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Apple still destroys Google, RIMM and every other phone manufacturer when it comes to profit.

 

http://www.asymco.com/2011/07/29/apple-captured-two-thirds-of-available-mobile-phone-profits-in-q2/

 

That will change quite dramatically over the next decade without Jobs.  Cheers!

 

If there is one thing I have learned about the tech industry, it is that most aspects of it are unpredictable.

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How are you so sure of that?

 

Because Apple is not Walmart, Coca-cola or Berkshire Hathaway.  Its products rely on innovation, ease of use for the user, marketing and game changing breakthroughs.  Their business would be akin to a top pharmaceutical company, and unfortunately the top scientist, marketer, leader, innovator and negotiator is no longer there.  They will continue to make money, but over time that edge they developed will disappear.  It does with all of those companies.  Look at Microsoft.  Look at Dell and that's with the leader still there.  It will happen to Google when Brin & Page are gone.  It's why for the most part Buffett has avoided technology companies altogether.  The moat develops very quickly and can disappear very quickly.  Cheers! 

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Based on these comments Sanjeev, did you sell out of Microsoft?

 

I did because I had "better" opportunities coming up in this latest market rout, but I am still in DELL and it sure is discouraging. The company beat EPS expectations by something like 15% last night or $0.54 instead of $0.47 and instead analysts focus on why they did not do more sales in the low margin side of the business???? And, what will be the flooding impact on hard drives?

 

You have a business selling for 7.4 times earnings or 5.5 times net of cash with no sign that the business is disappearing, well managed, and the stock price goes nowhere. Microsoft acts the same way and I would say that Apple too if it was not for the very large growth rate in earnings which is the only thing that moved up the share price. The P/E is very low for such rate. Some posters are talking about RIMM on a different post. Even if the company hits the $5.25 in EPS that they are talking about which makes it a 3.7 times P/E will the share price advance at all?

 

With the amount of doom and gloom by analysts and the never ending worries about these businesses disappearing, I think that the only chance to make money over time on them is for earnings to remain somewhat stable and for these companies to pay all cash flow and cash on hand to shareholders via dividends or massive buybacks. Cash to the owners or a large shrinkage in shares to increase the E. For them to retain so much cash seems to be a curse or a cause as to why we should be worried about their businesses.

 

Cardboard

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Guest valueInv

Their business would be akin to a top pharmaceutical company, and unfortunately the top scientist, marketer, leader, innovator and negotiator is no longer there.

Jobs did not write the code, he did not design the chips, he did not do the industrial design, he did not design the user interfaces, he did not write the marketing copy, he did not shoot the ads. The people who did almost all the work are mostly still at Apple. And they have over a decade of working with Jobs to have a deep understanding of what "Steve wants". They are capable of innovating even without him. Jobs role was to:

1, say  "I like it" or

2, say "Not good enough, go back and re do it" or

3, Tweak the design

 

What Apple needs is to find some who have the ability and the credibility to say "No" to the torrent of ideas coming from the employees.

 

This will give you an idea of how they work:

http://www.patentlyapple.com/patently-apple/2011/11/steve-jobs-secret-meeting-to-explore-an-ipod-phone-is-revealing.html

 

They will continue to make money, but over time that edge they developed will disappear.  It does with all of those companies.  Look at Microsoft.  Look at Dell and that's with the leader still there.  It will happen to Google when Brin & Page are gone.

Microsoft,Dell,  Google are not product innovators, they are fast followers for the most part. Ever wonder why Android looks a lot like the iPhone or Google+ looks a lot like Facebook? Google tries has but fails at radical innovation that Apple performs repeatedly. Take a look at: http://www.eweek.com/c/a/Search-Engines/Logitech-Giving-Up-on-Google-TV-After-Losing-100M-344197/. Look at Buzz, Wave and many others that I have mentioned on the Google thread. Even many ideas for its search advertising business were copied from Overture: http://en.wikipedia.org/wiki/Overture_Services

 

Is Disney a better comparable for Apple? Both were very innovative, have cult of personality, depend on supposedly faddish products and other similarities. Disney seems to be doing ok about 50 years after Walt and continues to produce hits.

