Apple's 'Biggest Cheerleader' Warns "New iPhones Not Enough"

Authored by Vitaliy Katenselson via,

It is hard to find a bigger Apple stock cheerleader than me. I’ve been writing Apple stock love poems for years. For a long time, it was easy to love the shares because they were unloved by others and it was cheap.

Until recently, when Apple stock was still trading in the low $100s and at single-digit multiples, we were buying current product categories at a discount and were not paying for future product categories.

At today’s price that is not the case anymore.

That is true with any company – the more expensive the stock gets, the more clairvoyance investors need to discern the company’s future growth.

At Apple’s size it is very hard for the company to increase its earnings significantly. Macs, iPads, and even iPhones are mature products.

The iPhone may have a few growth spurts left, but not many. It is facing an unavoidable headwind: the elongation of its replacement cycle. The iPhone improved substantially over the years, but as the i-marvels piled up, the incremental improvements that motivated people to buy a new phone every two years or so became less and less significant.

At some point the iPhone will face the fate of the iPad – its replacement cycle long in the tooth and sales stagnant and declining.

Will the iPhone’s sales stop growing in 2018, or 2020? I don’t know, but from a long-term perspective of the company’s valuation, a few years don’t make that much difference.

Services is the only segment that can grow at a double-digit rate for a considerable period of time, but it only represents 13 percent of revenue. Even the Apple Watch doesn’t really move the needle.

They need another genius

But can Apple come up with new product categories? Let’s ponder on this question in the context of the following quote:

“Talent hits a target no one else can hit; Genius hits a target no one else can see.” – Arthur Schopenhauer

Apple has a lot of talented people designing and redesigning products in the categories that Apple already dominates. They are hitting a lot of targets no else can hit. Apple’s brand is as healthy as ever, and so is product satisfaction.

However, to create a new category of products Apple needs to “hit targets no one else can see,” and this requires a genius. But in an organization of this size with a lot of bright and talented people, it also requires a benevolent dictator – someone able to make bold, unconventional decisions (and own them), someone who in addition to everything else is able to inspire others to create what they may think is impossible. Yes, I am referring to the one and only Steve Jobs, he of the “reality distortion field.”

Here is an instance that comes to mind: Jobs asked his engineers to come up with a touchscreen computer – a tablet. They did. It looked like a bulky version of today’s iPad. Steve looked at and said “Let’s put the tablet on ice,” then refocused the company on miniaturizing that tablet and making a phone instead.

It is important to remember that at the time, though Apple was financially healthy, it was not swimming in cash the way it does today. Jobs made a benevolent dictator-like decision: He diverted engineers who were working on the MacOS to work on what would become the iPhone OS, causing the late release of some Mac products. And only years later, after the iPhone was a raging success, Apple brought the iPad back to life. That was Jobs’ Apple.

Now let’s visit Tim Cook’s Apple. The New York Times ran an in-depth article unearthing why Apple has (so far) failed to come up with an electric self-driving car. These few sentences jumped out at me:

“But the car project ran into trouble, said the five people familiar with it, dogged by its size and by the lack of a clearly defined vision of what Apple wanted in a vehicle. Team members complained of shifting priorities and arbitrary or unrealistic deadlines.”

Nokia spent a lot on R&D too

Even Jobs admitted that Cook is not a “product man.” Cook doesn’t have “the vision,” and thus he doesn’t have the authority to be a benevolent dictator. Nor does he have the charisma to project and maintain a reality distortion field.

Today Apple spends almost $12 billion on R&D – double what it spent just a few years ago. But as outside observers, we really don’t know where this money is going. Or more importantly, how productively it is being spent. I vividly remember how Nokia was increasing its R&D spend every year during the last years of its dumb-phone dominance, but all that R&D did not bring forth new products that would have saved the company from its eventual demise. Apple is not facing Nokia-like collapse, but the R&D argument still stands: R&D spend doesn’t always equal great new products.

The NY Times article said that Apple curtailed its ambition to make a car and is now focusing solely on self-driving technology. In other words, Apple is basically pulling out of the electric car space (at least for now).

If Apple develops and licenses its self-driving technology, it will recover some of its losses on investments made to date. But it will not be able to take advantage of the significant competitive advantage that comes with its incredible brand, its distribution network – hundreds of stores (potential car dealerships) sprinkled all over the world – its know-how in battery management, its design prowess, and its i-ecosystem.

