Profiting From Apple...Without Investing in Apple
Apple released the latest iteration of its popular tablet computer this week. The latest iPad upgrades features already present in existing Apple products. Improvements include a higher-resolution display, 4G wireless capability, an upgraded processor and a pared-down version of Siri — the voice recognition platform first released on the last iPhone.
Apple hit home runs when it first launched the original iPad and iPhone. The successful launches of these products will be tough to beat, however. While Apple doubtless has a road map of future product releases, its visionary founder, Steve Jobs, is no longer at the helm.
Jobs was intimately involved in developing Apple products, and he was a genius at anticipating what customers would want before they even knew they wanted it. Apple is currently releasing products already dreamed up in Jobs’ fertile mind. What will happen when the Jobs pipeline dries up?
There are signs that Apple is slowing down relative to its competitors. Last year, for example, Samsung passed Apple as the top smartphone company by shipments in the world.
In the tablet market, Apple’s market share has also fallen. In 2010, for example, the iPad accounted for over 94% of the tablet market share. By the middle of last year, that had fallen to 70%. Today, that number is down to just under 58%.
Most of that lost share in the overall tablet market has been captured by a diverse group of companies running Google’s Android platform. Like the tortoise to Apple’s hare, I expect the Android army will eventually overtake Apple for the tablet lead.
Microsoft is also champing at the bit to get into this market. Its next version of Windows will run on tablet computers and smartphones. I was able to check out an early version of the new operating system at January’s Consumer Electronics Show, and I found it impressive.
In the meantime, Apple is trading on its past success. Today, it’s the world’s largest company by market capitalization. The $500 billion question is whether or not Apple can continue to grow as it has in the past.
I suspect Apple is approaching the slowdown phase in its growth curve and future growth will be more modest. Even new products, like Apple TV, will contribute only modestly to overall growth at this point.
While I fully expect the mobile computing market to continue to grow, I think there are better ways to invest in it than Apple. Today, Apple is priced for perfection. However, even if Apple stumbles, the mobile market will continue to grow.
One investment theme I’ve mentioned in my investment letter, Technology Profits Confidential, is to buy mobile technology suppliers. This includes major Apple suppliers. TriQuint Semiconductor (NASDAQ:TQNT), for example, is a major Apple supplier. TriQuint manufactures the radio chips needed for a mobile device to connect to wireless networks. Even if an Apple competitor steals market share, TriQuint will have the opportunity to sell to that company instead.
And then there are all the wireless data mobile devices Apple and others generate. A wireless data capacity crunch is happening right now. Wireless carriers like Verizon, AT&T, and Sprint are dumping unlimited data plans in the face of too much traffic to handle. They are now charging additional fees for data above a certain level.
Consumers are hating this, of course. When they shell out hundreds of dollars for a powerful wireless device like the new iPad, they want to be able to use it as much as they like. They want to be able to browse the Web, download applications and watch high-resolution video.
Technology companies that help wireless carriers solve the bandwidth crunch inexpensively will be in high demand in this environment.
Apple shares have zoomed over 500% over the last five years. Today, there are better ways to profit from the mobile revolution.