 

To answer the question of whether Apple will continue to do well - nobody knows. I think it will depend a lot on whether Tim Cook can prevent political infighting and can get Apple to execute as cohesive, coherent whole. Innovation was a product of Apple not a product of one man.

 

I have been asking myself the same question the last month. I think Apple made many mistakes in the last release. But I can't tell from the outside whether it was because of the absence of Jobs or because it was one of their biggest releases ever. It's too early to tell. There are many more markets that Apple can conquer and their future performance may well depend on the new markets, not existing ones.

 

BTW, their Mac business is growing at about 25% a year (with better margins)while the whole market continues is almost stagnant. And they lost that market about two decades ago.

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Based on these comments Sanjeev, did you sell out of Microsoft?

 

I did because I had "better" opportunities coming up in this latest market rout, but I am still in DELL and it sure is discouraging. The company beat EPS expectations by something like 15% last night or $0.54 instead of $0.47 and instead analysts focus on why they did not do more sales in the low margin side of the business???? And, what will be the flooding impact on hard drives?

 

You have a business selling for 7.4 times earnings or 5.5 times net of cash with no sign that the business is disappearing, well managed, and the stock price goes nowhere. Microsoft acts the same way and I would say that Apple too if it was not for the very large growth rate in earnings which is the only thing that moved up the share price. The P/E is very low for such rate. Some posters are talking about RIMM on a different post. Even if the company hits the $5.25 in EPS that they are talking about which makes it a 3.7 times P/E will the share price advance at all?

 

With the amount of doom and gloom by analysts and the never ending worries about these businesses disappearing, I think that the only chance to make money over time on them is for earnings to remain somewhat stable and for these companies to pay all cash flow and cash on hand to shareholders via dividends or massive buybacks. Cash to the owners or a large shrinkage in shares to increase the E. For them to retain so much cash seems to be a curse or a cause as to why we should be worried about their businesses.

 

Cardboard

 

No, because we've seen Microsoft running without the chief architect for the last five-six years.  While Ballmer makes alot of mistakes, and he certainly doesn't have the vision of a Steve Jobs, he is smart enough to keep capex low and share buybacks high.  And while Gates isn't involved on a day to day basis, Ballmer can give the largest shareholder a call anytime he wants to get some advice.  Also with Microsoft what is the worst that can happen...the P/E compresses from 9 times to 7 times or 5 times?  Eventually the market will have to realize that the moat isn't gone, just dented, and that Microsoft's cash flows aren't going to disappear overnight. 

 

In Apples case, my opinion is a premature one, but one that parallels Jobs' achievements over the years.  He didn't single-handedly design anything there, but he certainly came up with the ideas.  You name it and Jobs originally drew up the idea...graphic interface, Mac, mouse, USB, iPod, iPhone, iPad & iTunes.  All his!  And his relentless pursuit of excellence was incomparable to any other CEO in the modern era.  He was Thomas Edison, but unfortunately Apple is not GE.  Cheers! 

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I did because I had "better" opportunities coming up in this latest market rout, but I am still in DELL and it sure is discouraging. The company beat EPS expectations by something like 15% last night or $0.54 instead of $0.47 and instead analysts focus on why they did not do more sales in the low margin side of the business???? And, what will be the flooding impact on hard drives?

 

Cardboard, don't worry too much about DELL.

 

What the market and many smart people fail to understand is that our DELL stake is like WEB's buying into IBM . . . only before the market figures out what's going on.

 

As WEB pointed out with his IBM stake, having the share price stay stagnant or even go down isn't so bad, since DELL really cares about its shareholders.  They'll buy back shares and continue to do what needs to be done with operations.

 

2014 LEAPs might be a good idea for DELL.

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Based on these comments Sanjeev, did you sell out of Microsoft?

 

I did because I had "better" opportunities coming up in this latest market rout, but I am still in DELL and it sure is discouraging. The company beat EPS expectations by something like 15% last night or $0.54 instead of $0.47 and instead analysts focus on why they did not do more sales in the low margin side of the business???? And, what will be the flooding impact on hard drives?

