Wednesday, September 11, 2013

Post-Jobs Apple is in serious trouble

Say what you will about Steve Jobs, but the man was a visionary. Somehow, despite all his detractors and against huge odds, he was able to transform Apple from a computer company into a media conglomerate. Make no mistake, Apple has been out of the hardware business for a long time now as most of their revenue is driven by purchases from iTunes and the App Store. Apple's hardware is now only a reason for people to consume content provided by Apple's online stores.

However, Apple under Tim Cook seems to be digging itself into serious trouble. The first, and in my opinion the worst, faux-pas is their continuing lawsuits against Samsung globally. Public reaction to this continuing legal morass has ranged from tepid to outright ridicule and has done more to drive consumers to Samsung products than any other single factor I can think of. From a public relations standpoint, Apple accusing Samsung of being unoriginal copycats, have highlighted the fact that Apple is itself even more guilty of this than their competitor.

Consider that four product generations have now passed from the iPhone 4 to the just announced iPhone 5S without much in the way of originality or change. Except for the slightly larger 4" screen on the iPhone 5 series, each successive generational product has been largely incremental and rather forgettable. With each successive generation, consumers are complaining about the lack of product leadership that marked Apple under Steve Jobs, but Apple seems to be out to lunch. Where is the surprise, the flash, the excitement of past product launches?

The industrial design for the iPhone seems permanently stuck in neutral as Apple's preference is to play it safe rather than go for something startlingly fresh or new. And despite the larger 4" screen on the 5/5S, the 5-inch plus large screen market pioneered by Samsung has largely passed Apple by. Even in Asia where consumers have much smaller hands, everyone appears to prefer the larger screen Samsung (and Android smartphones in general) over Apple's offerings. Big screens are in, but Apple seems oblivious or grudgingly resistant to this market trend.

The second mistake has probably impacted Apple from an operational standpoint. Samsung isn't just a competitor to Apple in the marketplace, they are also a huge semiconductor manufacturer and vendor of strategic components and services. Samsung provides foundry services, and manufactures DRAM, FLASH, advanced displays (AMOLED anyone?), and all the other various bits and pieces that go into smartphones and tablets.

All of Apple's CPUs prior to the A6 were manufactured for Apple by Samsung Semiconductor. A large portion of the DDR DRAM and FLASH memory were also provided by Samsung since Samsung is the world's largest supplier of memory products with 50% global market share. Apple is still the single largest consumer of mobile memory and FLASH products in the world.

While I don't know the extent of the impact this has had to Apple's sourcing and logistics, I can safely say the impact isn't zero. If Samsung really wanted to put the kibosh on Apple, they could refuse to sell DRAM or FLASH to them, or raise the price as there is not enough supply in the world to satisfy Apple from the balance of remaining suppliers. Smart move on Apple's part? I think not.

And finally, yesterday Apple announced the new iPhone 5S and 5C. The 5C was rumored to be a potential Trojan horse for Apple to win back lost market share by adding a "low cost" model to their product lineup. However, pricing revealed that off contract the 5C is almost as expensive as the "regular" iPhones. Who would want to pay for something that expensive made out of plastic? Apple completely missed the boat and squandered a strategic opportunity to address their shrinking market share in the face of Android's assault.

And that's not all. The 5S comes in three colors now and none of them are the classic black or white which has become the trademark colors for all iPhones. Would it have hurt Apple to add three new colors in addition to the classic black and white?

When Jobs passed away, Tim Cook assured us all that Steve Jobs' influence in future product designs would continue to be felt for some time to come. However, given what's been going on lately at Apple, it's hard to say if Tim Cook is going strictly by Jobs' playbook or has actually been second guessing his work. What we do know is that Apple doesn't look as surefooted as when Jobs was at the helm.

I've used iPhones for many years and also have an iPad and iPod Touch. But lately, I've found myself less and less enchanted by the prospect of spending a premium amount of money for virtually the same thing as I already have. For my money, my next smartphone will probably be an Android device.

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