What I am about to write will be wildly unpopular amongst Apple’s cult following, but remains relevant nonetheless. It will be controversial and, to some fan boys, unbearable. However, this is the opinion of an investor, not a consumer (although I do own two MacBooks, five iPods, two Apple TVs, two iPads, and an iPhone). Knowing this, please keep in mind that if I were to hypothetically favor a company, my bias would be in favor of Apple (AAPL). My view is that Apple, as a long-term investment, holds very little value, aside from its generous dividend. I ask readers, especially Apple addicts, to withhold their emotional responses to my article, and to instead focus on the content. With that said, let’s examine how Apple has positioned itself to become the next Microsoft.
Before I break down Apple’s demise from a revolutionary tech company to that of a Microsoft clone, allow me to share the history of other companies who once held Apple’s prestigious reputation in their respective industries. Remember that, at their respective heights, no one thought the following companies would ever fall from their pedestals, and to think so was ludicrous.
(The following values have not been adjusted for inflation).
Microsoft (MSFT): The largest computer software distributor in the world, Microsoft once controlled the PC industry with little competition. At its peek in the late 90s, Microsoft traded at $58.38 per share and was valued at roughly $485 billion. Now, Microsoft trades at $40.01 and is valued at $332 billion.
Xerox (XRX): Many people don’t give Xerox credit for its revolutionary strides. When people think Xerox, they simply think of office equipment. If you find yourself in this boat, I strongly suggest you do your homework. Xerox was once a tech powerhouse of the Silicon Valley, and a favorite of Steve Jobs. At its peak in the late 90s, Xerox traded at $62.00 and was valued at $72.5 billion. Now Xerox shares trade at a mere $11.43 and the company is valued at $13.36 billion (quite the fall from grace).
Yahoo (YHOO): It may now seem surprising that Yahoo once dominated the Internet services sector, given the recent successes of Google. However, Yahoo was, believe it or not, the go-to search engine of the world. In December of 1999, Yahoo traded at an astonishing $108.17 and was valued at $109.25 billion. Now, Yahoo trades at a lackluster $36.38 and is valued at roughly $37 billion. What’s more incredible is that, prior to Marissa Mayer’s hiring in July 2012, Yahoo consistently traded at an average of $15, which would place its market cap at $15.15 billion.
Hewlett-Packard (HPQ): Once a household name for computers, printers, and even tablets, HP has faced dramatic setbacks in both its B2C and B2B operations. At the turn of the century, HP traded at $76.50 per share and was worth $145.35 billion. However, HP now trades at $31.92 and is valued at $60.64 billion.
Cisco (CSCO): A formidable tech foe in the 90s, and still the leader in IT, Cisco has seen a large decline in its share price and market cap. During its heyday (in early 2000), John Chambers had Cisco shares trading at a high of $77.31, which resulted in a staggering $398 Billion valuation. However, Cisco’s gradual decline to normalcy has resulted in a decade long stagnant stock price, last closing at $23.21, and a market cap of roughly $120 billion.
Nokia (NOK): Few recall that, prior to the iPhone, Nokia was the popular handset of choice. This monopoly over the cellular devices market valued Nokia shares at $58.50, and the company at $217 billion (in early 2000). However, since then, Nokia has lost nearly $200 billion in market cap. Nokia now trades at $7.34 and is worth an abysmal $27.25 billion (read why it’s still a value buy here).
And then there are the Silicon Valley tech behemoths and trendsetters that simply couldn't survive. Such companies include 3Com (acquired by HP), Sun Microsystems (acquired by Oracle), Palm (split), Napster (acquired and resold by Roxio, Best Buy, and Rhapsody), Dell (privately acquired), etc.
I know what you’re thinking, that Apple doesn’t fall into the same categories as the aforementioned companies, that Apple caters to a niche market with diehard consumers, that Apple maintains vastly different operational and managerial structures, that Apple’s product and patent portfolios are revolutionary (and lucrative), and that Apple retains far too many assets to simply disappear. And as of now, you are, for the most part, correct. However, we must analyze the long-term consequences faced by Apple if it doesn’t adapt to an evolving market.