 

You have a business selling for 7.4 times earnings or 5.5 times net of cash with no sign that the business is disappearing, well managed, and the stock price goes nowhere. Microsoft acts the same way and I would say that Apple too if it was not for the very large growth rate in earnings which is the only thing that moved up the share price. The P/E is very low for such rate. Some posters are talking about RIMM on a different post. Even if the company hits the $5.25 in EPS that they are talking about which makes it a 3.7 times P/E will the share price advance at all?

 

With the amount of doom and gloom by analysts and the never ending worries about these businesses disappearing, I think that the only chance to make money over time on them is for earnings to remain somewhat stable and for these companies to pay all cash flow and cash on hand to shareholders via dividends or massive buybacks. Cash to the owners or a large shrinkage in shares to increase the E. For them to retain so much cash seems to be a curse or a cause as to why we should be worried about their businesses.

 

Cardboard

 

No, because we've seen Microsoft running without the chief architect for the last five-six years.  While Ballmer makes alot of mistakes, and he certainly doesn't have the vision of a Steve Jobs, he is smart enough to keep capex low and share buybacks high.  And while Gates isn't involved on a day to day basis, Ballmer can give the largest shareholder a call anytime he wants to get some advice.  Also with Microsoft what is the worst that can happen...the P/E compresses from 9 times to 7 times or 5 times?  Eventually the market will have to realize that the moat isn't gone, just dented, and that Microsoft's cash flows aren't going to disappear overnight. 

 

In Apples case, my opinion is a premature one, but one that parallels Jobs' achievements over the years.  He didn't single-handedly design anything there, but he certainly came up with the ideas.  You name it and Jobs originally drew up the idea...graphic interface, Mac, mouse, USB, iPod, iPhone, iPad & iTunes.  All his!  And his relentless pursuit of excellence was incomparable to any other CEO in the modern era.  He was Thomas Edison, but unfortunately Apple is not GE.  Cheers!

 

I have to point out that this is just wrong.  Jobs may have recognized the value of these innovations, but they were there.  The key was the application of design principals to make them usable.  (Actually, I really don't consider iTunes particularly usable).  As long as the recognition of design as being key is there, I believe Apple can continue.  They were very rarely a raw technology innovator--this is exactly Bill Gs perspective (though, of course, he wasn't really much of one either).  The magic is in pushing suppliers, refinements, and making technologies usable.  I'm not saying this is easy, because it isn't.  I also don't know for sure if Jobs grafted this permanently to Apple's DNA.  But it's certainly possible.

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Hi Txlaw,

 

"Cardboard, don't worry too much about DELL.

 

What the market and many smart people fail to understand is that our DELL stake is like WEB's buying into IBM . . . only before the market figures out what's going on.

 

As WEB pointed out with his IBM stake, having the share price stay stagnant or even go down isn't so bad, since DELL really cares about its shareholders.  They'll buy back shares and continue to do what needs to be done with operations.

 

2014 LEAPs might be a good idea for DELL."

 

The problem I have with big caps in general is simply the lack of upside vs small caps. So yes, I am typically buying these with options which adds a whole lot of complexity and headaches especially in this market dominated by macro. Time becomes your enemy.

 

Regarding Dell vs IBM, I tend to disagree about them being similar. IBM is much more about services. It is more of a contractor or an engineering firm. They will do whatever the customer want. This can be "retooled" with a change in people skills while Dell rides mostly on equipment making which means big plants to be retooled, inventory changes, etc. I think I can envision better what IBM will be doing in 10 years and its margins than Dell.

 

Buffett nowadays is just a DOW buyer or very large S&P 500 stocks. He will pick whatever stock in that group that has a clear 10% return. He has no choice, he is just too big. IBM said that they are targeting $20 in EPS in 2015. With share buybacks, a management team that has delivered and some moat, this objective looks achievable. Assuming a 14 P/E, that is a $280 stock in 4 years from now or a 13.5% return. The P/E and the E may not end up being exactly that, but that is close enough for him. Then you have him trimming Kraft and Johnson & Johnson because he likely believes that they won't be able to get close to that 10% a year (my guess on how he looks at it based on his actions).