We still own a little bit of Apple stock but have sold most of what we owned at current prices. Maybe Apple’s augmented reality products will become a huge success, or maybe the company is working on a brand new category of products that we have not even imagined. It is all possible.

In making investment decisions you never have perfect information. Apple is no exception. At today’s valuation we are paying for genius – Apple’s ability to successfully create and dominate a new, large product category. While the company is run by very talented people who will do a great job getting us excited about the categories of products they are already in, the company’s genius died with Steve Jobs.


yogibear J S Bach Wed, 09/13/2017 - 10:34 Permalink

Apple is doubling prices every few years.While other electronics manufacturers lower prices through cheaper hardware Apple  is doubling.And they have lines of people waiting to pay.They should shoot for a $2,000 iPhone.  As an Apple investor you have to be smiling while these people are making me richer.Even with a $2000 iPhone people would be queued up to buy. 

In reply to by J S Bach

Tarzan yogibear Thu, 09/14/2017 - 05:06 Permalink

As a printer, I've been using Apple products since they were better known as a Mac.  My first Apple was a Macintosh SE, with a 10" B&W screen.  That was in the late 80s.  I've been using them ever since, although the PC has crept in little by little over the years.My wife and I have had the i phone 6 for a few years now, and I'll likely never own another.  I wont own an X.  It seems to me they've completely sold out, nothing more then a tracking device for big Gov.I know they're going to track us, it's inevitable, if not for control, for corporate gain, not scared nor hiding, but I'm not going to make it so damn easy for the bastards, and stair at the screen every time I want to make a call so they can fine tune their damn spy satellites.From the Towel Heads, to the Millennials, We will one day all be numbered world wide, all be tracked, through which all will buy, sell, and travel.  Why do you think face book was created, why do you think the selfy craze swept the world?  face recognition needs constant fine tuning for the data to be accurate, for the eye in the sky, the beast, to know your every move! 

In reply to by yogibear

Infinite QE yogibear Thu, 09/14/2017 - 06:21 Permalink

It's all about consciousness and surrendering freedom into the cloud. The iPhone is their observer and collapses the quantum wave function and then presents a "reality" to the iPhone junkie, the new observed.They are programmed to surrender their autos, a true method of freedom, and become renters of cars, or Uberites. Cars are bad for the environment, global warming, oh wait, I mean climate change. You consume too much air. On and on the lies pile.Once there is no longer a car payment involved, the $2K, or for that matter a $20K iPhone is not out of the question. As they now view the iPhone as the presenter of their reality, which from a physics perspective, it is, I see Apple being able to charge whatever they wish for their phones. They are now way more than phones, they are a reality.Talmudic magic at its most demonic.

In reply to by yogibear

mkkby esum Wed, 09/13/2017 - 16:06 Permalink

When Jobs died I said innovation died with him, and the company would be taken over by bean counters. It happens at every big company, and only a powerful figure like Jobs can keep them leashed.

There is one more reason for people to ditch their phones and buy a new one. LTE 5 is coming out soon. Any phone you buy now won't have a modem capable of the faster speeds. Other than this, there is no reason to buy a new phone. Each new model has only a few useless new features.

In reply to by esum

takeaction shizzledizzle Wed, 09/13/2017 - 09:14 Permalink

Sure love my (New to me) Samsung Galaxy Note 4 from Ebay for $140.00.  I had my Note 2 for 5 years or so, and some of the newer aplications were saying "No longer supported on this device".  Why would you EVER try and keep up with the newest and the greatest.  If you stay a few generations back, it is still new to me...and you save a fortune. about service.  T-Mobile....5 lines...Unlimited....$120.  I here of people still paying $150 a month or more for 1 phone.  Really?Same with Computers...Video Cards....TV's....etc.  Let the Price drop by 70% when the newness is gone...then I am in.I really don't get it?  Note: The smartest thing you can do for a new phone is invest in a top of the line case....and the glass screen protector.  I use the U.A.G.  These cases are AMAZING.....I have dropped my phone on concrete...out of my ladders.....I have yet to ever damage my phone.NOTE:I gain nothing by telling you this stuff...just sharing to maybe help someone.Here is the case... 

In reply to by shizzledizzle

LawsofPhysics Wed, 09/13/2017 - 08:52 Permalink

Not enough for what exactly?  At least the slaves at crapple are making something real...Perhaps you would be more interested in a financial "product"?LOL!"Full Faith and Credit"

ZippyBananaPants Wed, 09/13/2017 - 08:55 Permalink

Jobs also said there is Smart, Genius, and then Simple.  He made things Simple, Apple has tried to make things cool since he left (Beats purchase) and that is where they are stumbling.

yellensNIRPles Tom_Pain Wed, 09/13/2017 - 11:03 Permalink

Worse, they are going backward. Things like removing the magnetic power cord from MacBook Pros was absolute insanity. It was one of the best selling points and most innovative features on the entire computer. Something truly unique about a machine that is otherwise not that special. Trip over your cord and it simply pops out with no damage. Steve jobs died and in a couple years that feature disappeared from the new machines. You should see the new ones with this fucking USB C. You trip over that and it yanks out and damages the machine or the cable, and the way it connects into the AC/DC adapter is rediculous and cheap and collects dirt and dust within months. Terrible design and easily avoidable with some VISION, which no one at Apple has anymore.  

In reply to by Tom_Pain

Mr 9x19 Tom_Pain Wed, 09/13/2017 - 11:10 Permalink

steve jobs WAS apple. the soul went away, actually, apple is nothing but a herd of hyenas trying to suck the absolute money of something dead by mimmicking the past without a vision of the futur. apple... rofl, the best thing they made was and ipod gen 5.5. the best mp3 player of the world, i own one modded by myself with 500gb ssd, under rockbox O.S. a killer.

In reply to by Tom_Pain

Max Cynical Wed, 09/13/2017 - 08:59 Permalink

I want my phone to make calls, maintain contacts and a calendar, to check e-mail and occational internet access. My needs are not unlike hundreds of millions of other smartphone users.I don't need a million apps and new phone iterations do nothing for me. They're running out of innovation...there's nothing more a smartphone will do tomorrow that it can't already manage today.And for those that think the smartphone is going to replace computers...pfft.

silverer Max Cynical Wed, 09/13/2017 - 09:08 Permalink

My last iPhone only had four apps added. That was all I really needed. More bloat is not more productive. The phone itself becomes the focus rather than being a tool to help you focus on other important things. I don't see how a phone in your face all day actually helps you better produce something tangible, except maybe profits for the manufacturer.

In reply to by Max Cynical

Hal n back silverer Wed, 09/13/2017 - 09:46 Permalink

I am still using my Ipods, a 160 gig classic and one of the small nanos for jogging or biking where I can clip it to my collar.Apple pissed me off when they took the Ipod away.too bad they did not further miniaturize it so a small one would hold 160 gig.I remotely know someone who has been working on apple TV for a decade. Has become wealthy on stock options. I do not think apple tv is such a big deal nor a big money maker.

In reply to by silverer

ThrowAwayYourTV Wed, 09/13/2017 - 09:04 Permalink

The American consumer has been knocked right the F%$k out by commercials, ads, corporations banks, insurance companies, and medical bills.They're done! Put a fork in them.

TheSilentMajority Wed, 09/13/2017 - 09:05 Permalink

The launches yesterday were meh. No innovation at the rotten apple.

No significant improvements to iphones since ip6. No need for anyone to upgrade.

Still as fugly and redundant as ever. Very few imbeciles would want to add another cellphone bill to their mailbox.

Overpriced and underwheliming. Buy a more versatile Google chromecast for only $35.

In other words, another FAIL for cookie.

rpboxster TheSilentMajority Wed, 09/13/2017 - 09:17 Permalink

I agree.  These products are all just evolutionary.  They do represent the best (or close) in each category, but you can get 90-95% of the performance/features for $250 with a Moto X or Oppo or any number of great, inexpensive Android devices.  The watch, in particular, is a fail because it requires another cell plan.  Essential Phone is alreay all glass for hundreds less than the iPhone X.  I've owned and liked the Apple products I've had, but like the value and performance of the Android devices I now own even better.  It will be interesting with the financing/monthly plan for phones how many people will be upside down when trying to upgrade.  Just like cars. 

In reply to by TheSilentMajority