strengths and character but certainly believe and feel that they can catch up and do better - much better.

Apple certainly can't rest on their laurels and I believe that Apple will be absolutely focused on maintaining this huge advantage and actually expand it in the years ahead. They know about brand management and they understand the psychology of the average Joe who aspires to be better. Another major factor that rarely gets mentioned or discussed is the whole "feel" factor in Apple's products. There's a tactile feel when you touch and interact with Apple's products. This is an intangible thing but people know it instinctively when they use it. This cannot be measured with a spec chart comparison. It's about the flesh interacting with a physical device and the eyes reacting to an aesthetic design.

I asked some friends in Korea why they're holding out for an iPhone when they can buy a Samsung at a much lower price. They simply said, "Design... Apple's sense of design just beats the crap out of these ubiquitous Samsung and LG phones. Apple's design sensibilities just cannot be denied. And I like Apple's software much better too." Ah, the software... We get back to the software now. Seriously, what new company in Asia will be able to come up with the software that defines a platform and the ecosystem? Samsung is developing Bada but it's just something they're looking at as some sort of an insurance against their reliance on Android and WP7. HP bought the webOS with the intent of not going with the Android and WP7 at all.

Can Samsung and HP ever capture that "cool" factor? I suppose we can never say never, but chances are they won't when Samsung also produces everything from refrigerators to rice cookers and peddle life insurance policies and building oil tankers while HP cranks out printers and ink as well as instruments used in hospital emergency rooms and offering consultation services to large enterprises. Ditto for LG and, to a lesser degree, Sony and other Japanese electronics giants like Panasonic, Hitachi, Toshiba, NEC, Fujitsu, and Mitsubishi. And all the smaller up-and-coming Chinese and Taiwanese consumer electronics firms like Haier and ZTE, etc. want to be like and eventually surpass the aforementioned Korean and Japanese firms in revenue and volume.

It's not just a big wave that Apple is riding. It's more like a tsunami of a perfect storm. And the folks at Apple know it. They're dead serious about riding it under tight control. Surely, luck is certainly involved and being at the right place at the right time with the competitors sleeping at the wheels are all factors in Apple's stunning success and nearly unassailable market position. What's encouraging is that Jobs and his lieutenants are not taking anything for granted. They're hellbent on not squandering this historic opportunity. They blew it in the 80's and saw what happened to IBM in the 90's and to the darlings of dot com era like Sun as well as SGI. Jobs will continue to keep Apple on its edge with a focused start-up mentality. As Andy Grove said in his book, "Only The Paranoid Survive."
post #19 of 21
I'm probably not going to do justice to everything you said, but I do think some caution is warranted.

Over the last dozen years or so, I've been impressed by the way Apple works without a net. To put it another way, they work on instinct -- Steve's instinct, mainly. Many of the products they've released in that time period have been path-breaking for that reason, but repeating this magic becomes successively more difficult, if only because each hit needs to be larger than the hit before it. For instance, the original iMac was a hit because it needed to appeal only to a small segment of the computer buying market -- the small core of Mac loyalists, plus a handful of other. The iPod had wider appeal from the start, but even it began as Mac-only.

Now we're dealing with tens of millions of iPhone owners, and probably that many iPad owners in short order. Keeping them happy into the future perhaps requires a different approach than working entirely on Steve's instinct -- as unfailing as it has been to date. Keep in mind, these devices are disposable on a 2-5 year cycle.

That said, I agree that none of the big consumer electronics companies are currently well positioned to challenge Apple -- which does not mean they won't continue to try. Some of them are aligning with the other big brand out there, Google. Together, we don't know what they can do. Then we need to remind ourselves that ten year ago nobody predicted Apple's rise to anywhere close to their current position in the market. This should serve as a reminder of how quickly the consumer electronics market landscape can change, and in ways nobody is even thinking about now.
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post #20 of 21
Dr. Millmoss, I wholeheartedly agree that there are no guarantees that Apple will continue to succeed and grow as they have over the past 5~10 years. I think, though, that for the more immediate future of the next 2~3 years, Apple seems very well positioned to keep growing at anywhere in the 30~50% range (if not the astounding 60~70% rate of the past two quarters). Further down the road is really difficult to predict but a company of Apple's size and scope must have some internal roadmap for the next decade. Samsung Electronics plainly stated on their 2009 Annual Report that they intend to hit $400 billion in annual revenue by 2020.

