Understanding Apple – What Everybody Else is Missing.
Jaan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The pundits are in an uproar over the pricing of the new iPad mini. “The sweet point for the 7” tablets is $199,” people cry, wringing their hands as they predict failure for the mini and Apple’s (NASDAQ: AAPL) impending doom. But they are forgetting several simple things.
1- The competition is not selling tablets – they are selling cash generating platforms.
Of Amazon’s (NASDAQ: AMZN) Kindle Fire series (as well as their Kindle Readers), Rocco Pendola of The Street observes:
"Kindle Fire is little more than an Amazon credit card that just so happens to do a serviceable job playing music, streaming video and running apps." [emphasis added]
As for Google (NASDAQ: GOOG) entries – well, we all know that the primary purpose of Android is to sell advertising for the search master. Tech Radar observes of the new Nexus 7 tablet:
"And make no mistake: the Nexus 7 by Asus is more of an effort to stomp out Amazon's unwelcome (and forked) version of Android more than an attempt to dethrone Apple's reigning tablet champ."
Hardly a noble role!
Against these we have the iPad mini, which no sane person would question has the highest build quality of any small tablet (and probably the best performance as well).
2- You get what you pay for.
This has always been Apple’s m.o. – build the best quality product they can. Objective: Delight the customer. Period.
To the customer, the $329 is worth it for the experience you get. Remember, Apple has always been the winner in all customer satisfaction surveys. So why should they price down to the non-competition?
And this brings us to the final, most important point: Apple will sell the new iPad minis as fast as they can make them – most likely faster then they can make them.
So once again, why price down?
Conclusion
The drop in Apple share price is a combination of:
- Recent overall market decline
- Jitters about Apple’s run up (even with the recent retreat from its highs, Apple is up almost 60% from its 52-week low of $363.32)
- The typical “buy the rumor, sell the news” syndrome
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For an interesting analysis of Google Chromebook vs iPads, see this article.
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Understanding Apple series
You may love Apple and their products, or hate them to the core, but you cannot deny that Apple now has the highest market cap of any company, their products are trend setters, and currently they are trading at rather low multiples, especially regarding forward earnings.
Warren Buffet has the maxim: “Invest in what you know!” So, for those who want a unique perspective on Apple’s success, I have a series of articles Understanding Apple. I hope you will find them helpful and provocative.
Let me know what you think.
Related article: Of Cults and Cool, Hype and Sheep
The Big Picture
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JaanS owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Apple, Amazon.com, and Google. 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.
