Categories

Interview With Horace Dediu: What To Expect When Apple’s Expecting

My thanks to Eric Jackson for his thought-out questions on Apple. As published in Forbes, here is his Interview With Horace Dediu: What To Expect When Apples Expecting.

A few excerpts:

Q: Do you expect to see a sapphire cover on the new iPhone(s)? Is that material significant?

I expect Sapphire will become a signature feature across many products. I don’t know if they will have capacity to deploy on iPhone this year but on a watch it’s essential. Here’s a clue: if the screen has any curvature, especially around edges, it needs to be sapphire as glass can’t take strain in that shape. The scope of the plant they are building with GT implies that they will have massive volume potential with at least one major iPhone model using the material. It’s a significant material because it allows design freedom in new directions, especially curved (concave) touch surfaces that retain a jewel-like feel. This has Jony Ive all over it.

Q: Is it fair to conclude now based on the 5C and 5S that Apple will never launch a “cheap iPhone”?

Oscar Wilde said a cynic is someone who knows the price of everything and the value of nothing. When I see the word “cheap” I never know if it refers to price or value. And even when we talk about price, an iPhone is cheaper than buying all the things it replaces so it’s always been a low end disruptor in my mind. (I saw a tweet with an image of a Radio Shack ad from the 1980s and every single item available on that page is now a part of the iPhone. It would have cost thousands to buy all those things back then–and dollars were worth a lot more.) Furthermore, I think Apple holds a black belt in pricing. They seem to define their position in the market by anchoring certain prices and “owning” them. Given all that I would say that Apple is not going to move their price points much. They will expand the portfolio and offer some iPhones at $300 but they will be older models. The average selling price (ASP) I expect to remain constant on a year-long average.

Q: In the past, Apple critics were quick to dismiss the new iPad and 5C iPhone as failures upon their introduction.  You never judge. You just report the facts and data.  That said, is there anything about past new Apple products launches that we should look at as a predictor of how a new iWatch might be received by customers?

When the iPad was imminent the great debate was over whether it would run iOS or OS X. Many imagined a touch-based Mac rather than the “big screen iPod touch”. It was a tough call and one which Microsoft could not and still does not make. Therefore, the interesting question for me with respect to iWatch is: What OS it will run? I will be shocked to the core if it does not run iOS. It is my opinion that making iOS work on it is the entire reason Apple is sweating this segment. They are in it because they are trying to make a platform product with a novel user experience and all the power of an ecosystem run on a wrist. It’s as big a problem as getting a phone-sized device to run a touch UI was in 2007. That is the crucial contribution that Apple is making to this next generation of computing. Now you might ask what users are asking for in this segment. The answer is nothing. Nobody is asking for this. As nobody asked for the iPhone (or the Mac or the iPad). It’s a new computer form factor and how it will be used will be determined by the apps written for it. But it will work and be magical out of the box in version 1. This is in contrast to the single purpose or accessory model of wearables we see to date.

Q: As a student of disruption, where is Apple most vulnerable to being disrupted?

Apple is a new market disruptor but much of what is put forward as a threat to it is low-end disruption. I think Apple knows enough about how that happens that it can manage its way around it. The strategy they employ is one of attrition. If you wait long enough a low-end threat tends to wear itself out as it starves of profit and is constantly gnawed-at by alternatives. (You see, if the disruptor cannot manage a profit then they cannot climb up the trajectory to get on top of the incumbent. Being profitable is a key requirement for successful disruption in the long term.) The attrition strategy works as long as you have the fortitude to hold out and the deep pockets to keep improving your product as alternatives flame out. It is my belief that Jobs made sure that thinking is inculcated in the company. So if not low-end is the company vulnerable to new-market disruptors? This is more subtle and the threat here is what Google/FaceBook/Amazon and the other ecosystems are all about. It’s creating new usage models and shifting where consumers place brand value. I think this is more what keeps Apple’s management awake at night. They are not standing still however. iTunes and Software and Services (now with Beats on board) is the way they are staying on top of that threat.

Lots more here.

Asymcar 17: 27 Quadrillion BTUs

Part I is a review of the “automotive stack” and note how there is no singular event that seems to affect disruptive change. From changing jobs to be done, modular design and manufacturing processes, powertrain evolution, urbanization, environmental interests, regulation and taxation.

Part II is a review of a framework of analysis based on sources and uses of energy.  Inputs, efficiency/losses, network effects and inertia, what can change and what can’t change.

For a shot of theory, Horace reflects on the dichotomy of efficiency vs. efficacy when it comes to predicting change in the sector.

via Asymcar 17: 27 Quadrillion BTUs | Asymcar.

The Critical Path #119: Creativity and Engineering

Predictions of the iPhone Portfolio, big screen phones and what they are good for, and a tentative review of Ed Catmull’s “Creativity, Inc”

5by5 | The Critical Path #119: Creativity and Engineering.

Cash exceptionalism

Prior to implementing a dividend and share buyback plan, Apple had accumulated about $120 billion in cash and marketable securities. In the eight quarters since implementing the cash return plan, Apple has paid about $21.5 billion in dividends and spent another $53 billion of its shareholder’s money buying its own shares and retiring them. That’s $74.5 billion in cash that’s been removed from its balance sheet.

To avoid some repatriation taxes it also borrowed about $29 billion.

Of course, in the meantime, it also generated cash from operations.

Before the plan’s implementation, eyeing the cash allowed for easy tracking of the accumulation of retained earnings. After the plan it’s become a bit more complicated. The following graph shows all the quantities involved:

Screen Shot 2014-08-18 at 8-18-2.09.00 PM

The graph lets us answer the question “What would have happened if Apple had not paid any dividends, bought back shares and taken on debt?”[1]

The answer is in the blue line. It would be about $210 billion today. There are about a dozen companies other than Apple worth more than that amount.

