Posts Tagged ‘apple’


There is a university, its location is not well known, maybe you travel there from platform nine and three quarters at King Cross, but it is called the School of Technology Phobia.   While we don’t know the location, it does seem likely that the University of Luddites is nearby. Graduates from the former of these institutions have been busy during the last few days, pouring their scholarly ideas across the ether. As a result, shares in Apple look like they are on helter-skelter, hurtling towards the earth.

That may be little unkind. That is to say unkind on Apple. It remains the world’s largest company and its shares did not so much as tumble, as reverse some of the stellar gains seen in recent months. But for the ladies and gentlemen whose cynicism led to the shares falls, the words are not all unkind at all.

Shares in Apple fell, and they fell quite sharply this week, as the company revealed truly stunning results. Revenue was up 112 per cent, sales into China doubled.  If the Apple share price falls after results like that, one wonders what might happen if it had an normal set of results

Apple’s problem is that it is the world’s biggest company by market cap. When you are that big it is hard to grow. Apple needs products that command high retail prices and it needs to sell them in droves. That’s why some think it will be turning to cars next, or even into the world of energy generation and storage.  The iPhone did alright in Apple’s latest quarter, in fact sales were up 35 per cent. According to the school of thought most people sign-up to, a 35 per cent rise in sales of any product is considered pretty exceptional. It is just that when it comes to Apple, it seems many analysts and investors went to a different school, the one mentioned above.

One day, but we have no idea when, smart phones will stop selling. Maybe it will occur when Moore’s Law runs out of puff, maybe it will occur when smart phones are replaced by chips that sit inside our heads. So while Apple enjoyed revenue topping £13.2 billion in its latest quarter, and its valuation to projected earnings is nothing alarming, cynics fret that one day it will run out of road.  Contrast that with Exxon Mobil, Apple’s main rival for the tile world’s largest company, it specialises in a product that the world will always want, namely oil, or so goes the argument.

As it happens, with technology advances in renewables, energy storage and synthetic oil there is no guarantee the world will always want Exxon Mobil’s core product. Apple, however, has another advantage. To explain why we need to look at psychology.

When it comes to paying for stuff, our purchases are likely to be greater if there is distance.  It also helps if things are easier.

If you were to tuck into pizza at the local Pizza café, and you were charged by the bite, you might soon get fed up. Setting aside the inconvenience, with each bite you will be thinking about the cost. So you pick you your fork, move the pizza to your mouth, and quickly tap in your pin number authorising another 30 pence. As you munch away, you will be thinking about the cost. Dan Ariely prosed the pizza idea to explain the concept of the ‘pain of paying’.

Other research shows that people who live in apartments in New York spend more on their laundry if they pay by tokens than by coins. The same psychology explains why casinos provide customers with chips – They spend more money that way.

For similar reasons, we spend more when we use a credit card than when we use cash. The lower the ‘pain of paying’, it appears the more we pay.

Now consider Apple Pay. It will be to the ‘pain of paying’, what morphine is to a headache. Apple Pay will make money for retailers, and Apple will be paid handsomely for this by them in return.

Now consider the Apple watch. It’s odd, isn’t it? When was the last time you used a pocket watch.  Wrist watches replaced pocket watches because they were more convenient. Odd then, that critics of the Apple Watch, which is after-all— a computer to sit on your wrist, don’t get why it is had advantages over a pocket smart phone. There is another benefit. As Daniel Kahneman illustrated in his book Thinking Fast and Slow, we can be quite impulsive. If spending money involves touching our wrist, and if that money is then distanced from our bank account by Apple Pay, we are likely to spend more

It is just another reason why we need to listen to graduates from the schools of technology not, technology phobia.


The deal between Vodafone and Verizon announced earlier this month is, in fact, the third largest corporate deal in history. In comparison the deal between Microsoft and Nokia is small beer, but it is still a massive arrangement by any normal yardstick. Interest rates are low, but they may not be low for much longer. Is now, and pretty much right now, the time for a new M&A boom?

