Posts Tagged ‘samsung’

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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

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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

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.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

So what do you think will happen in 2013?

Setting aside Galbraith’s comment about the only redeemable benefit of economic forecasting being that it makes astrology look respectable, here are some thoughts for you to ponder.

Zombies may be in the news in the summer. A new film is coming out called World War Z, starring Brad Pitt. It is about zombies. In 2012 zombies were in the business pages too. There are households, many of whom are stuck in forbearance; around 5.8 per cent of home owners, according to the FSA. There are zombie businesses kept alive by rock bottom interest rates, and banks terrified to value their assets in accordance with what the markets think they are worth. If banks did revalue their assets in accordance with market values, and applied what’s called mark to market accounting, we could see another banking crisis. So either the markets are wrong, and banks are merely refusing to let their hysteria reflect valuations, or banks are pretty close to becoming zombies – if they are not already, that is.

Meanwhile, the poor old can is already starting to look very beaten up. Yesterday, US members of the House of Representatives kicked the can down the road. They voted to raise some taxes, but delayed deciding about spending cuts for two months. Next, they have to agree on the US debt ceiling. If they don’t, the US government will have to default. They probably will, and it probably won’t, but the wire will get a visit as the US economy goes down to it, and the can will get kicked some more.

In Europe, politicians will do much the same thing – that is to say at the last minute agree to various rescue schemes, but only as temporary measures while they consider at their leisure what to do to fix underlying challenges. They will never decide of course, but they will have lots of late night emergency meetings.  The German Constitutional Court will have to decide whether various new schemes are legal under German law, and will finally announce provisional approval of the latest German backed rescue scheme, but say it needs more time to decide for sure.

So is there a word to describe US and EU governments that just delay the real decision making process, and apply sticking plasters? Well how about this word: zombies.

One prediction for the year ahead is that as World War Z is released we will see a barrage of media comment, and indeed cartoons, comparing the economy with that film.

Also in 2013, governments and central banks in the US, Japan and the UK will decide it is time to target nominal GDP rather than inflation. The result will be more QE. Sterling may come under pressure, especially against the euro, although the Bank of England may well say this is a good thing. Holiday makers won’t be too chuffed, however.

Many will forecast a return to double digit inflation, a or even hyperinflation, but in reality, QE will lead to modest rises in inflation, and by the end of 2013, despite more QE, UK inflation will be lower than at the end of 2012. (CPI Inflation was 2.7 per cent in November 2012).

On the back of QE, gold will probably do well, and oil will oscillate. But there are signs that China may be getting over its so-called soft landing, and growth may be higher in 2013. This may be enough to push up oil.

Finally, in the world of tech, LinkedIn will see profits double again as they did last year, Facebook will see its shares pick up and return to the IPO price, as the company begins to find ways to monetise its huge user base. Apple may take a knock in the smart phone business as the likes of Samsung and HTC see sales rise.  But it will announce its iTV player, and this will prove to be as big a deal as when the company revealed the iPhone. Shares will surge and Apple will be the world’s first company to be valued in excess of one trillion US dollars.

Sales at Amazon will rise, as new owners of its Kindle Fire start buying more from Amazon and less from traditional retailers. Amazon will appear to be on course to become the world’s largest retailer. And finally, IBM will see its best year in terms of share price growth, for many years.

©2012 Investment and Business News.

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Look, you have to be patient. It takes time to repay debt, but once it is repaid, well…yippee. That is one argument.

Others go further, and say things such as: “If it isn’t hurting, it isn’t working.”

Those who support austerity don’t deny it will be painful – except that is for a few nutters in the US Tea Party that seem to think there is an automatic and immediate positive relationship between austerity and growth.  No, the sane austerians are simply saying that it is worth it in the long run: pain today, wealth tomorrow.

And, of course, for most individuals such an attitude is right. Some businesses may argue that the way to deal with debt is to expand, but on the whole, most agree that times of peril mean cuts.

The snag is that when we are talking about the whole economy, things can get very nasty if we all start behaving in the same way. If all those with debts make cutbacks, and as a result there is less demand, and those with savings see the fall in demand, so start saving even more, then the economy will start contracting faster. And supposing that as a result of these cuts, demand shrinks, our income falls, and as a result our debts actually increase. In such circumstances, the more we cut back, the worse our debts.

The National Institute of Economic and Social Research (NIESR) reckons this is precisely what’s happening.

In a report published this morning it said: “As a result of the fiscal consolidation plans currently in train, debt ratios will be higher in 2013 in the EU as a whole rather than lower.”

Its argument continued: “under normal circumstances a tightening in fiscal policy would also lead to a relaxation in monetary policy. However, with interest rates already at exceptionally low levels, this is unlikely or unfeasible.” To put it another way, when interest rates are near zero, the argument that you need to make cuts so that the central bank can then make interest rate cuts doesn’t hold up. Right now, we are in what’s called a liquidity trap. Rates can’t fall much further, but when the economy is struggling like it is, the normal solution is to cut interest rates. Quantitative easing is not proving very effective because people don’t want to borrow more. The Bank of England hopes, by the way, that QE will push up the price of government bonds, meaning other assets will look cheap in comparison and push their prices up, which will make us feel richer, so that we will spend more.

