Old Components and High Margins vs New Technology and Low Margins
Apple’s (AAPL) new $329 iPad continues down the same road that the iPhone SE blazed last year. They’re both parts-bin specials that assemble components from previous or newer devices to give Apple a budget-priced foothold.
Discount Merchandise or American Jobs? Pick Only One
The Wall Street Journal is reporting that Tim Cook is defending the globalization of Apple.
I’ve written about this before and as unpopular as it may be, Tim Cook is right.
Freight Is the New Labor: Why Apple Manufactures in China
Bloomberg Tech is reporting:
Now, the world’s largest paid video service is devoting more attention to motion pictures, looking to shake up that business just as it has TV. “Bright,” with a $90 million budget, is one of about 30 original films Netflix will release this year, from micro-budget pictures made by independent producers to lavish Hollywood productions. That’s a bigger slate than most major studios. --Lucas Shaw
In two years, if their bid in movies is successful, a $60 billion price tag for Netflix is going to look cheap.
Writing for BuzzFeed, Mike Giglio talks about how ISIS is furiously using all means at their disposal to wage fierce war. One of those resources is using drones to drop bombs on the US-led coalition.
The Consequences of Size
The very first Apple product that I ever purchased was the 3rd generation iPod Touch introduced in the fall of 2009. I bought it specifically to store my music when I went to the gym or out for a run, but I was blown away with how much more capable it was compared to the Creative Zen mp3 players I had been using prior. Despite how great it was, I disliked having to carry a flip-phone in one pocket and an iPod in the other. One of them had to go.
Technology as Destroyer of Mankind?
The more I see and hear artificial intelligence discussed in a future context, the more I hear echoes of the biblical story of the great flood. Some use this account to dismiss the God of the Bible, Elohim, because it seems so extreme. Many are quick to throw accusations at Elohim such as how could a good god allow pain and suffering in the world or how could a good god allow mass genocide by wiping out mankind with a flood. This flood accusation I find particularly interesting, because the more we start to discuss the future power of artificial intelligence (AI), the more relevant it becomes.
CFO Departures Are…Odd
It’s interesting that Tesla’s CFO had an abrupt departure from the company just before the quarterly earnings were announced.
More than any other function within a company, the Accounting and Finance group has accountability to the board of directors. The CFO is hired by the CEO and reports to him, but he works for the board of directors as well. As such, the accountants have a fiduciary responsibility to adhere to generally accepted accounting principles whether the CEO agrees with them or not.
That Which Was Not Possible, Now Is
One of the reasons I love my 9.7" iPad Pro is because it can do things better than either my iPhone 7 Plus or my MacBook Pro. One of those “things” debuted with the original iPad but can be further improved. That would be reading books.
The Liberal Media Is a Disgrace
When the Russians hacked the DNC I said that it didn’t matter where the info came from because it didn’t change the nature of how the DNC conspired against Bernie Sanders. And when the leaks showed that Mike Flynn lied about speaking with his Russian counterpart I had the same attitude. Leaks or not, Trump had to let him go.
I didn’t understand the doom-and-gloom last January. As growth funds started selling their positions in Apple (AAPL) when it became evident that the iPhone had suffered its first ever decline, writers were freaking out as if Apple stock was on a long ride to zero. They totally ignored the fact that Apple had a steady business, high margins, and a good management team. Their pessimism didn’t make any sense.
Time for Apple to Try Something New
Above Avalon's Neil Cybart had written a piece this week discussing his rationale for why he didn’t think that Netflix made sense for Apple (AAPL). If you look at Netflix (NFLX) as simply augmenting Apple’s service side of the business, then I would agree with Neil. However, if you model a scenario where Netflix is able to boost Apple’s smartphone market share, a Netflix purchase makes perfect sense.