Let’s look at some of the reasons why the two mega deals of this month have happened. Okay, there is good strategic fit. Verizon and Vodafone both see new opportunities, particularly thanks to 4G in their domestic markets. In the case of Microsoft and Nokia the rationale for the arrangement is pretty obvious and has been discussed to death elsewhere.

But consider two other factors less commonly discussed. In the case of Vodafone and Verizon the factor is low interest rates. Fears that rates may rise soon, was possibly the main rationale for the timing of their deal – indeed Verizon referred to this very point. In the case of Microsoft, the software giant is one of the companies with a massive cash pile. There are many of them. Corporate cash piles have been a particularly notable phenomenon of recent years. Market bulls have been predicting the release of this cash mountain for some time. In the case of Microsoft, its partial release has been triggered by desperation – fear of Google, Samsung, and Apple, even Amazon. Other companies may start spending because they see signs of an economic pick-up. The reason may not matter. It was surely inconceivable that companies were going to sit on all that cash for much longer, but a trigger was required to release it.

Look further down the corporate league and other evidence of new M&A activity emerges. David Lloyd Leisure has been bought by private equity firm TDR Capital – and its new owners have plans for expansion.

The ‘Telegraph’ recently quoted Greg Lemkau, who is the co-head of M&A at Goldman Sachs, as saying: “Within two or three years from now, people will be looking back on this time as a golden opportunity.”

But the overriding point is this. The economy both here and in the US seems to be improving, and pretty significantly too. M&A is always popular during an economic upturn. But because interest rates are set to rise, the ideal timing for such activity is now.

Not everyone in the corporate world has cottoned on to the recovery; they were likewise slow to spot the seriousness of the crisis five years ago, but as the recovery gatherers momentum, the penny will drop, and then we will see a rush for leveraged deals before rates rise much further.

What are the implications? AS M&A activities rise, so too will equities. The FTSE 100, the S&P 500 and the Dow will all pass new highs – probably.

Is it all a good thing in the long run? Well that will be the subject of another article.

© Investment & Business News 2013


Wearable technology: they say it is the next big thing. What are you going to wear today? Oh I think I will don my T-shirt that helps my breathing, my pants that make me more virile, and my new shoes that count how many miles I have walked in a day. What about you? Oh I am planning to wear my new suit. Samsung has made its first big move, and it seems as revolutionary as a new TV for the 21st Century that can show colour images. If this is the latest example of technology that is set to change the world, and turn some of the world’s biggest companies into something much bigger, then I have this new concept you will love; it is called sliced bread. Yet for Apple – the company that for a very short while was the biggest firm in the world last year – we can draw a quite different conclusion. Samsung’s half-hearted step into the world of smart watches shows that once again a spectacular opportunity awaits its US rival.

Did you ever read Douglas Adams? You may recall that some of the regular jokes in his ‘Hitch Hikers Guide to the Galaxy’ series were those that described humans as so primitive that they still thought digital watches were a smart idea. For a while, back in the late 1970s and early 1980s digital watches seemed like a step towards a future envisaged by Isaac Asimov and Aldus Huxley. As an aside, if you took an exam in the early 1980s – and yours truly took many – and you shared the examination hall with engineering students, then every hour, on the hour, beeps rang out across the room. That was in the days when engineering was on its way out, and James Dyson’s dream of creating an engineering-led revolution seemed as likely as the idea that one day our digital watches might be replaced by telephones.

The new Samsung watch was released yesterday. It looked as elegant as a brick tied to a wrist, as useful as a spare appendix. It can make phones calls if you lift your arm up, it can take pictures, check emails and receive texts, but it can only do these things if you have your Samsung smart phone with you.

In other words it can do some of the things a smart phone, can do, though presumably not as well, but only if you have your smart phone to hand. This begs the question, of course: why not get your smart phone out of your pocket? Are the timesaving benefits of being able to look at your wrist over taking a phone out of your pocket so significant that it is worth spending all that extra money on a smart watch?

