I think Gruber is in denial over the weakening fortunes of Apple. The writing over Apple hasn't gotten crazier in my opinion, just more negative (and I think it's appropriate).
They were the world's most valuable company and they run it like a black box. They do a terrible job of communicating with shareholders. I think that has been responsible for some of the $300 billion in value Apple is missing these days (and the 9 pe ratio).
The market wants to know: what is Apple going to really do about competing with Android / Samsung / Kindle Fire / very low cost, high value smart phones and tablets.
Can Apple retain a healthy ecosystem (apps, music, media) with 5% of the global market? 10%?
Android has become a near monopoly in smart phones, squeezing Apple into an increasingly smaller corner of the market. The same thing is going to happen in tablets, if only due to price / selection alone. Eventually this compression will begin stealing value from the company and not just slowing down their growth rate. Most forecasts are pegging them to declining profits and drastically slowing sales. Is that crazy writing? No, it's a negative view on the company's prospects.
Android's market share is larger than the iPhone, but iPhone's market share is still growing(!), and it is still quite significant.
I think a lot of the negative sentiment comes from the fact that people think that the iPhone (as a platform) was number one at one point, and is now number two in market share. At the same time people think Android is one phone. Neither of these statements are true.
The best selling phones are still iPhones.
Android is not a single device or company but a highly competitive market by itself. It is really really hard to compete on that market, because you need something to stand out of the crowd. It is also really really hard to be innovative, because everyone has access to the latest version of Android OS, and in today's market, pretty much everybody has access to the underlying hardware. The only thing that matters is if you can squeeze your supply chain enough to get a large enough profit. This is where both Samsung and Apple have reputations of being very strong -- For different reasons.
In reality, most customers don't really care that much about megapixel count, number of CPU cores, memory, etc.
So as an Android phone-maker, the only place to really distinguish yourself is by custom "home-screens" and exterior design. Exterior design is difficult.
A couple of months ago Samsung was the only company profiting from Android phones. Apple still takes the majority (more than half) of the smartphone profit. I don't know if either of that has changed in the last quarter (we'll see).
But Android is not a monopoly it is a lot of different manufacturers fighting over around 50-70% of the market share with very similar products. Samsung has the majority of that market.
The currently only major alternative to Android, iPhone, on the other hand is made by one company.
Android is becoming a monopoly in the same respect that Windows ever was. It's no different for Android running on multiple hardware vendors, ala Dell / HP / Compaq / Gateway / etc etc back in the day. It's the market consolidating around a standard.
Android is going to take 85%+ of the global smart phone market. There's absolutely nothing that can or will stop that from happening at this point. It's going to be the obnoxious standard that everybody is going to complain about for the next decade.
The iPhone's market share will stop growing this year. Android and the iPhone have squeezed out most of the serious competition, and now their market share lines are going to run head to head. Android will win that battle, and begin pushing the iPhone's market share backwards within four quarters.
Apple's approach was always going to guarantee it got boxed into a corner. It's a +/- to their approach that they can start new markets, and then lose them fairly quickly.
I don't know about 85%+. Sure, a majority, but the big differentiator these days (vs MacOS/Win32) is HTML5/JS.
Lots of things don't need to be native apps, and aren't/won't be. There isn't as much downside to picking the minority OS anymore.
This is further strengthened by the fact that Apple's hardware is expensive, and people targeting spenders will still (and, imho, always will) do iOS first (and sometimes only). Fred Wilson's famous android-first-because-it-has-the-most-marketshare advice only makes sense if you're a Facebook or a WhatsApp and raw triple-digit millions of users matter to you. If you're e.g. Uber, you don't give two fucks about four fucks for the people buying the inevitable $39 Android tablets of the future. _Which_ users matter a lot more to the vast majority of app devs than _how many_ users.
That said, I think Apple will eventually be found to retain _at least_ 25% of the final size of the market— and the top 25% at that.
