Apple Has a Deep Moat in iOS 5

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

With a number of Android 4 devices being released, people have begun to wonder if iPhone 4S can match these super devices that come with significantly better specifications. Android-based cellphones manufactured by SonySamsungMotorola (soon to be part of Google (NASDAQ: GOOG) for $12.5 billion) and HTC lure smartphone purchasers with great features. Many already run on Android 4 or will be upgraded to it very soon. This has encouraged people to debate the advantages and disadvantages of using an Android or an iOS device. It also invites revisiting Apple's valuation, based on competitive advantages that stem from iOS 5.

While I like the idea of being able to sync Gmail, Google Contacts and Calendar easily on an Android device, I still prefer Apple's (NASDAQ: AAPL) iPhone at the end of the day. The reason I prefer iPhone is because of its excellent operating system. First, iOS provides a minimalist interface, which doesn't need a lot of learning, when compared against Android OS. Second, iOS 5 is very impressive when it comes to integrating Twitter within applications, which makes sharing easier than ever before. Finally, there is little confusion about different versions of the same operating system, unlike Android, where one has to choose between a figurative gingerbread, ice cream sandwich or Froyo.

iOS 5 as an operating system is undeniably simple, fast and rich in graphics. Also, iOS 5 features Siri, the voice-controlled 'intelligent' assistant. Android 4 does not have a comparable voice-controlled assistant, though the ecosystem offers applications that can be compared with those available for iOS 5 users.

People prefer buying devices that let them run more apps, and this is a key reason why Android and iOS devices are so popular, and Blackberry and Windows devices are not. The number of apps available for Windows Phone and BlackBerry devices are dismal, and popular applications are almost impossible to find in their respective market places. With that in mind, the competition at the moment solely wages between Android device manufacturers and Apple.

Applications on iOS 5 look and feel better than they do on the Android platform. Moreover, apps are usually released for iOS first, and an Android version is released later as an afterthought. For instance, Instagram was available only on iOS devices until it was announced for Android as well, after a good year and half. FlipBoard, another popular application was available only for iOS devices until a version was announced recently for Samsung Galaxy III. The startup had planned to unveil FlipBoard for other Android devices later this summer. Interestingly, an unofficial version of the app was leaked a few hours ago for most Android devices, which consumers have welcomed. While I am not saying that Android always plays second fiddle to iOS when it comes to app development, a significant number of popular applications are released for iOS before they are developed for Android.

Apple announced iOS 5.1.1 update which fixes a few bugs that existed earlier. It fixes how HDR photos are handled by the camera when the phone is locked. Also, bugs related to Safari syncing, iTunes Store error messages, AirPlay playback and switching between 2G and 3G networks have been fixed. On the other hand, Android has several bugs and it is difficult for novices and non-technical users to understand how best they can fix issues they encounter on their devices. Granted there are a number of open source support sites, but rummaging through posts and forums looking for answers to fix bugs is something that is difficult and off-putting for the average user. Clearly, iOS wins here because of the no-nonsense bug fixes and regular updates which make iPhones and iPads so much more reliable.

iOS is more stable and virus resistant when compared with Android. This means that enterprises would be inclined to use Apple devices more than they would want to use Android devices. With Blackberries losing their appeal, enterprises have begun to use iPads and iPhones on a large scale. Initially marketed as consumer devices, iPhones and iPads have now become part of enterprise purchases. In fact, it was reported that 97.3% of enterprise tablet activations in the first quarter of 2012 consisted of iPads. I anticipate stronger margins for Apple due to the add-ons for which enterprise consumers are willing to pay.

It is rumored that iOS6 would be released at Apple's World Wide Developers conference (WWDC) this June. When iPhone 5 and iOS 6 are finally released, the market will witness more devices that run on Android 4, along with BlackBerry 10 devices. If one compares Research In Motion's (NASDAQ: BBRY) BlackBerry OS 7 with iOS 5, the latter is not only quicker and simpler, but also easy on the eyes thanks to rich graphics. Apple executive Tim Cook is the key player in advancing the graphics initiative. BlackBerry OS 7 on the other hand may be great for security purposes because of encrypting data through BlackBerry Enterprise Server, but it is clunky, heavy and textual. iOS is simple but robust, and that makes it more attractive than the complex world of Android, clunky BlackBerry OS 7 and the unknown territory of a Windows Phone.

Moreover, I believe Apple's popularity will only increase further, as iPhone 5 is expected in October and that will certainly generate a lot of media interest. In fact, there was a surge of 94% in quarterly profit thanks to iPhone 4S's popularity in China and elsewhere. It is likely that we will continue to see continued but tapered growth in the 60-70% range. The innovation that comes from launching a successful iOS 5 also yields significant intellectual property advantages over rival OEMs. In particular, it's latest series of 25 patents include iWallet and the display of GUIs and i-lists. Investors should not underestimate the impact, competitively. Apple's iOS suite of patents I value in the $10-15 billion range, alone, based off of incremental sales of Apple products using it.

If one were to consider the future of Apple, it is definitely bright. As a witness myself, Apple has already got enough people waiting for its press conferences. All that media interest will certainly lead to a sense of confidence among investors. In Apple's case, its success is fueled by its own success. Android devices will certainly offer stiff competition, but with a loyal fan base, great devices and a supremely efficient and minimalist operating system, Apple does not have much to worry about. Apple perhaps is the most secure company to invest money in at the moment.

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