But that does not mean smart watches are not a good idea. They need to be better. For one thing they need to be standalone. Sure, they should be connected to the Internet or indeed the Internet of things, but if it needs a control box on your person to make the smart watch work, it does rather defeat the purpose. For another thing, if you are going to wear one of these things, they need to look smart not merely be smart.

They say first move advantage is crucial. Well, not if the first mover move is like this. The only thing likely to be moved as a result is profits turning to losses. This is why design is so crucial. And this is why getting the user interface and the functionality right is so vital.

Samsung’s launch yesterday does not show that it has caught up with Apple. It does not show that the company is more than a follower. What it does show is that no one can yet do it like Apple has done it before.

Maybe the next Samsung watch will be a big improvement. Maybe the Apple watch will be as exciting as wearing a damp squib on your wrist; there is no way of saying for sure. But there is no reason, no reason at all, to think Apple has been knocked off its perch as the greatest innovator in consumer electronics. There are plenty of reasons to think, however, that Apple’s growth has merely hit a temporary lull.

© Investment & Business News 2013


Over the weekend the press were full of talk of Steve Ballmer, the CEO of Microsoft, who has announced his plan to retire next year. This begs the question: what next for the company? Should it revisit the idea of a merger with Yahoo?

Some focused on the somewhat less than gushing terms of the Microsoft release announcing Ballmer’s retirement. Some reckoned they saw hints of a rift between Ballmer and Bill Gates. The two men have been colleagues for decades. By the way, Ballmer was Microsoft’s 30th employee, joining the company in 1980. He became CEO in 2000.

It is not hard to point to what is wrong with Microsoft these days, and as the boss Ballmer will clearly receive most of the blame.

It is not so obvious that things would have been much different if Bill Gates had stayed at the helm. Gates famously failed to predict the rise of the internet, so it is doubtful whether he would have come up with a plan to counter the threat posed by Google, Apple and Facebook.

In fact, you may recall that back in the 1990s Microsoft, led by Bill Gates, and Apple began a joint venture. Some Apple aficionados saw a tie-in with Microsoft as akin to a pact with the devil. Few foresaw a day when Microsoft would be struggling, and living in Apple’s shadow.

But will Microsoft come back?

It is suffering from classic innovators’ dilemma with a little bit of recession to the mean thrown in for good measure. See: The UK’s export-led recovery

The market it has dominated for so long is changing – arguably disappearing – and Microsoft seems to be left plugging technology people no longer want.

It was not always this way. Back in the 1980s, Microsoft learnt how to experiment. To tell the story, we must rewind the clock to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’. These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

By Ballmer’s own admission, Surface was a bet-the-company product, but there was never a need to take such a gamble.

What of the future?

Not so long ago Microsoft tried to buy Yahoo, but the price seemed to be the sticking point. Under  the dotcom seems to be staging something of a renaissance.  Maybe some kind of merger should come back on the agenda, but it’s difficult to see Mayer heading up Microsoft. If, however, she was to head up some kind of joint venture between Microsoft and Yahoo, now that might be more interesting.

© Investment & Business News 2013


What have Apple and the Duchess of Cambridge not got in common? Answer: Apple still needs a new baby. It’s the point that the markets don’t seem to get about the company. Its shares have been falling faster than a guillotine on the head of the last King of France, but the markets have been way too quick to write the company off. Yesterday saw good news from Apple as profits beat expectations and shares rose; but still the real story is being forgotten.

The company’s latest set of results were out yesterday. Profits fell to $7 billion in the latest quarter, from $9 billion in the same quarter last year. To put the numbers in perspective, profits from the equivalent quarter in 2011 were pretty much the same, but in for 2010 were only $3 billion, and just $1billion in 2009. In other words, they have risen sevenfold in four years, which some might say is impressive.