On my posts on this thread, I was more focused on the Apple brand than the tech roadmap and Apple's competition against the Google Android and MS Windows/WP7 platforms. Is Android a brand? That's a difficult call but since it is something that consumers identify with I would have to say that it is a brand. But this dilutes the power of this brand that are (or will be) in hundreds of different kinds of phones from dozens of manufacturers. Sure this didn't hurt Windows or Intel, but the manufacturers' brands are the ones who become commoditized and marginalized. This is exactly why Samsung and HP both want to own the entire ecosystem of their own and develop and market a vertically integrated model like Apple's.

I think we can all agree that Sony was the last great consumer electronics brand before Apple took over to be in the position they are in now. I can well remember the 80's when Sony TV's, Walkman devices, and various other gadgets were the cool electronic stuff to get. I think what Apple has learned from Sony's fall from glory was that Sony just spread themselves too thin and competed for market share in the lower-end in every electronic product category out there. Sony's foray into the content business wasn't really well thought out either. It became a major distraction and that allowed the likes of Samsung to surpass in Sony's core profitable businesses and Apple to pull the rug out from under them with the iPod.

Samsung is now the world's top "traditional" consumer electronics brand (mainly as the number one TV maker and number two handset maker in volume) although the Samsung brand still doesn't have the cachet or the pizazz of Sony in the 80's and certainly not what Apple has now. The brand is what I'm focusing on here and I'm just stating why I don't think there's any credible challenger in that space in the new converging CE field. It really is the thorough vertical integration model and Apple's hardware strength coupled with their industrial design sense that I just don't see other competitors being able to match. Yes, there's Android from Google, but it's already available from the likes of ZTE, Haiwei and other unknown Chinese phone makers besides Samsung, LG, HTC, Sony/Ericsson, etc. From a branding perspective, it's just as much of a fragmentation issue as it is from a technical perspective.

There are huge economies of scale involved in consumer electronics (mainly the hardware part), so it really is difficult to imagine someone new coming along and becoming a new Sony of the 80's or what Apple is now in a short period of time. As I said, things can indeed change fast and a new disruptive technology can emerge quickly, but the truth of the matter is that Apple wasn't the first with an mp3 player and touchscreen technology as well as tablets have been around long before the iPhone and the iPad. It has really been more about neatly packaging existing nascent technologies in a way that can appeal to the mainstream with an unmatched marketing flair.

Let's be honest: Apple is sexy. Apple is like Angelina Jolie or even Michael Jackson at his peak in the 80's. We simply can't say that about Samsung, Sony, Dell, HP, LG, Panasonic, Acer, etc. This is, in fact, where Apple has the biggest lead - the brand and the marketing. And Apple has always been in the news more than other tech companies - even during the dark days of Sculley, Spindler and Amelio before Jobs returned to Apple. But then, Sun was a very sexy company in the late-90's and look what happened to them. The difference between then and now is that there really is substance behind that glamorous image and a sense of mystique that Apple carefully cultivates for public consumption. Apple has studied and learned.

As for Jobs, no doubt that he is Apple but he has also assembled a very talented team of executives around him. Tim Cook is probably the best COO on the planet. Is he the heir apparent? Maybe, maybe not and he'll probably do fine in an interim role as he has in the past during Jobs' absence, but who in this world can replace Jobs? We have to remember that Jobs is still only 55 years old. Assuming that he's healthy and fully recovered, there's no reason to think he won't go for another decade. In comparison, Ellison at Oracle is 66. Does it really take another Jobs to run Apple? Is Eric Schmidt at Google a comparable visionary? Certainly not. Perhaps the next Apple CEO just needs to run a mega-billion corporation like Schmidt does while the entrepreneurial R&D team continues to crank out new ideas and products.