Most of the estimates I've seen peg current global Android market share at 68% to 73%, with iOS at 20%x.
I would argue that Apple will lose upwards of half that position in the next two years. China alone will hammer them on market share, as Android will completely dominate the domestic Chinese market via cheap smart phones (particularly as the Chinese are heavily promoting their own vendors).
I think it'll be 80% to 85% Android, 8% to 12% iOS, with most of the remaining going to Windows and Blackberry (if Blackberry survives).
The history of technology markets consolidating toward a single standard (usually in the 65% to 85% market share range), leads me to believe that given the scale + momentum + competitive advantages that Android has, it's likely to creep toward that 80% quasi-monopoly line, and very soon.
Like I said in a previous post, the Apple store in Sanlitun Village (Beijing) keeps doing $1m+ sales a day, iPhones keep becoming more ubiquitous here, not less, and Android headsets are seen as a good choice...for farmers who can't afford iPhones. Ya, XiaoMi is great...if you can't afford an iPhone. Those officials would love to push domestic vendors, except they are too busy buying iPhones for themselves and their family.
China will eventually overtake the US as Apple's largest market, everyone knows this; Cook admitted it, and it wasn't controversial when he said it.
So who is winning — iOS or Android?
Android if you’re talking about market share; iOS if you mean financial success. So far, this is a strikingly different market than the PC business back in the 1990s, when market share translated directly into financial success.
Repeating myself again.
Don't compare the smart phone market with the PC market. The PC market is completely different... any analogy here does not rest on sound financial first principles. Market share by number of units has not translated to market share by profit. The former is useless.
That's today. And I believe it's a false sense of context because markets are momentum driven and the reading is all going by what Apple made in the last 4 to 8 quarters (rather than what's about to happen in the next few years).
Does the profit machine hold so well if you have a declining market share? (in which case there are dramatic follow-on consequences in pricing power with suppliers, margins in dealing with carriers, in app ecosystems, you name it).
I don't think it will hold up. I believe there's very likely a market share line in the sand, that if Apple gets pushed below it, there will be terrible profit consequences.
Apple can probably be a great company with just 20% of the international market and 40% of the US market (also, they are gaining % in the US which is sort of an indicator for how the world would behave in the near future).
Does the profit machine hold so well if you have a declining market share?
Yes. All that matters directly is $ not how many units you sell. As a business it all comes down to $ and whether you can keep it flowing. They have kept it flowing with a reduced market share by units. Also, shouldn't the system have collapsed long ago when Android overtook iOS quite a while back? Care to explain why it will fall? As a developer, I will always develop apps for the platform with the most number of paying customers who appreciate quality.
Consumers with $ will always go towards the best product. The hackers will go towards the best platform.
*I don't think it will hold up. I believe there's very likely a market share line in the sand, that if Apple gets pushed below it, there will be terrible profit consequences.(
Instead of giving poetic descriptions, please give us solid reasoning from financial first principles.
I am convinced that you just want to see Apple fail and have no solid argument. I would be interested in one if you have it. It is not all flowery for Apple, but claiming "terrible profit consequences" is just FUDish IMHO.
No I'm not shooting from the hip, my opinions are rational and well informed. I've been doing this for a long time, it's part of what I do for a living.
The profit machine does not hold if you lose market share.
There are penalties in economics for falling below lines in market share, and they accelerate destructively the lower you go. It's not a linear calculation, it's a compounding one.
Apple can't negotiate the same way with telecom companies for the hyper rich subsidies if they're not as relevant in the market. They can't negotiate as tremendous of supplier deals if they aren't selling as many units. They can't keep developer interest if the scale isn't high enough. Their music network loses its moat effect if they're not the #1 music platform because Android overtakes it via streaming services or otherwise.
I could list one or two dozen other powerful follow-on effects to Apple losing market share in smart phones. It's a very costly situation indeed.