It was a similar story with sales, but if anything a tad better. Sales rose 1 per cent on the same quarter in 2012, and have risen by more than 400 per cent over the last four years.

But the markets don’t care about all that. What they care about is whether the company did better than expected, and on this occasion it did. It was down to the iPhone. It sold no less than 31.2 million units of the old girl in the quarter (compared with 26 million this time last year), a record for that particular three month period, in fact.

Sales of the iPad were down, and so were sales of the Mac, although in the case of the latter, the fall was not as great as that seen by the overall PC market.

Apple’s problem is that it is now operating in mature, or at least mature(ish), markets. When smart phones or tablets become commodities, margins will fall – it’s simple economics.

The company’s boss Tim Cook said: “I don’t subscribe to the common view that the higher-end smartphone market has hit its peak.” He added: “We saw very strong sales in many of the emerging markets.” And indeed sales into India, Turkey and the Philippines rose substantially. (As an aside, note that bit about sales to the Philippines rising. It is a different story altogether but worth mentioning at this point that at the moment the Philippines is one of the hottest markets in the world, from an investor’s point of view.)

But the real point is that Apple has proven itself to be the master of disruptive technology. It did it with the iPod, iPhone and iPad. When it comes to established markets it is just another player. Okay, it’s one with very pretty products, and maybe an important player, but Apple has no inalienable reason to outsell, say, Samsung in its key markets.

Apple’s big test lies ahead. The key for the company lies not with tweaking existing products, but disrupting markets with new products, such as smart watches or TV players.

Mr Cook also said: “Our focus is always on new products and services,” and “We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”

So how about that? – laser focused, no less. Let’s hope that the new products are not laser discs.

© Investment & Business News 2013

Hiatus. Sometimes we enter a kind of interim stage. And when that happens, it is human nature to see this as somehow significant. In truth it is as significant as a stopped clock telling us the time.

Google is in at the moment. Sure, its tax affairs are not in with politicians, and the holier than thou media. But this has nothing to do with Google being evil, or amoral, and it has everything to do with globalisation and technology, which makes it hard for governments to act unilaterally.

And with Apple’s share price having fallen sharply over the last year – from $702 in September to $450 at the time of writing – and with Google’s having risen – from $647 in November to $867 at the time of writing – their fortunes have been in stark contrast.

Apple’s market cap is now $423 billion; Google’s $288 billion. The gap appears to be closing.

Google has its glasses, its driverless cars, its new Motorola phone – talk has it that the phone will know when you are driving, know when it in your pocket. There is no talk of it being able to tell you whether someone of the opposite sex fancies you however – which may be a major oversight by Google.

Apple has… well, there will be a new iPhone and iPad, but there’s not much happening.

It appears that the number of Android Apps is set to overtake the number of Apple apps too. So far 50 billion apps have been downloaded for the Apple products; 48 billion for Androids. Apple reckons it is seeing around 2 billion downloads a month. Google says it is seeing around 2.5 billion a month. Analysts reckon total downloads for the Google family will surpass Apple downloads this year.

Apple’s shares are trading at a pe ratio of just 10.76. Google shares at 26. No wondering – let the facts speak for themselves.

Poor old Apple! It is hard to see how it can make do with a mere 2 billion downloads a month

Google is an exciting company, and it may well see its extraordinary growth rate continue for some time. But the markets may be writing off Apple far too soon.

Apple is not good at hiatus moments. Apple went from almost bust to becoming the world’s biggest company by market cap via disruptive technology. With its iPod, iPhone and iPad Apple invented a market place, or at the very least (in the case of the iPod) turned a niche market with a specialist following into a mass market.

Right now, the state of technology is such that we are in an in-between stage. We are awaiting the next phase in the evolution of technology. In nature evolution does not work at a steady pace, it often works in fits and starts, it is like that in business too.

To write off Apple now, at this in-between stage, is simply absurd. Its smart watch or TV player may or may not change the world, but until we know more, we cannot say whether Apple has lost its innovative edge.