 

While I like the certainty of the return, 13.5% a year is well below what I have done historically. I deal with a lot of volatility, but I have done better. I keep my fingers crossed that I will be able to keep going in this wicked environment. So for me to consider IBM, I would have to go with options. Again, it is a cost and timing problem. For me to win, I need a revaluation or the stock to follow earnings in say 9 to 18 months. It is asking for a lot. While for investors to look at something like a DELL or MSFT differently than today and their future may take much longer or may never happen.

 

Cardboard 

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No matter what angle I try to take, I always come to the conclusion that the multiples of Apple vs Microsoft should be switched between them. A multiple in the teens for a company with Apple's history is absolutely horrible and I really don't get what Einhorn et al. are thinking. I don't normally go short but buying long-running puts on Apple seems like a pretty decent bet to me, especially if you are already worried about hedging for deflation.

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Hi Txlaw,

 

"Cardboard, don't worry too much about DELL.

 

What the market and many smart people fail to understand is that our DELL stake is like WEB's buying into IBM . . . only before the market figures out what's going on.

 

As WEB pointed out with his IBM stake, having the share price stay stagnant or even go down isn't so bad, since DELL really cares about its shareholders.  They'll buy back shares and continue to do what needs to be done with operations.

 

2014 LEAPs might be a good idea for DELL."

 

The problem I have with big caps in general is simply the lack of upside vs small caps. So yes, I am typically buying these with options which adds a whole lot of complexity and headaches especially in this market dominated by macro. Time becomes your enemy.

 

Regarding Dell vs IBM, I tend to disagree about them being similar. IBM is much more about services. It is more of a contractor or an engineering firm. They will do whatever the customer want. This can be "retooled" with a change in people skills while Dell rides mostly on equipment making which means big plants to be retooled, inventory changes, etc. I think I can envision better what IBM will be doing in 10 years and its margins than Dell.

 

Buffett nowadays is just a DOW buyer or very large S&P 500 stocks. He will pick whatever stock in that group that has a clear 10% return. He has no choice, he is just too big. IBM said that they are targeting $20 in EPS in 2015. With share buybacks, a management team that has delivered and some moat, this objective looks achievable. Assuming a 14 P/E, that is a $280 stock in 4 years from now or a 13.5% return. The P/E and the E may not end up being exactly that, but that is close enough for him. Then you have him trimming Kraft and Johnson & Johnson because he likely believes that they won't be able to get close to that 10% a year (my guess on how he looks at it based on his actions).

 

While I like the certainty of the return, 13.5% a year is well below what I have done historically. I deal with a lot of volatility, but I have done better. I keep my fingers crossed that I will be able to keep going in this wicked environment. So for me to consider IBM, I would have to go with options. Again, it is a cost and timing problem. For me to win, I need a revaluation or the stock to follow earnings in say 9 to 18 months. It is asking for a lot. While for investors to look at something like a DELL or MSFT differently than today and their future may take much longer or may never happen.

 

Cardboard

 

Cardboard,

 

I respectfully disagree with you regarding DELL.

 

Basically, my view on DELL is encapsulated in the following post:

http://www.cornerofberkshireandfairfax.ca/forum/index.php?topic=4635" data-ipsquote-contentclass="forums_Topic" 47370#msg47370

 

DELL's business is comprised of the following:

 

-Consumer PCs

-Enterprise PCs and hardware

-Cloud infrastructure hardware and data centers

-Services (including BPO), software, and consulting

 

Services, software, and consulting will be a much bigger profit center in the future.  Michael Dell has studied IBM for years and wants to remake DELL into an IBM that serves small business and middle market businesses. 

 

If Berkshire were a much smaller company, I would not be surprised to see an investment in DELL, although WEB would likely wait until the company's transformation was further along.  But as you have pointed out, WEB's publicly traded investment universe is much smaller because of the size of Berkshire.

