The World Will Not End, Neither Will Apple
Brendan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Do not worry; the end of the world thankfully is not resting in what companies are reporting in the coming weeks. Especially Apple’s CEO, Tim Cook.
World renowned business coach and consultant Victor Cheng is a fan of Apple (NASDAQ: AAPL). I agree.
Cheng writes, “Apple has decade-long exclusive contracts with all major component suppliers in the world. They get preferred pricing and they get supplied first before you do. You have to replicate that somehow. Apple has an enormous head start on innovation and design. You’d have to come close to matching that.”
Obviously, much will be revealed when Apple releases its earnings report Wednesday evening. However, the company still boasts a competitive advantage. As Cheng states, the company has extensive patent portfolios, deep pockets, and faithful followers.
data by YCharts
Consider some competitors and the distribution of smart phones.
Research In Motion (NASDAQ: BBRY) currently has three benefits: the hype for the new BlackBerry 10 to be released January 30, the image of a secure smart phone for business professionals, and the potential revenues from future alliances. In fact, Research in Motion’s stock soared 6.24% Monday after Thorsten Heins, the firm’s CEO, announced that the company is pursuing strategic business relationships with other companies. The goal is to license Research in Motion’s software to the companies—resulting in greater profits for Research in Motion while penetrating the market with the BlackBerry 10 Operating System. As Heins said, "The main thing for now is to successfully introduce Blackberry 10…."
Google (NASDAQ: GOOG) and Nokia (NYSE: NOK), on the other hand, already are positioned for growth in the future. As of November 2012, Google owned 53.7% of the U.S. market share for smartphones. Apple was second at 35% and Research in Motion only claimed 7.3%. Google’s Android operating system is channeled through Google’s vast distribution system. Further, many of Samsung’s devices utilize the Android system. The result: more market share for Google.
Nokia recently reported that it sold 4.4 million units of the Lumia phones. The report enabled Nokia to boast a 51.7% increase in sales from the third to fourth quarter. Especially considering Nokia’s working relationship with Microsoft, investors should expect sales to grow—specifically in the Chinese market.
As shown in the images, Apple shows consistent growth in the smart phone space. In fact, ABI Research released a report stating that Apple should reach a peak of 22% market share in 2013, behind Samsung. Consider Apple’s aforementioned long term benefits, notably its cash position compared to many of its competitors—even Amazon in the tablet market. These benefits, coupled with the leadership of Tim Cook and other senior level executives at Apple will position the company to bounce back.
In fact, I would not be surprised to see Apple return to $700.
I will end with Victor Cheng’s thoughts:
“Apple has one glaring vulnerability. It has extraordinarily high profit margins. You could slash Apple’s profit margins by 50% and it would still be an incredibly profitable company. The entire history of technology and Silicon Valley is one of initially inferior technology that’s dramatically cheaper, eroding the market position of a superior high priced technology…To oversimplify, one strategy is to compete against Apple at the low end of the market by selling products that are 70% as good, at 30% of the price…”
To compete against Apple requires billions of dollars, incredible levels of talent, and enormous resources in 100 countries around the world to all execute simultaneously and then maybe, maybe it might work…barely.”
marascobn1 has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!