As the company is not growing as quickly as it used to, the slope of the blue line is constant (i.e. it’s nearly linear.) Though that might be seen as evidence of failure, it’s more useful to treat this vast quantity as a recognition of past successes. The company’s beleaguered status needs to be carefully preserved.

Notes:
  1. The grey and black area of the last column is the total “cash returned to shareholders” and sums up to the $74.5 billion mentioned earlier. The grey area is only theoretically valuable as it depends on the outstanding (i.e. not retired) shares retaining their value. In this case, the value of the shares grew, making this an actual gain for shareholders []

Sponsor: Gaslight

Leap your toughest business problems in a single bound.

At Gaslight, we transform businesses with technology. Let’s work together to build custom software that gives your business superpowers. The kind that allow you to boost profits, innovate faster, launch a new revenue stream or radically improve productivity.

We believe in the power of:

Small, mighty teams: We’ll assign a strong dedicated team, often two developers and a designer, to work on your project.

Laser focused work: Our agile development process allows us to build software faster and focus on building the features that deliver the most value to your business.

True partnerships: We consider our clients part of the team and collaborate with them on a daily basis.

Read our case studies to see how we’ve given other businesses superpowers. Or reach out to kick off a project.

p.s. 5 signs your business needs custom software

516_Aug18_AsymcoSponsored via Syndicate Ads

Beleaguered

Amazon’s recent disputes with publishers (Hachette and Disney) shows a degree of market power that is closer to monopsony than to monopoly but this power is nevertheless real. It may not not be something that requires intervention, regulation or even scrutiny but market power is evident in both how companies operate and in how they are valued.

If you look at the following graph, it’s easy to spot those with “monopoly” power. The graph shows a short history of revenues/operating income and P/E ratios. Modest or no growth in earnings coupled with extraordinary high P/E ratios indicate that the market understands the business is not threatened by competition.

Screen Shot 2014-08-14 at 8-14-1.40.47 PM

On Capital Allocation

One of the paradoxes of the “post-industrial” era is the aversion to application of capital to growth opportunities. Generally speaking, capital has become trapped in bank accounts as opposed to equipment which could be used to produce value. This aversion is rooted in many dysfunctions, chief among them being the misunderstanding of the purpose of the firm.

But there are exceptions. Illustrated below are the patterns of spending in property plant and equipment (capital expenditures) by companies that still recognize that there are opportunities to be obtained by investment in the means of production.

Screen Shot 2014-08-13 at 11.36.03 AM

Best guess for how many iOS devices will ship in 2014

In October 2013, at the end of its last fiscal quarter, Apple stated:

The Company’s capital expenditures were $7.0 billion during 2013, consisting of $499 million for retail store facilities and $6.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure. The Company’s actual cash payments for capital expenditures during 2013 were $8.2 billion.

The Company anticipates utilizing approximately $11.0 billion for capital expenditures during 2014, including approximately $550 million for retail store facilities and approximately $10.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and corporate facilities and infrastructure, including information systems hardware, software and enhancements.

These 10K (fiscal year annual) forecast figures for capital expenditures are shown in the following graph. Note that they also include the fiscal years from 2006 to 2012. Note also that the graph includes the actual expenditures (in green).

Screen Shot 2014-08-12 at 5.37.57 PM

From 2006 through 2013 the sum of the forecasts was $23.445 billion while the sum of the expenditures were $24.662 billion. With the exception of a carry-forward in 2012, the forecasts are broadly in-line with expenditures, with about 5% more spent than forecast.

This pattern of accuracy in spending makes a $10.5 billion expenditure during the current fiscal year believable. In other words, taking the forecast at face value, and given that three quarters of the fiscal year have already passed, what does it imply for the current and last quarter? The following graph shows what Q3 spending should be relative to previous quarters (and 2011, 2012 and 2013).

Sponsor: Dash

With Dash you can quickly make real-time dashboards. They have an API that allows you to share data from Dropbox or the web with custom widgets like Charts, Speedometers, and Tables. Dash also has dozens of pre-built widgets for services like Google Analytics, App Store Rankings, Twitter, appFigures, GitHub, Pingdom, Chartbeat, News, and Weather.

Dash has three pricing tiers:

– Free: Unlimited public dashboards, one private dashboard
– Pro: Unlimited everything
– Business: Unlimited everything, sharing within teams

Sign up now for your free dashboard. No credit card required.

This month’s featured dashboard is live website monitoring. Spider Strategies makes balanced scorecard software, and they use Dash to track all of the visitors to their website.

253_Aug04_Asymco

 

Sponsored via Syndicate Ads

Open always wins

ABI Research estimates that AOSP (or forked Android) is the fastest growing mobile operating system with a total share of units shipped of about 20%. This is not surprising considering that most Chinese vendors don’t include standard Android into their products. Indeed the current leader in China, Xiaomi has its own take on Android and includes a unique UI and set of services. This is also not a new pattern, Amazon’s fork of Android has been in development for many years and powers the second most used tablet in the US.

If one looks at the volumes of smartphones shipped by vendor, the most rapidly growing (Huawei, Lenovo, Xiaomi, ZTE, Coolpad and “others”) are likely to be using forked versions of Android.

Screen Shot 2014-08-07 at 7.06.09 PM

The reasons for this are many: a reluctance to deal with Google’s obligations,  Microsoft’s IP licensing costs[1] , potential litigation, politics (including bans on Google services in certain markets), etc. But the most likely reason is flexibility. Vendors competing on price and localization are looking to move quickly against each other and can’t wait for blessings from above. Belonging to some “Alliance” and all that it entails is just too much to ask for companies that are, so to say, delicate.

Notes:
  1. which even Samsung seems to be eschewing []