 

-txlaw

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Guest valueInv

In Apples case, my opinion is a premature one, but one that parallels Jobs' achievements over the years.  He didn't single-handedly design anything there, but he certainly came up with the ideas.  You name it and Jobs originally drew up the idea...graphic interface, Mac, mouse, USB, iPod, iPhone, iPad & iTunes.  All his!  And his relentless pursuit of excellence was incomparable to any other CEO in the modern era.  He was Thomas Edison, but unfortunately Apple is not GE.  Cheers!

 

Mac

Jef Raskin started  the Mac project:

    http://en.wikipedia.org/wiki/Jef_Raskin

  Here's the genesis of the Mac in his own words:

http://www.azarask.in/blog/post/macintosh-project-genesis-and-history-16-feb-1981/

 

Mouse

  was copied from Xerox PARC.

 

Graphic Interface

  again copied from Xerox PARC

 

USB

  was an industry standard created by a group that did not include Apple:

  http://en.wikipedia.org/wiki/USB

 

  Apple was pushing Firewire over USB for a long time, they felt USB was inferior.

 

iPod

  If I remember correctly, the idea of the clickwheel, which defined the iPod came from Peter Schiller, the VP of marketing

 

Jobs lead the teams and shaped the products. He was instrumental in their creation. His biggest creation was Apple itself. He had a lot of time to

shape Apple to continue to execute long after he was gone.

 

 

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Mac

Jef Raskin started  the Mac project:

    http://en.wikipedia.org/wiki/Jef_Raskin

  Here's the genesis of the Mac in his own words:

http://www.azarask.in/blog/post/macintosh-project-genesis-and-history-16-feb-1981/

 

Mouse

  was copied from Xerox PARC.

 

Graphic Interface

  again copied from Xerox PARC

 

USB

  was an industry standard created by a group that did not include Apple:

  http://en.wikipedia.org/wiki/USB

 

  Apple was pushing Firewire over USB for a long time, they felt USB was inferior.

 

iPod

  If I remember correctly, the idea of the clickwheel, which defined the iPod came from Peter Schiller, the VP of marketing

 

Jobs lead the teams and shaped the products. He was instrumental in their creation. His biggest creation was Apple itself. He had a lot of time to

shape Apple to continue to execute long after he was gone.

 

My point was that Jobs didn't necessarily invent those things, but that he brought them to the masses in more practical ways.  Edison didn't create the light bulb, but he did make it more useable and functional for the average household.  Jobs did the same thing.  There isn't a single person at Apple that has his ability to see projects through to fruition with that mindset.  Very few people in business can do that.  Cheers!

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My point was that Jobs didn't necessarily invent those things, but that he brought them to the masses in more practical ways.  Edison didn't create the light bulb, but he did make it more useable and functional for the average household.  Jobs did the same thing.  There isn't a single person at Apple that has his ability to see projects through to fruition with that mindset.  Very few people in business can do that.  Cheers!

 

I don't disagree with this, and it Jobs' vision is irreplaceable. I don't think any one person can fill his shoes. That said, I think Apple can still be great without him. One key thing I got out of Isaacson's biography of Jobs was that one of Steve's main goals over the last decade or so (actually pretty much since he returned to Apple from Pixar, after seeing what happened when he left the company the first time, and even more so after he was diagnosed with cancer) was to set Apple up to be able to run without him. He talked about it pretty often in the biography. He was working for years to put the leadership, culture, and even more importantly the processes in place so he would be able to completely remove himself from the company. It was also pretty clear that the product pipeline had been largely laid out for the next several years before he passed away.

 

I do have some concerns about how long Ive and other directors will stick around though (I'm really more worried about that than what will happen just without Jobs - at least for the next several years). Those guys have made a ton of money through options, and don't need to work another day in their life. The talent pool at Apple is currently probably deeper than any other company in the world though.

 

I can't predict what will happen several years down the road, but I think the company will continue to do very well for at least the next several years. And here's the thing: they don't need to release brand new products every year or two. The iPhone will be around for a long time. It's not like people just buy an iPhone (or any phone) once, and then never again. People replace their phones every 2 years. As long as Apple is able to continue to improve the iPhone, iPad and other devices, there's no real reason why people won't continue to by them. I think they can do well for a while without needing to enter new markets.