As for downloads being a miserly 2 billion a month, don’t analysts have iPhones? Don’t they know that Apple tries to impose some form of quality control on its apps? Don’t they know that in the Apple market the onus is on quality over quantity? Apps downloads may be fewer, but are existing Apple apps used more or less than Android apps, do you think?

© Investment & Business News 2013

The penny has finally dropped. When individual countries try to tax companies the results is that the businesses go elsewhere, or hide behind their globalised operation to get around one country’s rules. We demonise Google and Apple, but the truth is that they are operating within the law. And when did it suddenly become immoral to try to reduce taxes while acting within the law?

The solution is global. EU leaders have agreed to agree, that one day they will agree. That may be a little harsh. The EU is to rush through rules to enforce greater transparency in how companies break down their business into the various regions in which they trade.

Ireland has spoken up. Its Enterprise Minister Richard Bruton told national broadcaster RTE that some companies “play the tax codes one against the other”. He said: “That is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that.” He does, ever so slightly, have the veneer of a Turkey that has just voted for Christmas.

The big problem with the issue of corporate tax, indeed a financial transaction tax, is that the challenges posed by globalisation have been hijacked by those who favour tax cuts no matter what.

When one country, or even a region as large as the EU, imposes a financial transaction tax, or a tax on corporate profits, there is always a risk that multinational companies will simply move to another region, taking jobs with them. And they can always use the multinational nature of their business to circumnavigate paying taxes.

The fact is that across the world, corporate profits to GDP are approaching an all-time high. Much of the money generated by large companies is not creating wealth; rather it is sloshing around the system ending up in government bonds. And because, thanks to austerity, governments are not spending the money the markets want to lend to them, the result is economic stagnation.

The fact is that distribution of income and wealth across the world is becoming more uneven. You don’t need to be a diehard flag carrying member of the Communist Party to think this is a problem. Right now, the global economy needs to see taxes used to take money from profits that are not otherwise being spent, and from financial transactions, to help alleviate the lot of those who are being penalised by globalisation.

© Investment & Business News 2013

The rumour mill has it that Microsoft is set for an embarrassing change in direction. When Windows 8 was announced, CEO Steve Ballmer called this a bet-the-company product. Well, the bet does not appear to have paid off.

The ‘FT’ drew a comparison with Coca Cola, when it announced Real Coke, only to reverse direction, after customers turned their noses up at the new drink.

Real Coke was a flop despite research showing that customers would prefer it.

But the analogy between Microsoft and Coca Cola is not precise. The drinks company changed because it thought it needed to progress, but it underestimated how unwilling customers are to change.

Microsoft, on the other hand, has to change. Innovation and potential disruptive technology demand it.

It is just that customers are conservative. Coca Cola found that they didn’t want to change drinks; Microsoft is finding that they don’t want to see such a dramatic change in their computer’s operating system.

This is classic innovators’ dilemma. See: Innovators’ dilemma Clayton M Christensen, who produced the study that we now credit with giving rise to the Innovators’ dilemma theory, found that most companies look to change their products, but it is their customers who stop them.

Take the disc drive industry, for example. The emergence of 5.25 inch disk drives for desktop computers changed everything. Many of the existing market leaders examined the new technology; some invested. However, they stopped short of embracing it; their customers used mini-computers and were not interested in “here today gone tomorrow” desktops.

By the time the desktop market was established, with 5.25 inch drives showing signs of dominance, it was too late. The new entrants, with their specialisation in the latest technology, held all the cards. The former heavyweights lost market share; many went out of business.

Microsoft is struggling to change because its customers won’t let it. As a result it is vulnerable to new disruptive technology. Microsoft has been here before, when DOS was heading towards the end of its natural life. But back then the company dealt with the challenge differently.

To tell the story, rewind the clock back to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’.

These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

At the time, the company was lambasted in the press for being inconsistent – for having no strategy. In reality, it was just opening itself up to internal gales of creative destruction.

