What's Next for Apple?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is a busy time for Apple (NASDAQ: AAPL) at the moment. The company recently released the iPhone 5 and has announced the following roll out of the new iPhone to 22 countries. There are rumors floating around that the iPad Mini will make its debut soon. At the same time, Apple is in a legal dispute with Samsung (SSNLF) regarding patent infringement, and is also in litigation with Amazon (NASDAQ: AMZN) about the term "App Store." In general, many of these are positive for the company, however the lawsuits raise some questions. The most serious question that is raised relates to innovation. One, is Apple stopping innovation through litigation? Two, is Apple running out of steam on new gadgets for consumers?
The release if the much anticipated iPhone 5 maintained Apple's profile in the news and in tech circles. Some of the first announcements about the iPhone 5 were about the fact that Apple had developed its own maps application and parted ways with Google (NASDAQ: GOOG) with Google Maps not loaded as a standard application.
Following the release, there were numerous reports of flaws in the mapping software, which made some question whether it was wise for Apple to develop its own map application and not continue its use of Google Maps. However, even with map application programs, the demand for the iPhone 5 was astonishing and while initial orders are still delayed due to unexpected demand, Apple announced on September 28 the phone is available in an additional 22 countries.
Additionally, Apple says that the iPhone 5 will be available in over 100 countries by the end of the year. It is my belief that despite the misstep with an inaccurate maps app, the newest release and expansion of sales is certain to raise Apple's profits over the coming months as it continues its rollout of the iPhone 5 to additional countries.
For awhile now, rumors have been floating around about what has come to be known as the iPad Mini by the media, not an official name released by Apple. The release of a smaller iPad would put Apple in competition with tablet readers such as the Amazon Kindle and the Nook offered by Barnes & Noble (BKS). A common belief amongst Apple watchers is the iPad Mini will be released sometime before the end of 2012. However, Apple has not confirmed any speculated dates or time periods. In late August, AllThingsD reported with confidence that "several sources" have confirmed October for the release of the iPad Mini. What appears to be the common belief amongst speculators is that the time of release will be sometime during October.
If the rumors become truth and what has come to be known as the iPad Mini is released later this month, then this holiday shopping season may prove to be a win for Apple with the combination of the iPhone 5 likely still in high demand and a new demand for the iPad Mini. Apple consumers are known to always be in pursuit of the newest Apple product, and an iPad Mini will be treated no differently. Although Apple may face some competition from Google, as it is said that Google intends to release two new versions of its Nexus 7 device towards the end of 2012. However, I feel that even with Google's entry late in the year, Apple will still win the holiday season surpassing Android products in smartphone sales and other small-sized tablets if the iPad Mini is released.
Recently Apple has been involved in a legal dispute with Samsung regarding patent infringement, which involved separate proceedings in South Korea, the United States, and European Union. All three courts had different findings and the United States verdict has gone into the appeal process. More recently, Amazon has entered into litigation with Apple. Amazon has asked for Apple's false advertising claim to be thrown out. Apple claimed that Amazon's use of the term "App Store" constituted false advertising because it has been misused to solicit mobile software developers. According to a filing submitted to the U.S. District Court in Oakland, California, Amazon stated that the term "app store" has become generic and is not false advertising. Amazon also added that the current CEO of Apple and Steve Jobs had used the term to discuss rival platforms.
The most recent lawsuit with Amazon and its high profile litigation process with Samsung has made many wonder why Apple is entering into such legal disputes. It could be that Apple is attempting to cast its competitors in a negative light for the media. If that is the case, Apple's legal dispute with Samsung paid off, as there was an incredible sum of an initial damage claim, in which Apple has requested it be raised another $707 million from its initial level of $1 billion in its U.S. court decision. Additionally, it tarnished the reputation of Samsung and had the sale of multiple devices banned for sale in the United States.
These lawsuits have also brought into question the ability for apple to innovate. I have wondered myself, is Apple running out of steam for its constant innovation that we have seen over the past decade? Personally, I believe that if Apple begins battling competitors through the courts, innovation in the smartphone industry will halt, unless Apple is the company innovating. However, what incentive is there to innovate if the competition can be squashed through litigation?
If Apple continues in the course of litigation, I think consumers will start to be turned away from Apple because of the image it will have compared to its image in the present. Much of what makes Apple's products desirable is the image associated with the brand. If there is anything that may hurt Apple in the long run and cause a decrease in profits, it will be continuing actions that will drive its current customer base to a different company.
Apple currently has a P/E ratio of 15.67, compared to the technology industry average P/E ratio of 14.4. It should come as no surprise that Apple is a company with earnings growth, due to the holiday season soon to arrive with the iPhone 5 and possibly a new tablet offering. I would expect Apples performance to match the performance of its sector, and if a new tablet is released, I would expect Apple to outperform.
Google is another stock that is performing well and a company that is a leader in its field. Google currently has a P/E ratio of 22.72. I would expect high earnings in the company's future.
Amazon, who may be competing with Apple if Apple releases a smaller tablet that is similar in size to the Amazon Kindle, currently has P/E ratio of 315.53. Despite the vast difference between Amazon's P/E ratio and the sector average, I expect Amazon to do well, especially in the coming months with the holiday season soon to arrive.
Barnes & Noble may also be competing with Apple if a smaller tablet is released. With the coming holiday season, I think the stock's performance will improve. I would recommend holding this stock for the time being.
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