Apple Update

AAPL : NASDAQ : US$550.50
Target: US$570.00

Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
Investment recommendation:

Apple reported December quarter sales at the high-end of its previous guidance range with EPS above its implied guidance. However, total sales were below our expectations due to softer than anticipated iPhone sales of 51M versus our 54M estimate. While we anticipated softer Q2/F14 sales with seasonally lower iPhone and iPad product sales post the Holiday quarter, Q2/F14 guidance was below our expectations. Specifically, while our estimates anticipated a sharp Q/Q decline in iPhone sales during Q2/F14 consistent with Apple’s implied guidance, we anticipated this decline from our 54M December quarter estimate versus the 51M reported. Given the anticipated sell-off in the shares tomorrow combined with our belief Apple has a stronger pipeline of new products for C2014 versus C2013, we maintain our BUY rating. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating but lower our price target to $570.
Investment highlights
 Apple reported December quarter sales of $57.6B and EPS of $14.50 versus our $58.4B/$14.27 and StreetAccount consensus estimate of $57.5B/$14.09. While iPad and Mac sales exceeded our expectations, iPhone and iPod sales were below our estimates.
 We believe Apple’s soft Q2/F14 guidance is consistent with our expectations for a roughly 25% sequential decline in iPhone units post the Holiday season. We also note on a year-over-year basis, Apple’s guidance does not include inventory builds for iPhones or iPads, includes greater revenue deferrals and unfavorable F/X to create tougher year-over-year comparisons for growth. We were impressed with stronger gross margin results and guidance than our estimates.
 Primarily due to our lower iPhone unit estimates and somewhat due to a sharper decline in our iPod sales expectations, we lower our F2014 EPS estimate from $44.85 to $42.86 and our F2015 estimate from $50.24 to $47.56.
Valuation: Our $570 price target is based on shares trading at roughly 12x our F2015 EPS estimate

Apple Update

AAPL : NASDAQ : US$520.63
Target: US$580.00

Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
Investment recommendation:

October/November U.S. carrier and global surveys indicated very strong iPhone 5s sales with improving levels of supply, steady iPhone 5c sales, and very strong initial sales of the new iPad Air. However, our global supply chain analysis and surveys post the iPad mini with retina display launch on November 12 indicated the new iPad mini is supply constrained and is expected to remain so throughout the December quarter. Given these trends, we anticipate a more favorable Dec Q iPhone/iPad mix for Apple towards the higher-ASP iPhone 5s and iPad Air versus iPhone 5c and iPad mini. For F2014/15, we believe a TD-LTE iPhone launch with the world’s largest carrier China Mobile could bolster March quarter sales and offset some of the post-holiday seasonal trends in western markets. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating and $580 PT.
Investment highlights
 Our Oct./Nov. surveys indicated strong iPhone 5s sales, as it was by far the top selling smartphone globally and at all four tier-1 U.S. carriers. Further, while the Gold iPhone 5s SKU was still supply constrained with long wait times, the other iPhone 5s SKUs showed marked improved availability versus last month. Please see our industry report published today, titled “Q3/13 handset market summary and Oct./Nov. survey: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates” for details. Given these trends, we slightly increase our Q4/F’14 iPhone unit estimates and ASPs from 51.5M/$620 to 52M/$624 due to stronger iPhone 5s sales versus the iPhone 5c.
 Our November surveys also indicated very strong initial iPad Air sales. However, our global supply chain analysis and surveys indicate the iPad mini with retina display, launched Nov. 12, is supply constrained and could remain so throughout Q1/F’14. Given these trends, we change our Q1/F’14 iPad/iPad mini unit estimates and blended iPad ASPs slightly from 12.8M/11.5M/$454 units to 13.5M/11.2M/$465.
 Primarily due to these changes, we raise our F2014 and F2015 EPS estimates from $42.75/$48.23 to $43.48/$48.78.
Valuation: Our $580 price target is based on shares trading at roughly 12x our F2015 EPS estimate


INTC : NASDAQ : US$22.86
Target: US$20.00

Intel Corporation is the world’s largest semiconductor chip maker, in terms of revenue. The company develops advanced integrated digital technology platforms and components, primarily integrated circuits (ICs), targeted at the computing and communications industries.

