This Tech Company Is Oversold
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Apple Rolls Down the Hill
When reports came out that Apple (NASDAQ: AAPL) iPhone 5 only sold 5 million copies in its opening weekend investors panicked and hit the sell button. Was that justified though? One could say that it’s not that there isn't enough demand, there just isn't enough supply. For numerous reasons, one being Apple's new touch screen, Apple only has a very small inventory of its products. This causes shortages, which decreases sales in the short term. Apple's iPhone 5 "sold out" only an hour into phone pre-orders. Fast. Apple only records sales of iPhones over the internet when the phone is delivered, so just because it "missed expectations" doesn't mean there isn't a lot of demand for this new phone. For example, one of my friends tried to pre-order the iPhone 5 at Best Buy. 100 pre-orders were sent in, yet Best Buy had only 40 phones on release day, so they obviously sold out rather fast. It is because of these shortages that Apple "missed expectations." But is this really a reason to sell?
Not Really
Before the iPhone 5 was released a bunch of rosy sales predictions came out talking up how many units would be sold. Some had the iPhone 5 selling 50 million units by the end of 2012. As far as the opening weekend goes, analysts were hoping to see anywhere from 6-10 million phones sold. Apple CEO Tim Cook said “demand for iPhone 5 has been incredible and we are working hard to get an iPhone 5 into the hands of every customer who wants one as quickly as possible". "While we have sold out of our initial supply, stores continue to receive iPhone 5 shipments regularly and customers can continue to order online and receive an estimated delivery date. We appreciate everyone’s patience and are working hard to build enough iPhone 5s for everyone.” When the iPhone 4S went on sale, it sold 4 million copies in the first 3 days, so even if there "truly" was only demand for 5 million phones in the first 3 days, then that still is a big improvement.
The Fiasco
Some might point towards the maps fiasco, where instead of using Google (NASDAQ: GOOG) maps it used its own iOS 6 map pack, for the "lower than expected" sales. Critics ridiculed Apple for not teaming up with Google to use its superior map offering. Tim Cook even said that he was sorry for the mistake and recommended other offerings. The problem is that in order to get Google Maps, which is what consumers want, you have to go onto the browser then go to Google Maps, instead of it being simple and streamlined. This isn't a huge deal in the sense that people buy smartphones for more reasons than to use Google Maps, but it has big implications. Those implications being that consumers might see Apple as putting themselves ahead of the customer by trying to force their way into the location mobile advertising space. In this cutthroat market, that can be a very bad idea. Offerings from Samsung that run on Android are comparable to the iPhone 5, such as the Samsung Galaxy Note 2 and the Samsung Galaxy S3 (with the S4 coming out soon), so Apple can no longer afford to make stupid mistakes like this without consequences. Back when the smartphone market was new maybe, because the iPhone dominated it, but now increasing levels of competition forces management to be very particular about the details. Steve Jobs was very particular about the small things that other executives might breeze over, so we will have to see if Tim Cook follows in Jobs footsteps. Another thing to take from this is that people seem to really like Google Maps, and maps and location advertising is 25% of the mobile advertising market, according to Opus Research. That is up sharply from 10% in 2010. Apple was trying to get into this market and reap some of the rewards, but it turned out to be a huge flop.
Final Thoughts
There is a lot of money to be made in the mobile advertising market, but forcing a better offering out isn't the way to get there. Consumers want to buy the best product on the market at a fair price, and they don't want to get jerked around so corporations can make a few extra bucks. Apple seems to be oversold, because there is no reason to believe that the iPhone 5 won't be a big success. It is already doing better than the iPhone 4S, and has a lot of pent up demand of consumers waiting for the supply chain to deliver them their product. I expect that the iPhone 5 coupled with a much cheaper iPhone 4 & 4S offering that Apple will blow away estimates in the quarters to come. Android phones are catching up to the iPhone, but the Apple cult continues to grow.
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