One of These Is Already Changing the World
Writing for the Wall Street Journal, Christopher Mims backs up my contention that it is companies like Apple (AAPL) or Google which are the more important force behind changing the world compared to companies that move pounds like Tesla or Amazon:
Almost every day when they get home from school, Gracie, age 16, and Sarah, age 14, open the app Houseparty, where they can video chat with to up to seven of their friends at once. The sisters, who live in Danville, Calif., use it to socialize and collaborate on homework, for 15 minutes to an hour. When they first open it they may be chatting with just one friend, but everyone they’re connected to on Houseparty gets a push alert that they’re “in the house,” and, soon enough, the room fills up.
It may not necessarily be a change for the better, but it is true social upheaval. No car necessary.
Physically moving objects is still all about eliminating friction. The potential for changing where we go or what kind of products we use is limited.
Moving data is changing the way people live. Our habits are changing, our friends are changing, and the kind of products we use is changing. The Android app Houseparty is just one small example of many.
No Universal Living Wage Required
I heard Elon Musk theorizing about how in the future so much of manufacturing will be automated that governments will need to consider moving society onto some kind of guaranteed universal income. The problem with Elon’s statement is that he’s forgetting about the law of unintended consequences. And there will be some very real consequences to automating manufacturing.
APPL at All Time Highs
Michelle Jones writing for Valuewalk is reporting that Apple’s (AAPL)sudden stock movement is putting the hurt on short sellers who had bet against Apple prior to the latest quarterly earning release. I even read about one investor last week who had put every dime he owned betting that Apple stock was going down. That was a bad bet.
Apple Doubles Down on iPad as a Laptop Replacement
Apple (AAPL) just came out with an iPad Pro ad campaign that doubles down on their view that for a large segment of the market, the iPad Pro can replace the laptop. The campaign seems aimed specifically at Windows PC users, which makes a lot of sense. Windows switchers have been coming to Apple via the MacBook Pro and ending up with an iPad in the end. Why not short circuit that route and just send them directly to the iPad? This would yield a lot more switchers going for the iPad Pro, which starts at $599. Judging from the ad campaign, Apple obviously sees the iPad as more than a leisure-time device for reading magazines.
Noah Smith at Bloomberg is writing about how monopolies may be worse than we thought, and Apple (AAPL) is used as an object lesson.
A recent paper by David Autor, David Dorn, Lawrence Katz, Christina Patterson and John van Reenen speculates that tech might have enabled the rise of a few “superstar” companies in each industry. The fact that leaders in more concentrated industries also tend to have higher productivity supports this hypothesis. Technology might have simply changed the nature of markets so that the winners take most of the profits.
This could happen because network effects have increased. For example, iPhones are popular in part because of Apple’s large app store, and the app store is large because developers want to write apps for popular phones. Or in finance, having a larger network of counterparties could be more important to banks in the internet age.
Auto Makers Seem to Think So
I find it increasingly perplexing that ten years after the birth of the modern smartphone movement, with Apple’s (AAPL) launch of the iPhone, automakers continue to refuse to accommodate the masses with mounts built into the dash. Sure, they’ll provide you with all manner of ways to charge your iPhone, lay it flat in an out of way cubby hole, or even connect to it so you can access media. But will they allow you to mount it so you can see the screen? No.
An Apple Display Could Change Everything
I have first-hand experience with how horrific the display business is. If all you have to offer is a dumb display, then good luck with that. But even I will acknowledge that there are strategic situations where it makes sense to be in the business of displays. The iMac is a good example. At the time, there was no good way to get a 4K monitor paired with a desktop computer unless you did what Apple did and bypass cables.
When an organization has a string of amazing success over a long period of time, the chatter usually shifts away from the individual players and onto the management. Who setup the system that drives the success and how does it work?
Unlike macOS, iOS is already well entrenched in the enterprise world. The iPhone is the defacto mobile standard in business. So it makes sense that when Apple contemplates a full-scale assault on enterprise that they start with their Trojan horse. Windows will probably continue to own the enterprise space for the foreseeable future, but if Apple could get to 20% penetration, this would be many times larger than their current entire Mac business.
Manufacturing and distribution analysis since 1993.