What’s Apple doing at the moment? Possibly the greatest magic trick the corporate world has seen. And it scares me that a company of this size and stature seems to have lost its way.
Dan Denning went so far to say Apple might not even exist in the next 5 years.
The question that haunts me: why is a company that is supposed to make technology offering corporate bonds? It’s lost sight of what they’re all about, making and inventing breathtaking technologies. That should be the real driver for the company.
Perhaps Apple hasn’t been the tech-god we’ve held it up to be. What if it’s actually the best magician in the history of mankind?
Where David Copperfield could make the Statue of Liberty disappear, Apple it seems can make money disappear and products appear instead. It’s the corporate version of the Shell Game.
The Real Genius Behind Apple
Apple’s products seem to just appear on the market from nowhere. A colourful cloud of smoke and shazam! We have the worlds next-greatest device at our fingertips.
But what if I was to tell you everything inside the iPhone, iPad, iPod and iMac was readily available or conceptually borrowed perhaps, from other technologies?
Imagine a world with email, games, the internet, music, weather updates and GPS in a phone. And years before the iPhone was even released.
Well that world actually existed. You could have had all those features if you’d known about the IBM Simon Personal Communicator, The Danger Hiptop (SideKick), Ericsson R380 and Benefon Esc! But if you didn’t know, neither did most other people.
What Apple did was this: take a little from column A, and little from column B, C, D and E, make it pretty and market the pants off it. There’s nothing ‘new’ about Apple’s products at all. In fact to quote Steve Jobs, ‘good artists copy, great artists steal.’
One thing’s for certain. Every Apple product is a master class in design.
That means if you want to really put the success of Apple down to one man, it’s not Steve Jobs, and it’s certainly not Tim Cook. It’s Sir Jonathon “Jony” Ive.
Ive is the design maestro behind the iMac, iPod, iPhone and iPad. He’s the real genius at Apple. And with Ive still on board, there’s a glimmer of hope left.
Apple finally realised this when they shifted Ive from pure prototype and product development after the death of Jobs. He now has unprecedented influence over software development.
Let’s not forget the core of what Apple built their company around, computers. The first range of computers Apple made in the 80’s were actually quite awful.
The story goes they (and Microsoft) stole the graphical user interface and hardware technology from Xerox to create their masterpieces.
It was one of Apple’s most daring illusions. Copy and repackage the Xerox Star into something more elegant and beautiful. The Apple Macintosh.
We continue to go through Apple’s product range and find examples of technology that preceded them. It’s a back catalogue of great ideas, redesigned, made pretty, and labelled Apple.
MPMan and the Diamond Rio preceded the iPod. The Intel WebTablet and HP Compaq Tablet PC preceded the iPad. The difference between them all: Ive’s industrial design. And the marketing power of Apple.
The other area where Apple succeeded and others failed was their commitment to user friendly design and interface software. They weren’t always the most powerful or technically the most amazing. But they were easy to use- so easy a 5 year old could manage their way around one.
And now Apple’s advantage has expired.
It’s not necessarily Apple’s stopped innovating. It’s just that the competition has figured out the game plan: Take some existing tech (even Apple products), make it pretty, market well, sell. Easy.
Apple vs. The Rest is deep in the fourth quarter and ‘The Rest’ have figured out how to beat them. And Apple it seems has no defence. Their offence still has their quarterback (Jony Ive), but the competition knows their plays.
Consider this: the smartphone market has just surpassed the ‘feature phone’ market for devices sold. And feature phones include gems like the Nokia 1100, 3210 and 1200. (Combined sales of over half a billion units.)
Samsung, HTC, LG, Huawei, Nokia, Blackberry, Lenovo, Sharp, Toshiba, Motorola (amongst others) all now make smartphones. There are thousands of examples now on the market. Competition is fierce, and Apple no longer is the prettiest or most user friendly.
Same goes for the tablet market. Apple got the jump with the iPad. But now all the same companies that make smartphones make tablets. And many of them are faster, more powerful and more user friendly than the iPad.
Then what’s next for Apple? Competition has become so hot they need a new product to reboot the share price, and the company. But one isn’t coming. In absence of a new product, what else could they do?
Apple’s Best But Last Illusion?
Well the boffins down at Cupertino decided the answer was a new type of illusion. A share buy-back and bond issue, a band-aid where a tourniquet is required.
And this illusion could be their last if they can’t come up with a ground-breaking product after this.
Having sold $17 billion (USD) of corporate bonds, to assist their share buy-back program and reinvigorate their fledgling stock price Apple are hoping to make you look one way while they try and make magic happen elsewhere.
It’s sleight of hand at its finest. And something Apple is well practiced in.
There’s an accounting term called the ‘Double Irish With A Dutch Sandwich’.” Here’s the definition of it from Investopedia:
A tax avoidance technique employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The double Irish with a Dutch sandwich technique involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven. This technique has allowed certain corporations to dramatically reduce their overall corporate tax rates.
A New York Times report claimed Apple invented this technique. Possibly one of the only things they’ve actually ever invented.
What does The Double Irish Dutch have to do with the bond issue? Well Apple’s headquarters are in Cupertino, California. But most of their profits are actually from overseas. And about $100 billion of their $145 billion in cash resides outside of the US.
If you’re Tim Cook, you need to get some confidence back into the company. What better way than a buy-back! But you need to fund the buy-back. And most of the money is on holiday, indefinitely.
It’s away in places like Ireland, The Netherlands, Luxembourg, the British Virgin Islands and of course the US. Try following the red ball with that shuffle game…
Mind you Apple isn’t alone either. Google, Microsoft, IBM and Apple lobby the White House hard and regularly for a tax repatriation holiday. That is, a cease-fire with the IRS to bring their billions, likely trillions, of cash back home from abroad. Because none of them want to bring that cash back because it would mean billions in taxes.
Needless to say, the U.S. government isn’t having a bar of it.
Tax avoidance aside, in Apple’s case there’s only one way to breathe life back into the share price right now and that’s a buy-back and bond issue. When you’re not doing what you should…making cool tech…you still have to keep shareholders happy.
Ta-da! Over 8% shift upwards in the last week. The illusion is in play. And it might be their last one.
While the markets are looking to the right, over on the left, Apple is desperately trying to come up with the next big thing during this diversion.
iWatch? iTV? iCar? It seems as though Apple have lost their mojo. Because none of those products that are rumoured to be in the pipeline will do for the company what they hope.
Forget about $1,000 share prices, widely touted as the next level for Apple this time last year. They’ll be lucky to keep their heads above $100 on the track their heading.
My point here is when people say Apple have stopped making great new products, they’re wrong. They never started. And they’re not on track to amaze us again anytime soon.
If anything, Apple’s an amazing design and marketing company parading around as a technology company.
When the illusion is over and Apple can’t magically make a product appear…the audience will be disappointed, and disappear themselves.
And in the tech world, the audience will simply go to one of the other, many, more exciting shows.
for The Daily Reckoning Australia
Ed Note: Sam Volkering is assistant editor and analyst for a new breakthrough technology investment service to be launched by Australian Small-Cap Investigator editor Kris Sayce. The breakthrough technology service will introduce cutting edge investment ideas from the technologies of the future, including medicine, science, energy, mining, and more.
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About the Author
Sam Volkering is the technology editor for a href="http://www.moneymorning.com.au/category/technology-and-innovation">Money Weekend's FutureWatch. In this regular column he highlights the latest advances in technology, healthcare and energy. Sam is also the assistant editor and analyst for the new breakthrough technology investment service Revolutionary Tech Investor headed by Money Morning editor Kris Sayce.