Yes, much can change over the next 5~10 years. None of us can even imagine what type of computing products we'll be using and how we'll be communicating in 2020. And we certainly don't know who'll be dominating the tech/CE sector at that time. But I still think the probability is good that Apple, Google and Microsoft will still be slugging it out in different ways and form factors than what we are seeing now. Samsung seems like they'll be dominant in their fields of expertise for a long time to come as well. There'll definitely be new players emerging from China and India but I believe they'll be more focused on serving their own growing markets than having an impact on the rest of the world.

I think what we can be sure of is that the next decade will be extremely interesting and stimulating in ways that'll make the past 10 years seem like child's play. But that's what's fun about this whole thing. Things are moving so fast and the speed of change and progress just seems to be accelerating. And it's as though we are part of that drama unfolding on an almost-daily basis. The three-way platform war between Apple, Google and Microsoft is a fascinating thing to observe. As a history and strategy fan, it's like a modern version of the ancient Chinese "Three Kingdoms" warfare being played out in front of our very eyes. It really helps me with my job as a marketing director as well as managing our offshore supply chain management at the company I work. And it's a lot more fun and intellectually stimulating than following pro sports or a dumb TV series.
post #21 of 21
Quote:
Originally Posted by alexkhan2000 View Post

I've been going to China on business trips since '93 and still go there every 2~3 months. I also visit Korea regularly and the iPhone mania amongst the affluent and the growing upper middle class is only just getting started. And Far East Asians are even more brand conscious than the people in the West. They want American or European brands like Apple, BMW, Mercedes, Audi, Tiffany, Giorgio Armani, Chanel, Louis Vuitton, Rolex, etc. They absolutely lust after this stuff.

On my most recent trip to Hong Kong and China in Sep, I saw iPhones and iPads everywhere. And these were probably ones bought in the US or elsewhere since the official distribution of these products in China is only now getting started. Most of the iPhones I see in China are still the 3G and the 3GS variety that traveling business people bought from overseas, but you visit any factory and you'll see a lot of executives and upper level managers with one. While I was waiting in an airport in Xiamen to fly to Beijing, I saw at least a dozen iPads.

Of course, we're probably only talking about 5% of the population at this point in time, but that's still 70 million people. And the affluent consumers of that upper tier don't want Asian brands - especially Chinese, Taiwanese or Korean brands (they are more partial to Japanese brands) - so Samsung, LG, and HTC aren't very "aspirational" or desirable over there. Apple is also becoming huge in Korea with the iPhone despite Samsung's all-out effort to defend their home turf with their silly "be-patriotic-and-buy-Korean" marketing campaign. Apple has already sold well over a million iPhones since its introduction to the Korean market about a year ago and the iPhone 4 is only starting to ship there in very limited quantities with a huge backlog. I have relatives and friends in Korea who are just itching to get their hands on the iPhone and the iPad.

You can be assured the same will happen in other emerging markets such as India (nearly 1.2 billion in population and soon to overtake China) and Indonesia (nearly 300 million people). The upper class will want Apple, not Samsung, not LG, not Sony/Ericsson, not Motorola and not Nokia, even though Nokia is huge in Asia as a feature phone. As a Korean-American who grew up in Korea and has traveled extensively throughout Asia (especially China), I can tell you that they love what are perceived to be high-end American/European brands. I have to admit it's rather silly, but hey, that's just the reality over there and that only points to an even brighter future for Apple. Asia is going to be a major market for Apple over the next decade and it'll be the ones with the money (and the number of these people is growing exponentially) buying up iPhones and iPads.

There are getting to westernized in parts of Asia today and spoiled like materialists here in the USA.Many parts of some countries you mentioned have a poor and starving population that these so called upper middle class do not care about one iota.Shameful really.
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