 

I know it's easy to watch RIMM and say Apple is destined to repeat RIMM's failures, but Apple is not RIMM. RIMM had pretty much 1 single product (with a few small variations of it). Apple has products in numerous categories, and an outstanding ecosystem that ties all their products together. HP might be a better comparison, but HP did very well for a long time after Hewlett and Packard left the company.

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Guest valueInv

Mac

Jef Raskin started  the Mac project:

    http://en.wikipedia.org/wiki/Jef_Raskin

  Here's the genesis of the Mac in his own words:

http://www.azarask.in/blog/post/macintosh-project-genesis-and-history-16-feb-1981/

 

Mouse

  was copied from Xerox PARC.

 

Graphic Interface

  again copied from Xerox PARC

 

USB

  was an industry standard created by a group that did not include Apple:

  http://en.wikipedia.org/wiki/USB

 

  Apple was pushing Firewire over USB for a long time, they felt USB was inferior.

 

iPod

  If I remember correctly, the idea of the clickwheel, which defined the iPod came from Peter Schiller, the VP of marketing

 

Jobs lead the teams and shaped the products. He was instrumental in their creation. His biggest creation was Apple itself. He had a lot of time to

shape Apple to continue to execute long after he was gone.

 

My point was that Jobs didn't necessarily invent those things, but that he brought them to the masses in more practical ways.  Edison didn't create the light bulb, but he did make it more useable and functional for the average household.  Jobs did the same thing.  There isn't a single person at Apple that has his ability to see projects through to fruition with that mindset.  Very few people in business can do that.  Cheers!

Agree with you on Jobs's role. Also agree on his impact. There may not be a single person with his ability but as an organization, they may be able to fill in for him. They do need strong leadership. He is likely to have left behind a strong roadmap of products, so we can continue to expect some really good offerings. There are also many new markets that are still open to them. With Apple, you have to handicap future products not present ones. BTW, the next quarter is going to paint a different picture:

 

http://blogs.wsj.com/digits/2011/11/17/would-be-iphone-customers-still-facing-weeks-long-waits/

 

http://gigaom.com/apple/mac-making-a-move-in-the-enterprise-grew-44-percent-in-q3/

 

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Without getting into specific OSs.  Can any of us tell what the consumer is going to like or want two years out.  In 2005 the Iphone did not exist.  Andriod did not exist.  So not only are you dealing with a rapidly changing environment technologically but you also have consumer fickleness.  GM was dead, rexcept now they are the worlds biggest seller of cars.  Apple without Jobs has lost the only edge it had, regardless of the 'culture' he put in place to succeed.  Infighting will start, key people will exit to go on their own, and the consumer will move onto the next latest and greatest.  The company likely stay profitable for years while something else becomes the latest and greatest.

 

I think the OS and device business is destined to be commoditized faster than the PC business ever was.  In two to three years every seller will have accurate voice activation, full music capability, full 4g or 5g data ability etc.  Essentially the world at your finger tips.  For 75$.  I will feel like a numbskull for paying so much for this Ipad.

 

The future will lie in the service side of the business.  Who can provide a certainportion of their users with a safe, hack free, virus free, private, secure service.  So far, not Samsung, Google, Nokia, or Windows, or Apple.  The safest mobile data transmission so far is provided by Rim.  So, to remain relevant device providers will need to duplicate or buy rimm's enterprise service.  Unfortunately, a whole hell of alot of Rim's service is patent protected.

 

 

 

 

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I am not done reading the Jobs bio yet, but I do wonder whether the innovation gap between Apple and competitors will start to close at an accelerated rate due to Jobs' departure.

