Apple Lacks Innovation: Big Opportunity for Android, Microsoft, Nokia, and RIM
Alvin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For a company that prides itself in innovation, Apple (NASDAQ: AAPL) severely under invests in R&D.
The largest technology company in the world, in the last quarter, spent $876 million in R&D. In comparison, its biggest competitors, Microsoft (NASDAQ: MSFT), Samsung, Nokia (NYSE: NOK), and Google (NASDAQ: GOOG) spent $2.594 billion, $2.398 billion, $1.45 billion, and $1.585 billion, respectively. The following table sums up R&D spending for the last twelve months for the five companies.
| Last 12 Months | Microsoft | Samsung | Nokia | Apple | |
| R&D (Millions $) | 9,811 | 8,934 | 6,368 | 5,728 | 3,120 |
| Revenue (Millions $) | 73,723 | 149,453 | 44,139 | 43,163 | 148,812 |
Apple is last on the list and it is not even close.
Still, Apple does have a focused product line and historically the company has been efficient with its R&D investments. However, Apple’s iPhone 5, the newest generation of the iPhone, which accounts for 70% of Apple’s profits (msn), has nothing that sets it above the competition, except maybe the A6 chip.
The big updates, over the 4S, are the smaller docking port, larger screen (4 inches), the A6 SoC, and 4G LTE. If the A6 is indeed sporting a dual core ARM Cortex-A15, then the iPhone 5 will likely have the fastest chip (for smartphones) when it hits the market. However, besides the A6, there is nothing that puts the iPhone 5 ahead of the curve. In fact, the iPhone 5 is missing features that are available in competing smartphones.
Looking back, Apple did this with the 4S and the product still sold very well. However, the competition is stronger this year. Samsung’s market share is at 32.6% compared to 17.0% at the same time last year. Furthermore, Samsung has almost double the number of shipments of Apple compared to the same time last year when Apple had Samsung edged.
iPhone 5 Missing Features
The biggest missing feature in the iPhone 5 is near field communication (NFC). NFC is often touted as the technology that will replace credit cards. However, NFC does more than just provide a quick method of payment at the counter. NFC enabled devices can also read NFC tags and make quick data transfers to other NFC enabled devices. The Galaxy SII, Galaxy SIII, Lumia 820, Lumia 920, Droid RAZR HD, HTC One X, and many others all have NFC capability. Even Research in Motion (NASDAQ: BBRY) has NFC enabled phones. Google has supported the technology by providing NFC support in Android and providing Google Wallet.
The next missing feature in the iPhone 5 is inductive charging (aka wireless charging). The technology is convenient. To charge the phone, just set it on its charging pad. As Apple likes to put it, it just works. Apple’s biggest rival, Samsung, equipped the Galaxy SIII with wireless charging capability. Nokia, which is pushing Windows 8, is releasing the Lumia 820 and Lumia 920 with wireless charging capability. The phones also have Micro USB ports, so users can still use their phone while charging.
The other missing features in the iPhone 5 are basic standard features found in other smartphones. For the iPhone 5, Apple decided to replace its old 30 pin docking connector. However, instead of going with the industry standard micro USB, Apple decided to introduce a proprietary 8 pin dock connector, called Lightning. Additionally, the iPhone 5 lacks a microSD slot for expandable memory and still lacks a (easily) removable battery. Finally, even at four inches the iPhone 5 still loses to other flagship phones in screen size. The HTC One X, Lumia 920, Galaxy SIII, and RAZR HD have 4.7, 4.5, 4.8, and 4.7 inch displays, respectively. However, the scariest thing, for Apple, is that nothing in the iPhone 5 (except maybe the A6) puts it ahead of the competition.
Apple’s missing features and lack of a differentiating technology in the iPhone 5 provide a big opportunity for its competitors. RIM, the maker of BlackBerry, has revived hope and opportunity with BB10. When RIM delayed BB10 to 2013, it looked like the fate of the company was sealed because of the coming launches of the iPhone 5 and Windows 8. However, it looks like RIM dodged a bullet and might have an opportunity to launch its product.
Similarly, Nokia and Microsoft just might have gained the opportunity they needed to take market share away from Apple. The Lumia 920 even edges out Apple’s “retina display.” The Lumia 920 has 332 ppi. The iPhone 5 has 326 ppi. Lastly, Android has a huge opportunity to expand its lead in the market. The hugely popular Samsung Galaxy SIII holds its own against the iPhone 5 and is actually superior in many aspects. The same can be said about the HTC One X and some other Android phones that are planned for release later this year.
In conclusion, the iPhone used to set the standard. The fact that the iPhone 5 does not should have investors worried. Even more appalling is that Apple does not seem to realize this. Instead of using its huge revenues and piles of cash to invest in more R&D, the company seems content with milking its current products. Considering how much Apple relies on the iPhone (70% of profits), Apple is taking a huge risk. The iPhone 5 is good, but so is the competition. Furthermore, Samsung allegedly plans to sue Apple for using 4G LTE, for which Samsung holds a lot of patents.
Overall, the iPhone 5 is a good phone and will probably sell well, but in the long run Apple will have a hard time maintaining its extremely high margins because the iPhone is clearly no longer cut above the rest. Since Steve Jobs is gone, Apple should be honest with itself and begin to dramatically increase its R&D budget to stay in the game. Otherwise, the competition will leave it in the dust.
Know What You Own
The stakes are high and the opportunity is huge after Apple’s introduction of the iPhone 5, so to help investors understand this epic Apple event, The Motley Fool just released an exclusive update dedicated to the iPhone 5. By picking up a copy of the Fool’s premium research report on Apple, you'll learn everything you need to know, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.
Alvin owns shares of Microsoft. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