The popular misnomer (as of now) is that Apple is a “revolutionary company.” Indeed it is not. Apple was once a revolutionary tech company, but that spirit undoubtedly departed with Steve Jobs’ passing. Ever since Tim Cook took over as Apple’s Chief Executive Officer, the company has stagnated from a developmental standpoint. No longer is Apple leading the pack in consumer electronic devices, it is instead playing catch-up to its competitors. That’s not to say that Samsung, Amazon (AMZN), and Google (GOOG) necessarily produce wonderful products, but they do cater to market demand much quicker than does Apple. Additionally, Apple has created only three truly innovative products: the iPod, iPad, and Apple TV. To everyone who thinks the iPhone, iPad Mini, Mac computer line, MacBook line, Airport Routers, iTunes, iWork, App Store, and iCloud were Apple's inventions, I’m sorry but you’re simply misinformed. These were merely, in most cases, much better versions of already existent products. Steve Jobs even infamously said, “good artists copy, great artists steal,” and that “Apple has always been shameless about stealing great ideas” (see below). In this respect, Apple has truly dominated its competition. Its success has come from developing foreign ideas far beyond our imaginative capacity; Apple routinely adds features, simplicity, and sexiness to its product designs. As a result, when paired with its truly revolutionary concepts, Apple has positioned itself as America’s most valuable company (for now).
This model has served Apple well, and will continue to do so for some time. Simply look at Apple’s sales figures since 2000 and the evidence is quite convincing. However, as was seen with the large tech companies I outlined at the beginning of this article, such a strategy will not result in successful long-term growth. Quick responses to new market demands, in addition to revolutionary product development, keep companies like Apple at the front of the pack. Unfortunately, for better or worse, Apple has always taken its sweet time in getting products to consumers, and is far less revolutionary than it once was. These two characteristics of Apple are of much harm to shareholders. Yes, Apple generates ridiculous sales figures and shareholders are currently content. But this will not hold true if Apple doesn’t change its company mentality. If Apple continues down this treacherous, boring path it will end up like Microsoft: still alive, still large, still valuable, and now irrelevant.
The fact that Steve Jobs was unwilling to accept consumer interest in small tablets may have been the start of Apple’s demise. As a supplier, it is Apple’s responsibility (specifically to its shareholders) to capitalize from market demands. Although Steve Jobs personally thought the iPad Mini was a pointless concept, it was still his duty to pursue the idea to increase Apple’s bottom line and competitive edge. Eventually history proved Steve Jobs wrong and, because of his stubbornness, companies like Samsung, Google, and Amazon initially capitalized on the popularity of mini tablets. The same can now be seen with wearable technology. Obviously I can’t say with certainty when Apple began to pursue wearable tech options, but I do know that Google has been working on Glass for years, and that companies such as Pebble, Motorola, Samsung, Fitbit, and Jawbone have each beaten Apple to the wearable wrist tech and health services arena. Although there is mounting anticipation for Apple’s iWatch, the company’s untimely development habits have no doubt left money on the table (which has been happily acquired by its competitors).
Believe me, I want Apple to succeed. I love its products far more than any other company’s. However, from an investment standpoint, I’m not entirely onboard. There’s a reason that, despite calls for Apple stock to surpass the $1,100 mark, the company has traded between $400-600 for the past two years. Likewise, the reasons for Apple’s $3.05 dividend and Carl Icahn’s push for Apple to execute a $50 billion buyback stem from the fact that investors are not satisfied; they aren’t experiencing large enough returns on their investments, at least not to the extent one would expect from Apple.
If Apple is to remain the successful company built by the hands of Steve Jobs, it needs yet another cultural revolution. The company culture Steve Jobs infused was great for the time he was there, but like all things it needs to evolve. We can’t expect Apple executives to have the same revolutionary foresight as Jobs, yet we can demand a cultural shift that aligns with Apple’s goals and market needs. If Apple can overcome this difficult transition, we are sure to witness further greatness from this American beauty.