It is not as simple as you paint it to be. I have studied a lot of these factors too.
By your reasoning, Mercedes-Benz is in a bad position compared with GM. We all know that is not the case as they are in different segment of the market, just like Apple.
"The average earnings estimate among the pros this quarter is $10.01 per share, 19% below last year's $12.30. The indies are looking for $10.55 (down 14% year over year). The median EPS: $10.10 (down 18%)."
"..after the costs of sales, marketing, engineering, product management and legal expenses were taken into account, the overall Android division was not expected to become profitable until 2011, by which time it was forecast to generate nearly $500m in adverts."
"Apple's iTunes & accessory sales now greater than every other phone vendor but Samsung"
I would wager that within two years Samsung will be making more money on smart phones than Apple. Apple's profits are going backwards now, while Samsung is growing very quickly. I believe that's a trend that will continue.
Microsoft earns a lot more selling Windows and Windows server and surrounding products than all of the Linux vendors make supporting Linux combined (Redhat makes a mere $100m a year in profit for example).
Does that inherently imply anything about Linux? No.
What you're talking about is today (regarding Apple's profits). What I'm interested in is the trend of Android taking most of the market and what that'll mean in five years for Apple and the Android vendors. What it'll mean is: much like PC sales, Android sales will be dominated by 2 or 3 primary companies, with dozens of other vendors attempting to compete.
My opinion is that Apple is about to get hammered as the iPhone's market share collides with Android and loses. I believe within eight quarters their profit will fall from $40x billion to $25 billion annually, and they'll lose 1/3 of their existing market share while margins also keep falling.
iPhone market share is relatively stable; Android gains are mainly at the expensive of RIM/Microsoft.
> I believe within eight quarters their profit will fall from $40x billion to $25 billion annually, and they'll lose 1/3 of their existing market share while margins also keep falling.
Do you have any facts to support your opinion? Or is it just a gut feeling you have? Apple isn't going to stand still for 8 quarters. I just bought an iPad Mini for the wife yesterday, the Apple store was very crowded as usual doing $1m+ in sales a day. Its amazing how people make these predictions and always forget about China.
I've been making the Android / iOS argument for over three years. Any forward projections are just opinion obviously.
I have a particular talent for spotting negative positions in stocks and trends in general. I'm not trying to prove that I do, take my word for whatever it's worth to you. In equities I've derived it from the Graham-Dodd-Buffett approach. I've found it exceptionally easy to spot when to short stocks by reversing the Graham Dodd approach (it works for spotting undervalued equities, and it works equally for spotting overvalued equities, I just happen to be good at that side of it).
On the technology side, if you understand Apple's business model, and you understand how technology markets work toward consolidation around standards, and then you apply the context of what Android is and its vendors / support / ecosystem (and whether it's of high enough quality to be good enough for that 80% to 90% of consumers, to rule ala Windows) - the rest is obvious, it lays out a momentum line that can't be stopped.
There are exceptionally painful consequences to Apple losing market share that very few are pricing into things. The mistake I see often is linear thinking on market share to profits; eg if Apple is making $30 billion on 20% market share, said people then think Apple could make $15 billion on 10% market share (when in fact there are numerous destructive penalties for falling below thresholds in the market, regarding developers / apps, music, media, consumer perception, negotiating position with suppliers, stock price falling and losing key employees and on and on).
"Samsung, by comparison, revealed that it has sold 21.25 million smartphones in the US between June 2010 and June 2012, along with 1.4 million tablets. (Keep in mind that the smartphone number only included devices at issue in the trial, not Samsung's full lineup.) But even when you only look at Apple's data from those same quarters, the differences are stark—the company sold almost 63 million iPhones, 34 million iPads, and 25.3 million iPod touches during the same period. Even the weakest link of the iOS family—the iPod touch—is selling faster than a large chunk of Samsung's portfolio."
