2 Popular Myths About Apple
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's amazing how often something is said about Apple (NASDAQ: AAPL) and reported as fact as opposed to opinion. I recently read an article in USA Today by Michael Wolff that seemed to follow this pattern. He made several statements that seemed to typify some of the more popular myths about the company, and two of them in particular are just flat out wrong. I feel it's my job to debunk some of these myths so that investors have facts to deal with rather than just opinions.
Myth #1 – Design = Illusion:
Mr. Wolff said that Apple's, “real genius is design (i.e. illusion).” I won't suggest that I am an expert in all things design. However, it seems unfair to suggest that Apple's greatest accomplishment is to create the illusion of quality, which is what seems to be implied by this comment. To be fair, Apple has created products that have not always been the first in their field, but the company has managed to create a product that customers wanted. Probably the best example of this is the iPod. The first digital music player was actually introduced in 1979. The first mass produced MP3 player was created in 1997, and Apple didn't introduce the first iPod until 2001. The three big differences between earlier MP3 players and the iPod were the iTunes software, an easier interface, and advertising. The iTunes software allowed customers an easy consistent way to organize and sync their iPod. Apple's advertising and smaller and simpler design allowed less technologically astute users to operate the device. This has been a consistent theme for the company over the years. Apple is more interesting in making devices that are simple to use. This easy to use interface was the basis for the iPhone, different iterations of the iMac, and other products. Maybe Apple's real genius should be described as making devices that work easily, rather than devices that are beautifully designed.
In addition, there is something to be said for well-designed products. After all, a large part of the marketing of premium products has to do with design. If you think about why customers buy a Mercedes or a Porsche, does design not play a part? If you think about the design of desktop and laptops prior to Apple's introduction of products like the original iMac or Macbooks, what customers were offered were bland designs where the only thing to distinguish the product was the specifications. Apple decided to focus less on specification and more on appeal. Where has that gotten Apple? Think about this, in the last quarter Apple's revenue from Mac sales increased 6%, driven by strong demand from its laptop lineup. In the same timeframe, Hewlett-Packard (NYSE: HPQ) saw its PC sales revenue drop by 14%. Dell (NASDAQ: DELL) actually managed to perform even worse with an 8% decline in desktop sales, but a 26% decline in laptop sales. The recent rise of Ultrabooks is intended to combat Apple's strength in the laptop arena. Many of these laptops mirror the design of the Macbook lineup. The trouble the PC industry is having is making Ultrabooks that are price competitive. Originally the idea behind the Ultrabook was to make laptops that were more appealing to customers. They would be lighter, run the familiar Microsoft Windows operating system, and would be price competitive. The problem is almost none of this is consistently happening. While it will be a while before we know if Windows 8 is a hit or not, the familiarity is gone. Many Ultrabooks are lighter than older laptops, but they aren't exactly unique. Apple has been producing Macbooks that weigh 3-5 pounds for a while now, so when HP says that its ENVY Ultrabook is “ultra-light” at 3.98 pounds the claim sounds a bit hollow. Dell on the other hand, does offer Ultrabooks at 3 and 3.35 pounds, but they start at prices similar to Macbook Air models at $999 and up. Whether these companies like it or not, their Ultrabook lineup competes first with all the other PC laptops. The average consumer has multiple PC laptop choices at less than $500. The upgrade to a $1,000 Ultrabook is a tough sell and can actually create a gateway for users to consider the more “expensive” Macbook lineup.
Myth #2 – “Apple does what it does well, and then sloughs off everything else – like getting e-mail and actually making a phone call on the iPhone.”
Unfortunately for Mr. Wolff, this comment is both biased and incorrect. First, I'm not aware of any company that doesn't strive to do “what it does well”. In fact, when companies rid themselves of underperforming divisions this is usually cheered by investors. In addition, Mr. Wolff's comments suggest that he is referring to using the iPhone on particular carriers, but also in specific situations. Without getting too technical, on both Verizon and Sprint, the iPhone 5 won't allow customers to make a call and use data simultaneously while on their cellular networks. However, on each of these carriers, if the customer is able to pick-up Wi-Fi, this ceases to be a problem. The reason is both Verizon (NYSE: VZ) and Sprint use CDMA networks, which are unable to handle voice and data at the same time. AT&T (NYSE: T) uses GSM technology, which can handle voice and data simultaneously. Since most overseas carriers use GSM as well, Apple made the design call to make the iPhone 5 work with all carriers using two antennas for better reception. In order to solve the problem of taking a call and using data at the same time, Apple would have had to add a third antenna to handle a separate data stream. However, this third antenna would have only been necessary for Verizon and Sprint models. Rather than make a Verizon and Sprint only model, and a model for everyone else, the company chose the simpler design. So in short, if you have AT&T your GSM network will still allow voice and data at the same time. If you have Verizon or Sprint, your network hasn't changed, and can't handle both voice and data. However on these latter two carriers, if you have Wi-Fi you can use both, because your cellular antenna can be used for voice, while your Wi-Fi chip allows for data. In addition, this simplified design in theory will make used iPhone 5 models more valuable because they can be sold and used on any carrier. This was not always the case, and explains why some older iPhone models are sold as “AT&T only” or “Verizon only.”
As you can see, there are myths about Apple being floated by the press, but they don't hold up well to scrutiny. What Apple really does is make products that are simple to use, work properly, and have unique designs. Whether Mr. Wolff likes Apple or not is immaterial. Smart investors would do well to ignore opinion heavy articles and look at the things that matter like sales and customer satisfaction. Since Apple is doing very well on both measures, opinions are best ignored.
MHenage owns shares of Apple and Verizon Communications. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple, Dell, and AT&T.; 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!