 

Some things have struck me so far reading about him:

 

-He was always thinking about how products should be better designed, while at the same time having the forcefulness to make people heed his desires and ideas about design (he wasn't always right, of course, but when he wasn't, he would often change his mind based on what his people were telling him)

 

-He had the ability to scrap a product and start over even if a lot of work had already been expended on the product (pipeline products could be revised shortly before putting them into production)

 

-He had an amazing ability to recognize secular trends and the business potential of these trends, even when they were pointed out to him by someone else.  MP3 players weren't his idea, but he knew how far they could take the company.  Multitouch interface wasn't his idea, but he saw that it could be used for a phone and that Apple needed to buy up that IP.  I'm sure he was really fond of the Google Guys and Eric Schmidt (prior to the release of Android) because they were on a mission to create the best search, AI, and AR service on the planet.  The buying of AdMobQuattro Wireless (iAd predecessor) and the release of Siri demonstrates that he knows where things are going.

 

-He could convince people to do the impossible.  Just read the story of Gorilla Glass -- can't believe he got Corning to do that so quickly.  Or any of the stories about the original Apple computers.

 

If there are people like Jobs who are still at Apple, they haven't been displayed to the public, and it isn't clear to me that a team can pick up the slack.  So, again, I wonder what happens to the innovation gap with Jobs gone and whether that has an impact on Apple's ability to sustain their current margins.

 

I'm not saying that Apple won't be successful going forward or won't take market share away from competitors (in an expanding market), but I need more info to figure out what margins will look like going forward and whether Apple can continue to get their OS into the lives of as many people as possible.  I also wonder whether the vertically integrated hardware/software approach will work once we start having a UI software layer in places we are not expecting.

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Without getting into specific OSs.  Can any of us tell what the consumer is going to like or want two years out.  In 2005 the Iphone did not exist.  Andriod did not exist.  So not only are you dealing with a rapidly changing environment technologically but you also have consumer fickleness.  GM was dead right, except now they are the worlds biggest seller of cars.  Apple without Jobs has lost the only edge it had, regardless of the 'culture' he put in place to succeed.  Infighting will start, key people will exit to go on their own, and the consumer will move onto the next latest and greatest.  The company likely stay profitable for years while something else becomes the latest and greatest.

 

I think the OS and device business is destined to be commoditized faster than the PC business ever was.  In two to three years every seller will have accurate voice activation, full music capability, full 4g or 5g data ability etc.  Essentially the world at your finger tips.  For 75$.  I will feel like a numbskull for paying so much for this Ipad.

 

The future will lie in the service side of the business.  Who can provide a certainportion of their users with a safe, hack free, virus free, private, secure service.  So far, not Samsung, Google, Nokia, or Windows, or Apple.  The safest mobile data transmission so far is provided by Rim.  So, to remain relevant device providers will need to duplicate or buy rimm's enterprise service.  Unfortunately, a whole hell of alot of Rim's service is patent protected.

 

Uccmal, I respectfully disagree.

 

If anything, MSFT has shown us that building these sorts of platforms can create amazing businesses.  Apple and MSFT have done it.  GOOG is doing it.  Amazon might do it.  Hell, even Facebook is trying to do it. 

 

Devices will be commodities, sure.  But you can't have an OS that is a commodity if it is built to integrate into your life, whether it's on your phone, PC, or TV, or in any number of places in your home.  That's why Apple is so far ahead.  They have the best vision of an integrated user experience across devices and networked things.  It's not a fad, as some like to say it is. 

 

Now, RIMM's problem, IMO, is that they have put lots of energy into their devices and OS without understanding that you must have a phenomenal understanding of design and user interface to be successful in a world where everyone will use these devices. 

 

They need to concentrate on their enterprise services.  Maybe even partner up with or sell themselves to somebody (I have a company in mind).  Or they could divest their hardware business and focus on the service side.

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Guest valueInv

Without getting into specific OSs.  Can any of us tell what the consumer is going to like or want two years out.  In 2005 the Iphone did not exist.  Andriod did not exist.  So not only are you dealing with a rapidly changing environment technologically but you also have consumer fickleness.  GM was dead, rexcept now they are the worlds biggest seller of cars.  Apple without Jobs has lost the only edge it had, regardless of the 'culture' he put in place to succeed.  Infighting will start, key people will exit to go on their own, and the consumer will move onto the next latest and greatest.  The company likely stay profitable for years while something else becomes the latest and greatest.