The PC market is completely different... The analogy here does not rest on sound financial first principles. Market share by number of units has not translated to market share by profit. The former is useless.
You said:"The market wants to know: what is Apple going to really do about competing with Android / Samsung / Kindle Fire / very low cost, high value smart phones and tablets."
Somehow, the answer is obvious to me. Continue making superior products. Apple creates expensive better desktops and laptops than Win/Linux/Lenovo/Samsung that do it at very low cost. That's how it won that market. That's how it's going to win smartphones/tablets. I switched from iPhone4s to Galaxt S3. Can't wait to switch back. If I can compare the experience to anything it would have to be akin to switching from Mac OS X back to Windows Vista/7/8/whatever. After 4 years of using iPhone I wanted a change. Now I just want a smartphone that doesn't suck. And it's not only me. People will keep buying BMWs even though there are cheap/better alternatives like Toyota. Once you got spoiled by BMW handling or iPhone user interface, you won't simply go back. Unless you're tired of buying product from the same brand all the time, so you will switch, get disappointed (like me!) and then switch back again. Look at S4 sales and reviews. People just wanted the change and Samsung did a great job with marketing S3 and got lucky with timing too. At that point last year people were just tired of iPhone, they wanted something new. They got it. They discovered it sucks. And big news for you - they will go back to Apple. There is now way in the world I'm going to purchase an Android device in the near future. And there is no way I'm going back to Toyota.
I believe Apple can absolutely hold onto some market share with their model, assuming they keep making great products.
But how much market is that? 5% won't facilitate the network scale they need to encourage developers to focus on their app ecosystem. And as the iPod sales continue to evaporate, Apple will lose its music dominance to the smart phone market (which would remove another key moat in their overall ecosystem).
The question in my opinion is, how much of the smart phone market can Apple retain. If it's 5%, they're screwed. If it's 15%, I think that would work.
This has always been a "problem" for Apple. And argument against their business model. That they were able time and time again prove to work. Because of the product/service/overall experience superiority to any and all competitors. You have 1000s of PC manufacturers and still Mac is better. Because they don't just assemble parts. They understand that the money in this business is in value added stuff, like user interface, like looks, like service, like uncompromising quality. Others seem to think that what they sell is just all about assembling together great hardware. Apple understands that there is more to it. That's where their value has always been and I don't think that this changed a bit with Samsung introducing S3 to the market. Samsung (and other smartphone manufacturers) is just an assembly plant. They may have better hardware in their smartphones, true. The same way you can build a "better" PC with better hardware than Mac Pro. The problem with this approach is that there is so much more to building great product than assembling parts. Customer service, software, user interface, looks, etc, etc. That's why S3 with better hardware in it sucks comapred to iPhone. Even though iPhone has smaller screen. The same way a PC with better hardware running on Win8 is worse than Mac Os X.
Again BMW is more profitable than Toyota. And Porsche is more profitable than BMW. Porsche makes on average $20k on each and every car sake they make in Europe. GM in Europe has a loss of nearly $2k on each car they sell. You tell me GM business model is somehow better? S3 is a commodity compared to iPhone and that's Samsung's problem not Apple's.
They were the world's most valuable company and they run it like a black box. They do a terrible job of communicating with shareholders. I think that has been responsible for some of the $300 billion in value Apple is missing these days (and the 9 pe ratio).
The market wants to know: what is Apple going to really do about competing with Android / Samsung / Kindle Fire / very low cost, high value smart phones and tablets.
Can Apple retain a healthy ecosystem (apps, music, media) with 5% of the global market? 10%?
Android has become a near monopoly in smart phones, squeezing Apple into an increasingly smaller corner of the market. The same thing is going to happen in tablets, if only due to price / selection alone. Eventually this compression will begin stealing value from the company and not just slowing down their growth rate. Most forecasts are pegging them to declining profits and drastically slowing sales. Is that crazy writing? No, it's a negative view on the company's prospects.