And now back to 2013, it seems Microsoft has forgotten the lesson of DOS. Instead of experimenting, it bet the company.

Windows 8 was not a bad idea, but it was a mistake to rely so heavily on this one idea.

© Investment & Business News 2013

It has $144 billion in cash. Over the next few years it will no doubt bring in much more cash. Between now and 2015 it is giving away $100 billion in share buy-backs. That is no problem for Apple. Yet, to fund the share buy-back, Apple is going to have to borrow money. Why?

It doesn’t make sense does it? So I am going to give you £1,000 in 2015. I have £1,500 in the bank now, and each year my income is roughly £400 more than my spending. So what do I do, I ring my bank up and ask for a loan so I can pay you the money?

The thing is that around $100 billion of Apple’s $144 billion sits abroad. And if the company brought that money back into the US it would have to pay tax on it, and at a rate of 35 per cent.

This all begs the question: is this right? Is it right that a company can avoid tax by borrowing money, instead of drawing upon cash reserves?

Globalisation, ranks alongside the Internet as the greatest means for creating wealth invented since the end of the industrial revolution or at least since the age of symmetry.

But that does not mean globalisation is perfect. For one thing it has the effect of destroying the relationship between corporate profits and labour, so that wages have been falling to profits.

For another thing, it does play havoc with governments trying to enforce corporation tax.

Actually, for bringing in tax revenue, corporate tax is tiny. VAT, income tax and NI are what counts. This has led some to say get rid of corporation tax altogether. But maybe if companies paid the corporate tax they are supposed to pay, rather than using global markets to avoid it, tax receipts from this area would be much greater.

But now can it make sense to get rid of corporation tax at a time when corporate profits to GDP are rising? Remember, for an economy to grow it needs demand to increase, and that means it needs wages to rise. The answer is a minimum global corporation tax, but alas it is not an answer that the world’s leaders are even contemplating.

Apple’s cash pile is indicative of the single biggest problem with the global economy right now. Companies are sitting on cash and not spending it. Such a strategy may make sense for Apple, but it is playing havoc with the economy.

And so Apple is no longer number one. Its market cap dropped to a trivial, an almost insignificant $387 billion yesterday. Why there are simply loads of companies worth more than that – for one there is ExxonMobil, which is worth a full $7 billion more than Apple at the moment, and for another there is…well…maybe that is all there is. Okay Apple is number two in the league of the world’s biggest companies. Not that bad.

Its share price has done a pretty good impression of crashing over the last year or so, however. Not so long ago, shares were close to $700, now they are down to $402.

The latest falls in its share price were put down to an announcement that Cirrus Logic, which gets around 90 per cent of its revenue from Apple via the supply of audio chips, has seen a big build-up in its inventory.

Apple’s problem is regression to the mean. The issues and requirements of the smart phone and tablet world are well understood. Apple’s products are good, but so too are Samsung’s, HTC’s and even Sony’s. The latest move by Facebook into this field may yet prove to be another challenge for Apple.

Apple is just one of many players. A good player, granted; its products still look good. But why, just why, in such a competitive market should Apple outperform rivals?

Apple’s strength lies in disruptive technology. Or maybe that is not quite right. Its strength is to take existing technology that looks quite ordinary, add its designer expertise, and transform the market, completely disrupting the status quo.

It has done this with MP3 players, smart phones and touch screen computers/consumer electronics.

The company’s p/e ratio is 9.13. If you were to subtract its cash holdings from market cap (not unreasonable as it only needs a fraction of its money to function as a going concern) its p/e is nearer six.

If you believe that the age of disruptive new technologies in the world of consumer tech is over, then maybe, just maybe, the Apple share price is about right.

But frankly, the idea that we are not going to see any more disruption in the world of consumer tech hardware is absurd. In valuing Apple so low, the analysts are more akin to luddites, or techno fools.

©2013 Investment and Business News.

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