As a perma-bear on Apple I marvel how the stock remains high.
You can simply point at the cash pile, the profits and the P/E to justify the company’s current valuation. I see that and I acknowledge it.
However it’s the future that normally drives the market, not the glory of the past.
My position and it must be said it remains to be proven, is that Apple will not sustain its genius without Jobs and therefore an ongoing sequential decline is inevitable.
As such Apple is not a stock to be aggressively invested in. It is OK to have some Apple stock in a broadly diversified portfolio, in the same way as its probably fine to hold any stock in this way, but to be undiversified in Apple is madness.
I make this point because that is exactly how untold legions of people will hold Apple. I worry for them exclusively. Everyone else is safe to ride whatever the future has in store.
I maintain that the ride will be downwards.
The key problem Apple faces is, “where is the next miracle product?”
Its previous miracles are dead (ipod) or waining or on the cusp. Their superstar products are under fierce competition. Where is the new product to bolster Apple as its other lines inevitably increasingly lose their pedestal positions in the market?
The iWatch.
The iWatch?
I like watches, I really like watches. I’m even a freeman of the Worshipful Company of Clockmakers. I like watches so much I even have a small work bench to fix them.
I love the idea of an iWatch.
I love it so much I bought a Pebble watch just to get the flavour of what an IWatch could be like.
I’ve had calculator watches, camera watches, radio watches, voice recorder watches, Tokyo flash gimmick watches, and even some glorious alien technology madness from Polar which does techno wireless heart rate, speedo, temperature, altitude and foot born telemetry, which likely saved my life in the London Marathon.
When I was a kid I had a watch that squirted you in the face with water!
So as far as the iWatch goes, I’m ready, Ill buy asn iphone just to try the watch.
But Apple will have to get a lot of people to buy iWatches and while it will surely get many to wont get enough to arrest its slide.
The reason I’m writing this piece is an analyst from Morgan Stanley came out yesterday and predicted the iWatch would sell $17.5 billion in its first year or so.
I’m left gaping. How can anyone come up with such a ridiculous number. I take it people are expected to take this seriously so it seems to need some kind of rebuttal.
In a sense it will take $17 billion in sales to move the dial for the $ 170 billion sales machine that is Apple, after all $17 billion is a nice round numbers of 10% of sales.
But wait that about 50% of current yearly global watch sales. Or on another dimension the same as the roughly 50% global market share that Switzerland has after 200 years of making the best watches in the world.
Switzerland basically owns the market of quality watches. The other half of the market is filled with made in China dollar watches. Switzerland is the monopoly producer for the sort of watch you see advertised on the back of most magazines.
So to meet this fabulous iWatch prediction and move the Apple business model dial up or perhaps simply maintain it, iWatch needs to increase the global match for wrist born devices by 50%. As far as quality watches goes it has to double it. (Or I suppose snuff out Rolex, Patek Philippe, Tag Huer etc)
It could happen. However there is a problem.
Most people are not going to dispense with their favourite watch for a new device overnight, even if it makes you see in the dark and 10lbs lighter…and only an idiot wears two watches.
You are not going to see this:
As a side bar a ridiculous percentage of the value of the watch market is for gold watches (about 25%,) so Apple better do a solid gold version or they certainly won’t get near the $17 billion is sales hoped for.
Only 25% of quality watches are non-metal. Aluminium watches, 17%.
Phones, tablet and computers are unisex… watches aren’t. The list of problems of making an impact go way beyond functionality.
So lets look at the dial moving $17 billion sales number.
Lets forget those sales have to be year in and year out to really count.
$17 billion is effectively 1 million $300 watches sold a week, every week for a year.
It can’t happen can it?
Ask Samsung reputed to have sold less than 100,000 of its Galaxy version, ever.
If you still think its possible perhaps ask all the purveyors of phone watches on Amazon. How are they are doing? Yes that is a rhetorical question.
Will Apple sell a lot of iWatches. Yes. However a lot might be a million or two at best.
$17 billion of sales in around a year. It just can’t happen.
But stop, this would have been the point where Mr Jobs would pull something off that would leave everyone breathless.
Sadly a miracle isn’t going to happen.
The thing to remember about Apple is the wizard is gone. There is no miracle machine anymore.
There is no chance of Apple rewiring the $40 billion a year watch industry. There is little hope of Apple rewiring Apple to overcome the challenges of an increasingly uncertain future.
If they do, it will have to be with something more relevant than a wrist borne network device.
The return of apple to corporate normality continues a pace and the iWatch won’t change that trajectory.