 

If you could not predict Apple's rise, how are you confident about predicting Apple's future decline?  Do you know what products they are working on? Do you know if they are going to enter new businesses? Do you know how much money they will make when the iPhone becomes you digital wallet? Will they turn Siri into a referral business i.e. will Apple make a cut when you make a dinner or airline reservation? What would be the cash flows from these businesses? Will they add up to form a moat? What about iCloud? Once Apple holds all your data - documents, photos, music, calendar, contacts, etc, how likely are you to switch? Will that form a moat?

 

I think the OS and device business is destined to be commoditized faster than the PC business ever was.  In two to three years every seller will have accurate voice activation, full music capability, full 4g or 5g data ability etc.  Essentially the world at your finger tips.  For 75$.  I will feel like a numbskull for paying so much for this Ipad.

When the OS market for PCs has not been commoditized after two decades, how can you predict the mobile OS will be? What are Microsoft's margins on their OS business? How much inroads has Linux( a free OS) made on the desktop? How much has it hurt Windows? Has MS reduced its prices after competing for a decade against Linux? 

 

The future will lie in the service side of the business.  Who can provide a certain portion of their users with a safe, hack free, virus free, private, secure service.  So far, not Samsung, Google, Nokia, or Windows, or Apple.  The safest mobile data transmission so far is provided by Rim.  So, to remain relevant device providers will need to duplicate or buy rimm's enterprise service.  Unfortunately, a whole hell of alot of Rim's service is patent protected.

Why can't a service business be commoditized? After all, we are starting with a price of zero for services such as email, calendars, social networks.

What are RIMMs margins Vs Apple's?

 

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Well, i'll decline on commenting on anything related to rim directly, since I presented a thesis on part of the mobile busines that might be a moat using rim as an example.

 

Obviously, i cannot predict Apple's decline except that their closed style of operating will turn people off.  They aren't exactly growing market share on a wolrdwide basis.  The commodity side of the business is eroding that side at the moment as evidenced by the thread title.  I dont know if they are entering new businesses.  However, they have lost their guiding light, and whatever plans he had in place will be over ruled within a short time period. 

 

At the same time they are building the digital wallet, the Icloud, sIri referrals they are competing with everyone else who is doing the same.  Rimm is further advanced in the nfc wallet.  They have nfc in place on new devices, and systems in place with Visa, Mastercard, and are working with Assa Abloy on entrance secuirty technology.  The Icloud is only conceptual and The competition is brutal with Google, Amazon, and others certainly in the running.

 

I will give you that the OS side for PCs has not been commoditized.  I would suggest, however that Apple is way behind android now.  And android is nearly a commodity.  Google makes moeny from the licensing but no where near what msft made on Dos/windows.  When/ if Google brings out their own hardware that may kill the Android business overnight.  Other device makers may well evacuate the android system at that point.  Their are other operating systems with wide usage right now that are as nearly as widely used as Windows so I dont buy the one player argument.  An Oligopoly such as what exists right now is a more likely result.

 

Rimm's advantages versus apple.  Apple doesn't posses a secure system at the moment.  Rimm does.  You dont see governments going after Apple to provide access to their system because there is no system.  Right now anyone can access the networks that apple or android or msft operate on so you dont need to negotiate to gain access.  Newscorps recent phone jacking scandal is a prime example. 

 

Re:apple's margins versus rimm.  We are talking apples and oranges with that (sorry).  Apple is getting away with high margins because they can, Right now.  It wont last.  Suppliers and carriers will push back the very moment they see weakness in the apple innovation machine, and margins will disappear.  There are arrogant to assume that companies like Sprint will always be begging for their devices and will get punished very badly for that one day.  Apple has been down this exact road before.  In the meantime, rimm will still be getting the same margins from providing security to business and Governments worldwide. 

 

Finally, to be fair Rimm should jettison the hardware business and allow carriers to run any device on their server system for a fair price.  Either way, setting up a system like rimms would cost a huge amount some of which will be going to rimm as licensing fees. 

 

In summary, all this makes for good intellectual fodder but as a value investor I wouldn't bet big on any outcome. 

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