Apple’s Hardware No Longer an Advantage: What's Next?

Nicholas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) seems to have lost its competitive edge on hardware business following the recent dip in price. Analysts attribute Apple’s recent misfortunes in the stock market to waning investor confidence due to slowdown in growth rate. The Silicon Valley company is also experiencing a string of indifferent results on margins, which dropped significantly for the most recent quarter. The monster behind all these is nothing but aggressive price competition.

The Market that was; But no more

Apple’s devices are amongst the most expensive in the market compared to peers with similar specs. The iPad business still dominates the tablets industry, but faces a strong contingent of rivals from Amazon and Google (NASDAQ: GOOG). The iPhone business, on the other hand has failed to shade off the challenge of Samsung Galaxy phones, along with other smartphones from Google’s Motorola, BlackBerry (NASDAQ: BBRY), HTC and Nokia .

The PC business along with other PC manufacturers is facing a challenge of a lifetime as tablets and smartphones continue to swallow a huge chunk of the market. Not even Apple has been able to conjure a strategy good enough to reinvent the industry. Perhaps Intel with its perceptual computing technology will come up with something.  

Apple’s focus is already turning to introducing new devices to its lengthening product line. The company is expected to introduce an iWatch, iTV, and even a cheaper plastic cover iPhone by the end of this year. It is also rumored to be thinking of introducing a Phablet (a hybrid device that combines smartphone and tablet features), like Samsung’s Galaxy Note II.

However, the company cannot just focus on selling hardware if it seeks to forge a competitive advantage against its main rivals. Everyone is selling devices; the difference must be something unique from that.

I like the way the company’s CEO, Tim Cook, put it during Goldman Sachs Technology and Internet conference on Tuesday, February 12, “…we’re not a hardware company…there are other things we are doing and could do to have revenue and have profit flow. The sale of an Apple device to a customer isn’t the end of a relationship, but the beginning, and there are all kinds of elements of the business, including retail, designed to capitalize on that fact.”

Cook also pointed that the hardware market is becoming saturated, as room for growth continues to squeeze. Indeed, the sky is no longer the limit. Additionally, Asian based companies have ventured into the industry, with China’s Huawei feeding gluttonously on the emerging markets.

The New Ecosystem

With the market flooded with devices, Apple must find a way of taking a few more bucks from its customers through more than just the one or two ways that we know. I like the way Amazon is trying to do with its reading business. It is providing users with the platform, the content, and most of all, the entire device.

Additionally, its massive online customer base is an added advantage. It does not have to rely on Apple App store for content or iPads for devices. Google, on the other hand, has developed a different kind of approach. With its Android platform, the company has established a partnership network with a majority of its rivals. The company’s Nexus tablet is a strong competitor to Amazon’s Kindle Fire, the more reason Apple should pursue new territories for differentiation.  

Furthermore, last month when BlackBerry launched BB10, a colossal of media reports suggested that the new platform tramped Apple’s iOS 6 in terms of features. Nonetheless, BlackBerry Playbook has a limited number of applications, estimated at only 70,000 compared to Google play and Apple’s App store that have hundreds of thousands of applications. The Canadian company will still have to confront the ghost of gross margins as price wars rage on.

The Bottom Line

Apple’s next big thing seems to be in the software and services business, something analysts think that holds  mammoth potential.  Jason Stein, founder of Laundry Service, expressed an audacious opinion on what kind of TV Apple should come up with. You might criticize that he was more focused on the hardware bit, but a closer examination of his opinion might suggest otherwise. Here is what he said

“I want my television to be part of that Apple ecosystem: a thin glass hub integrating cable series, movies, endless utility and gaming apps, YouTube videos, music, photos, e-mails, FaceTime, social media feeds, and more. I want the TV to be my alarm clock, turning from 'Sleep' mode to awaken me with sweet music, a weather report and news, through an app like the newly launched Winston (which is already optimized for Airplay).”

I do not want to give my own imagination, but it seems as though Apple is already ahead of our thoughts on its next invention. Cook did emphasize on software and services, so let’s wait and see as the year unfolds. With $137 billion in cash reserves, the company has what it takes to conjure yet another ecosystem in people’s lives. After all, Apple’s greatest dream is to be a way of life for people.

 


Nmaithya has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure