Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Stock Market, Investing Big Picture - 6th July 15
“Oxi!” - Greeks Defy EU As Varoufakis Resigns To Ease Tensions With “Partners” - 6th July 15
Stock Market Rally in a Downtrend? - 6th July 15
Silver Price Consolidating Ahead of Another Sharp Drop - 6th July 15
Gold Price Gravitating Lower Towards $1000 - 6th July 15
Syriza Convinces Greece to Commit Suicide, GrExit Beckons, Market Reaction - 6th July 15
Financial and Commodity Markets Become Scary: Crash Point Or Turning Point - 5th July 15
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World - 5th July 15
Forget 'Haircut', Instead Syriza Plans Beheading of Greek Bank Depositors, Theft of Deposits - 5th July 15
The Pentagon’s 2015 Strategy For Ruling the World Through Endless War - 5th July 15
United States Celebrates the Disastrous Secession From Great Britain - 5th July 15
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

Apple's Slump, Google's Surge, and the Curse of 'Forced Innovation'

Companies / Tech Stocks Mar 10, 2013 - 03:09 PM GMT

By: Submissions

Companies

Cetin Hakimoglu writes: After a brief reprieve in late January, Apple is back to affirming Newton's observation that apples do indeed fall. I remember in December 2012 reading about how it was 'tax related' selling or funds booking profits after a large run. Or that Apple was cheap and undervalued. Apparently the tax selling went into overtime as Apple began 2013 with a rotten quarter and by the end of January became the worst performing stock on the S&P 500, having under-performed the index by a staggering 40% since peaking at $700. And a PE ratio of 10 apparently isn't 'cheap enough' to placate Wall St.


Yes, Apple sells tens of millions of units and will continue to do at least for the foreseeable future, but P&G sells lots of toothpaste, Microsoft lots of software, and GE lots of turbines. Is there much enthusiasm for those companies? Not really, if measured by stock price. Stocks tend to trade on the enthusiasm for the underlying business model, not valuations. This is why buying stocks on a low PE ratio is often a losing strategy. Wall St. has a predilection towards companies that are transforming/creating new industries and or have no viable competitors such as Google (transforming advertising, organizing information), Linkedin (transforming the HR department), Facebook (social networking, internet advertising), Ebay (online payments/commerce) and Amazon (eCommerce, cloud), and Salesforce (cloud based enterprise apps) that not only have rapid growth, but are deemed key players in the burgeoning 21st century digital economy. I would also add the private companies Twitter (tansforming the consumption and dissemination of news) and AirBNB (online travel, lodging).

The industry of selling pretty looking electronics has a cloudy future for two reasons; consumer tastes tend to be erratic and consumers have a plethora of options for electronics versus Google or Facebook where there are no major competitors; and second that hardware is vulnerable to price margin compression due to competition. Not only are cloud computing, cloud based enterprise software, mobile payments, social media, and online advertising rapidly growing industries, the key players in these industries have few, if any, viable competitors and endless unimpeded growth on the horizon.

To make matters worse, slow growing companies such Proctor and Gamble, Microsoft, and General Electric have yet very stable, predictable business models - with enough time to build the trust of major long term investors, in contrast to Apple which seems to be in the middle of maelstrom of uncertainty with an ever present cacophony of chatter about lowered estimates.

Looking back, hardware stocks typically have a growth spurt of around 10-15 years before tapering off or outright collapsing, packaged software (MSFT) is longer and intangible software/internet applications (Google, Safesforce, Amazon) may be even longer, still. Dell had a 15 year run from 1985 to 2000. Compaq, Gateway, and Acer lasted around 12 years; Research in Motion 10 years. Apple is approaching its 13th year on its second run; its first run from 1978 to around 1993 lasted about 15 years. Google is still going strong since 1998, and twienty years from now it's conceivable that anyone using a desktop or mobile device will be served some form of a Google ad or using a Google based operating system, while using LinkedIn, Paypal, twitter, and Facebook that will be hosted on a cloud server, powered by cloud applications.

The question being asked on blogs and financial TV is "Can Apple still innovate?", but does it matter? The fact we're asking such a question is bad news for Apple because if there's one thing Wall St. hates-even more than regulation and taxes- it's forced innovation. Wall St. looks favorably upon innovation if the company can choose to innovate at its own leisurely pace versus 'forced innovation', which is when a company has to innovate to fend off competitors and or increase revenue or profits. Competition and changing consumer sentiment is forcing Apple to frantically introduce lower margin models and new product categories in an effort to be relevant. The mass realization by funds that Apple is in the bad situation of being forced to innovate precludes it from returning to Wall St's good graces, even if Apple does manage to innovate even more than it already is. Look at LinkedIn, Craigslist, Paypal, Twitter, Google, and Facebook as examples of sites haven't changed much in the years, except for incremental adjustments for usability and spam reduction.

Truth of the matter is, Apple has innovated much more than Google that upon going public in 2004 had already established Adwords and Adsense, but no major revenue generating products since then (maybe Gmail and Android are exceptions, but these generate little revenue). Same for Microsoft which developed windows in the 80's, and continues to generate the bulk of its revenue to this very day from windows and office based products. Apple, on the other hand, developed two classes of products since 2004; the iPhone, the iPad, and maybe the iPad Mini and the iCloud. Look at Best Buy, which is being forced to innovate against Amazon, and the stock has been obliterated. Or RIMM, which debuted a tablet and new iterations of blackberry with little avail to its falling stock price. Wall St.'s perfect company is a black box that perpetually prints money, only needs occasional polishing, and has no competing boxes. Google fits the bill perfectly, and that's why Google stock will go to $1200 within two years as AAPL will keep falling.

Cetin Hakimoglu

tradelite@yahoo.com

Copyright © 2013 Cetin Hakimoglu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History