Tags: Apple | Jobs | cool | products

Is Apple a Buy?

Wednesday, 05 Dec 2012 12:40 PM

By Robert Wiedemer

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With Apple down over 20 percent, it’s a good time to ask whether Apple is a buy. Certainly, many investors will be asking that question. In the short term, that question probably has more to do with the stock market than with Apple itself, as Apple will likely follow the market up or down, like most stocks.

However, over the next year, Apple’s performance will increasingly depend on the sales of the iPhone 5 and any updates to the iPad. Apple TV is the big unknown — it’s not known when it will come out or how well it will sell. I don’t know how those questions will be answered, although the early results from the iPhone 5 have not been nearly as positive as prior updates.

But, on a more fundamental, longer-term level, I do have some thoughts. Even though the Aftershock will hurt Apple’s stock price and earnings, no matter what it does, I think it’s worth looking at how the company would perform on its own since it is so big and important.

First, let me say that I like Apple. I always have. I was one of the first people to buy an Apple II computer. I even bought an extra 32K (not MB or GB, but K) in memory and a floppy disk disc drive — OMG!! I also have an iPhone and an iPad.

Apple is a great company, but I think Steve Jobs was more important to its success than the market is giving him credit. After Jobs died, the company almost doubled in price. It has come back down 20 percent since that peak, but I think the previous valuation and even the current valuation greatly underestimates Jobs’ contribution.

The key to my thoughts is the nature of Jobs’ contribution. His great strength was not in the invention of fundamental technologies. He didn’t invent the cell phone, the touch screen, the mouse, putting emails on cell phones, cell phone apps, MP3 players, or the like. Jobs’ great strength was in making those technologies easier to use. That’s part of the reason he called the company Apple. He wanted to make technology simple, friendly and more fun.

For example, I had the dubious honor of owning a Treo cell phone. It had a touch screen, email capabilities and cell phone apps long before the iPhone. But it seemed like all the apps were designed to freeze when they were actually used, as was its email system. I also owned a Blackberry. It worked fairly well for emails and calls, but when I tried to use the Internet app, it never worked for me. I had no problems like that with the iPhone. It rarely freezes and is easy to use.

His other great strength was, in his own words, “making geek chic.” That’s such a perfect way to put it. He was the fashion guru of the tech world. Apple products look incredibly cool. They are packaged in incredibly cool boxes using incredibly cool graphics and sold in incredibly cool stores. When Jobs touted a new product, it immediately became cool. His story is unbeatable — not only his huge success as an entrepreneur, but also how he started building computers with his friends at the Homebrew Computer Club. He was the epitome of the “garage entrepreneur.” He also overcame adversity at Apple, when he left as CEO and then came back only to have greater success the second time around. Jobs had the story and the sizzle.

That coolness, making geek chic, is tricky to reproduce and that is the first part of my concern with Apple. If Tim Cook, the current CEO of Apple, says something is cool, it’s almost meaningless. Cook is a good guy and a decent manager, but I don’t think when Cook touts an Apple product it is going to have the same impact on making it a must-have, super-cool device that Jobs did. He doesn’t have the story or the sizzle.

More importantly, it’s not just looking cool, but creating cool, new products. That’s also tricky to reproduce and it the second part of my concern with Apple. Making geek chic may sound easy, but it’s not. Jobs had a very unusual fashion sense in an industry that is not known for fashion. That’s what made him so special — he brought fashion to a place that was instinctively more focused on technological innovation than fashion. It will be tough for any person who isn’t Jobs to do that.

Jobs’ focus on making things easy to use should endure better. That culture will be easier to maintain, but it’s also not a pushover. So many technology companies try to focus on ease of use, but do a poor job of it. That includes highly innovative, entrepreneurial companies like Research In Motion, the maker of the Blackberry. I suspect Apple will continue to make consumer technology that is easy to use.

However, unless new products are being created, making old products easier to use can be easily copied, whether it is a cell phone or an electronic tablet. It’s a whole lot easier to copy techniques for making technology easy to use than it is to create them.

So, long term, I suspect Apple will create fewer new products like the iPad or iPhone. In fact, I think Apple will lose its sense of fashion fairly quickly — in fact, that has already begun.

In addition, the features that make their current products easy to use will be copied and sold at a much lower price. The Android Smartphone is already fairly easy to use. Yes, Apple has a big base of users and apps that will keep it a big company. But, what made Apple great was its new products. So, either Apple creates more hot, fashionable new products or it will suffer mightily over time.

Short term, Apple can run on the incredible momentum Jobs created, but I simply don’t think it can create those new blockbuster fashionable products without him. Even with Jobs, it’s no guarantee, but without him, I think it’s pretty near impossible.

About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.

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