Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off
Sameer Singh posts Apple & Samsung's "Profit Share" Trap on Tech Thoughts blog:
Over the past few days, there has been a lot of noise in the tech media about the supremacy of "profit share" over "market share", specifically related to Apple's performance in the smartphone market (but it can be extended to Samsung as well). Most proponents of this argument seem to fundamentally misunderstand the long-term relevance of the "profit share" metric.
Exactly! I've been preaching this mantra since the beginning of my coverage of the mobile computing sector. Let's recap...
In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?
I explained this in detail in the post "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!". Failure to achieve the network effect effective is tantamount to a failure to be able to control you margins, long term. Of all people to of know this, who do you think preached it most convincingly? Take note:
What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.
Who did I just quote? None other than the RDF Chief in Charge, Steve Jobs (circa 1995 Forbes interview)! So, if he was able to see what happened to his baby in the '90s, what happened in the new millennium? I certainly warned it would happen again, see this three year old article - A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple. In Apple on the Margin I showed the margin fade coming ahead of time, as well as in the following references:
- How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
- Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!
So,Apple's top management knew how this worked. I knew how this worked. What happened? Who the hell cares, a short is a short. Next up was the contrarian call of the decade, but it took very little intelligence and as much as I'd like to claim credit for being a genius... all you had to do was watch the trend.
- Deconstructing The Most Hated Trade Of The Decade, The w 375% BoomBustBlog Apple Call!!
- Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All
So, now the question remains, "Is Apple a steal at these prices?" Well Doug Kass seems to think so (Doug Kass: 4 Reasons Apple Is Turning Around - CNBC) and I'd love to discuss this with him on air or, or both! This was discussed here in detail - Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In.
I refer my subscribers to the research documents below for the answers...
Subscribers, download the Q3 2013 valuation reports (click here to subscribe).
- Apple 3Q2013 Valuation Update - Retail
- Apple 3Q2013 Valuation Update - Pro & Institutional
The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!
The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All