Returning to the NIESR report it stated: “During a downturn, when unemployment is high and job security low, a greater percentage of households and firms are likely to find themselves liquidity constrained.”

NIESR added – and this is the key bit – “With all countries consolidating simultaneously, output in each country is reduced not just by fiscal consolidation domestically, but by that in other countries, because of trade. In the EU, such spill-over effects are likely to be large.”

Now it is only right to point out at this stage that the NIESR director, Jonathon Portes, is very much a supporter of the idea of stimulus. He bats for the same side as Paul Krugman – an out an out supporter of Keynesianism. So given this, perhaps the conclusions of the NIESR report are not surprising.

But then again  austerity can work when applied by individual countries which can simultaneously grow via exports. But when austerity becomes a global thing, it becomes very dangerous.

On the other hand…

The big snag with fiscal stimulus is that sometimes economies need to adjust. There is a danger that a fiscal stimulus can take away the need for change.

Take Japan, as an example. In Japan failure is not popular. In fact, it is seen as something that needs to be avoided at all costs. But as a result, maybe Japan is too slow to change. This morning both Sharp and Panasonic warned of heavy losses in their current financial year.  Truth is, Japanese electronics companies are getting a drubbing.  Being thrashed by Apple, and Samsung and Google and Amazon is bad enough, but now even Microsoft with its Surface tablet is making the once seemingly invincible Japanese giants look like dinosaurs.

Maybe Keynesian is partly to blame. There’s not enough creative destruction in Japan.

So returning to the NIESR, it is right. Austerity is causing damage, and may even be making debt worse, but that does not mean we don’t need creative destruction.

The debate has become polarised. Either you are an Austerian or a Keynesian. Why can’t you be both?

Anyway to finish on a more cheerful note, here is piece by yours truly on some promising news out of China today.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

In California, Steve Jobs is worshiped. At least in the region surrounding the Apple headquarters he is. It’s not like those Egyptian Pharaohs, who became gods after they died, but it is not that much different. And so it was that court based no more than half an hour’s drive from Apple’s main offices decided Samsung was in breach of some of the US companies patents. The fine of $1.05 billion seemed pretty big, but Samsung can afford that.

But in Japan, courts ruled broadly in favour of Samsung. In South Korea, Samsung had part of the ruling go its way, another part went Apple’s way. In the UK a judge said that Samsung was not cool enough to be said to be copying Apple.

Meanwhile, in Holland, Samsung has to employ an odd line of reasoning to try and sway the judge. It’s case rested on the argument that the Samsung product was not as good as Apple’s. See Cult of Mac, Samsung Had To Claim Their MultiTouch Software Is Terrible Compared To Apple’s

But how can the final decisions be objective when they differ so wildly across the globe?

Meanwhile, in the FT James Dyson pleaded the case for tighter patents. “As patents become harder to define, afford and defend, many manufacturers think it is fair game to copy intellectual property“ said Dyson the man who invented the…err, Dyson. He added “Samsung defended its smartphone by saying it was ‘following the technology’. This is like telling the police that you were speeding to ‘follow the flow of traffic’. You are still breaking the law.”

Mr Dyson said “We cannot afford to devalue patents and technological innovation in such an offhand way. When it is easier to profit from copying than from investing in research and development, you curb invention.“

Sorry James, you are wrong. You may be good at making vacuum cleaners, but that does not make you an expert on what is in our collective interests.

Innovation occurs as ideas build on other ideas. That’s the story of innovation, from making fire to designing the latest operating software. Patents stand in the way of this progress. There is superb talk here from Ted. See Alex Tabarrok on how ideas trump crises He likened an idea to a candle. When it is lit, we can all make use of the light if emits. But when we then innovate ourselves, we produce another candle and the light becomes even brighter.

If it could be shown that without patents people will stop trying to invent things, then that would support Dyson’s case, but there is no evidence to support this argument.

But in a world of complexity, and today’s world is pretty complex, to compete in any kind of technological industry, you need to be both smart and knowledgeable. And you can gain that knowledge by sharing ideas with other like minded people. Such people will only give you the time of day if they respect you. The more you innovate, the more they respect you.

That’s why IBM has got behind Linux, the free operating software. It sells its expertise to corporate clients, but this is expertise it is only able to gain by sharing openly in the innovation process.

First mover advantage is incentive alone for innovation.

Some say instead of patents we have prizes for innovators. But as this article suggests, see Prizes as mechanism to fund innovation: We all lose, that just encourages secrecy and works against cooperation.

Innovation comes via cooperation. For it to occur we need effective communication between innovators. The greatest medium ever invented for facilitating this, in the internet. Current patent law is the biggest threat.

And here is a shameless plug. The Blindfolded Masochist, by yours truly makes that argument. Crowds can be barking – barking mad that is. But they provide the secret to progress, to all the great innovations. For more, and to buy the book, go to this page.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up