5 reasons to be cautious on Apple
1. Meeting a bar set to Olympian heights
: With every one of its most successful products, Apple has raised the bar in the consumer electronics industry to a lofty height but not just for its rivals but also for itself. Today, Apple must beat itself again and again in the eyes of investors and customers who now expect something spectacular from the company almost every quarter and latest every six months.
The danger for Apple is it could get punished for posting "average" results that at other companies would amount to spectacular growth. Also, Apple must spend more of its R&D now developing products that have to meet often unrealistic expectations. It's the perfect environment for making costly mistakes.
2. Commoditization—an inevitable trap: Contrary to what many believe, no single company is immune to the scourge of commoditization, the single most corrosive threat to profits in the high-tech industry.
The trend for high-tech equipment prices has been downward for decades and this is not likely to change anytime soon. Apple's products, even its high-end iPhones and Macintosh computers are under daily threats and will eventually succumb to this cankerworm.
Apple has been so successful—better than most other companies—at demanding high average selling prices for its products that investors have built this into their valuation of the company.
Apple's ability to continue charging a premium for its products will be sorely tested in future. The most likely outcome is the company would get whatever lofty prices it wants but for shorter and shorter periods; in future, after perhaps the first two quarters following product introduction average selling prices for Apple products should start rapidly declining.
3. Concerted effort by competitors to take Apple down: Apple's more recent successes have come at the expense of many of its traditional PC and non-traditional consumer electronic vendors. Many of them have lost significant market share and Apple's success has painted them as lead-footed, plodding beasts that are unable to determine or satisfy consumer needs.
The industry is fighting back and many of Apple's rivals have spent the last one year whipping their design and supply chains into better shape to take on Apple. Each one of these companies, including Dell, Hewlett-Packard, Motorola, Nokia, Samsung and Sony-Ericsson have product pipelines chuck full of items that can arguably take on the best Apple products. In future, they will no longer be slow to respond to Apple innovations; there are so many iPhone look-alikes in the market today, for instance, Apple is no longer the only game in town.
4. Eco-system ownership fight/backlash: By insisting on creating an eco-system for its customers in software and online communities, Apple gained incremental dollars and cents from its operations. However, it has also alienated millions of people who would like to benefit from what this company has created but have no desire to invest in non-compatible equipment.
Rivals are beginning to tap into the ocean of resentful potential Apple customers by creating competing eco-systems that are often open to rivals' products. The development of these competing eco-systems will erode Apple's base eventually as rivals offer consumers less restrictive environment for competing products.
5. Supply chain/ innovation challenge: Yes, Apple has broken new grounds in certain areas, but it has profited recently largely by slapping on old hardware new ways of doing things. There's nothing wrong with this, except that at some point, Apple will run out of new areas to explore.
In developing and manufacturing its latest products, though, Apple has also maintained a strangling control on its supply chain. Suppliers cannot dare buck Apple otherwise they get dropped. While it's good for OEMs to have some level of control over their suppliers, it can never be overemphasized how important it is for the relationship to develop as a partnership where co-dependence is nurtured.
In Apple's case, the King is always right but as Dell found out in recent years, suppliers are not without powers—or investors demanding a healthy return.
Here are some questions for Apple: How many more new product areas can it explore; will such new products get as much bang as the iPod and the iPhone; will rivals beat it to such areas and; will consumers continue to rate Apple products ahead of competitors in every consumer electronic areas it chooses to play in?