I have some doubts about Apple (NASDAQ:AAPL). I get the sense that's heresy. Apple seems to be unable to do anything wrong at the moment. Steve Jobs is the new Messiah, the iPad is the way of the future, and if you want to know the Meaning Of Life you can probably find an iPhone app that will tell you precisely that. Investors are happy, too. You could have bought the stock for USD 120 last May, and it's now trading over USD 240.
But let me explain. Although I'm not a Microsoft lover, I've never had much time for Macs. They were always for the kind of people who actually liked being unable to share applications or documents with the rest of the world. A small band of die-hard, out-of-step fans. With iTunes, the iPhone, and now the iPad, Apple has set about changing that. Instead of continuing to compete from a position of weakness against Microsoft, HP, Dell, and a plethora of low-cost PC makers in the desktop market, Apple has invented new markets where it can take a dominant role. It's been breaking the mould and creating new expectations - and unlike Microsoft, it's been surfing the trend, rather than missing the wave and desperately paddling to catch up. You could almost say that Apple is doing for hardware what Web 2.0 did for the internet - moving away from the desktop dominated world towards a more distributed model, with specialised devices of different kinds all accessing a common information base, but in different ways. And Apple has been smart about its revenue streams too. Though its most obvious business model is flogging hardware, it's also built up continuing streams of royalty income. Its App store is the only way to get an application on to the iPad - a quasi-monopoly Microsoft would kill for (and the EU might even ban, in Microsoft's case). And it's made a small fortune out of flogging tracks on iTunes, too. (That's seem smarter than Microsoft, which still relies far too much on initial licence fee income.)
What are the attractions of the stock? Well, it's sitting on cash [1] if you take the cash out of the share price, the stock would be trading at a…
the iPad won't support Flash. That means, for me, I can't look up share price updates on ADVFN on an iPad - they use flash; I can't play apps on Facebook which use Flash. Bummer. And there's no USB port. So I can't use the iPad to do a quick edit of photos from my digital camera, unless I buy a special cable or a special dongle, which is more clutter in my rucksack that I don't need (and more money spent, it goes without saying). I can't transfer data around the way I want to.
Of course, Apple isn't just the iPad. Though that's where all the hype is right now. And the iPad isn't a netbook, so perhaps it shouldn't be expected to do that. Having said that, the recently announced release of iPhone OS 4.0 software will make it look a great more attractive against netbooks as multi-tasking comes in along with VPN support and crypto.
First and foremost is the fact that Apple is setting up a "walled garden".
I don't think it's a walled garden. There are Apps out there created by people all over the world catering to an extraordinary range of needs and wants. That 'crowd-sourcing' model is the beauty of what Apple have done - you're not relying on the corporation to predict what might sell, there is a whole range of users who know and are prepared to risk creating an app that interests them and their friends. Apple simply takes a tax off the top.
Now, there is a concern that Apple approves what can and can't go on the store. You can see torsos and bikinis but not much more. For the first time today a rival to Apple's browser Safari has been allowed on the Apple Store; Opera have managed to create a browser that conforms to the strict rules laid down by Apple.
Are those rules a good thing or a bad thing? Some argue that it's a restriction of choice - they can't put software that they want on their machine - unless it's 'jailbroken' (in other words, the Apple restrictions are broken using hacks available on various websites.) Others would say that by exercising control, Apple is preventing viruses and other undesirable software from infecting the iPad/iPod/iPhone range. Indeed, there has already been malware which has affected 'jailbroken' iPhones.
Does Apple have the right to impose such restrictions? At the moment, most buyers of the hardware are implicitly granting that right. Remember, they always have the possibility to buy Android, Blackberry or now 'Kin' phones. (I wonder if Microsoft's marketers did any research in the UK before deciding on that name - I don't think it will be long before 'Kin Phone' becomes corrupted to something else...)
And perhaps that's what the world has been waiting for: Give me something that I can use without fear of malware, or the overhead of security updates and virus packages that allows me access to the information that I want from the internet. Easy-to-use, and I'd like to listen to my music, check my emails and watch the odd movie and a few photos.
What is of more concern is the cash pile and Jobs' attitude towards it. He has said he prefers holding on to the company’s cash hoard for potential acquisitions and “bold” investments, rather than paying dividends or buying back stock. But who's cash is it? And is it Jobs' decision, or one for the Board of Directors?