Semiconductor Devices and Related Technologies
Investment recommendation
We are lowering our estimates for Intel and reiterate a HOLD rating based on weakness in the electronics supply chain that points to a steepening decline for PCs in 2013. Display suppliers, notebook ODMs and distributors all point to 2H weakness, especially for notebooks, whose units drive roughly two-thirds of the PC market. Notebook weakness stems from competition from iPad and other tablets, and with new launches from Apple and others, we expect the cannibalization trend to continue.
Strong iPad5 push to accelerate PC Cannibalization
We believe tablet refreshes by Apple and the proliferation of low cost tablets in China point to continuing and perhaps accelerating cannibalization of notebooks. We expect the PC market to decline by 10% in 2013 and another 4% in 2014. The iPad5 (launching mid-October) appears to be a true redesign with a thinner form factor and we note that build forecasts for this device have edged higher for Q3 and Q4. While changes to mix could be driving the forecasts higher, we believe a thinner design could serve to divert demand from higher end consumer notebooks. Meanwhile, at the low end of the price spectrum, the China white-box tablet market is seeing strong demand, growing from roughly 50 million units in 2012 to nearly 100 million in 2013. Most of these tablets are for the consumer market with prices ranging from $50-$100 USD.
INTC’s price target of $20 is 11x our C2014 EPS estimate of $1.79 plus net cash of $0.83/share.

BlackBerry SELL Target $ 9

RIM BlackBerry 7230

RIM BlackBerry 7230 (Photo credit: Wikipedia)

BBRY : NASDAQ : US$15.63
Target: US$9.00

BlackBerry Ltd. is a designer, manufacturer and marketer of wire less solutions for the mobile communications market. Through development and integration of hardware, software and services, the company provides solutions for access to information including email, messaging, Internet and intranet-based applications

Canaccord says that its global surveys indicate mixed BlackBerry sell-through trends, with weakening sales of the Z10 over the past month but strong initial demand for the limited supply Q10.

Given the weaker Z10 sales levels combined with more limited initial supply of the Q10 than our expectations, we are lowering our BB10 selling
estimates for the May quarter from 3.3M to 2.8M units. While we anticipate stronger near-term results for BlackBerry as higher margin BB10 smartphones sell into the channel, we do not believe BlackBerry can achieve sell-through market share levels to return to sustained profit
levels. Therefore, we reiterate our SELL rating and $9 price target.
Investment highlights
 Given store surveys indicated slowing Z10 sales at Verizon, AT&T, and T-Mobile combined with lower supply levels of the Q10 with a physical keyboard than our expectations, we have reduced our May quarter BB10 smartphone shipment estimates from 3.3M units to 2.8M units.
 With new BB10 smartphones facing increased high-end competition from the Samsung Galaxy S4 and the HTC One, we anticipate Z10 sales could further weaken in the consumer retail channels. However, we anticipate a strong ramp in Q10 sales over the next several months could more than offset the slower Z10 sales.
 While we have lowered our BB10 estimates, we modestly lower our 2013 LPS estimates given our belief BlackBerry may temper nearterm
marketing plans until supply levels of the Q10 improve.
 Given our lower BB10 estimates primarily from our lowered Z10 sales assumptions, we reduce our F2014 LPS estimate from ($0.37) to ($0.44). Our F2015 LPS estimate of ($0.75) remains unchanged.

Blame It On Bill Gates ! PC Sales Slide

Image representing Microsoft as depicted in Cr...

Image via CrunchBase

Microsoft (MSFT : NASDAQ : US$28.79)
Dell (DELL : NASDAQ : US$14.10)
Hewlett-Packard (HPQ : NYSE : US$20.90)
According to IDC, personal computer sales fell 14% this quarter, on a year-over-year-basis, the largest decline
since IDC started tracking sales in 1994.

The research firm had forecast a 7.7% drop in the quarter. “At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market,” said Bob O’Donnell, IDC Program Vice President, Clients and Displays in IDC’s press release.

He added, “While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button, and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft will have to make some very tough decisions moving forward if it wants to help reinvigorate the PC market. Separately, the Wall Street Journal reported that Microsoft is developing a smaller, 7-inch version of its Surface tablet, according to sources close to the matter.

One person familiar with Microsoft’s product plans said the 7-inch tablets weren’t part of the company’s strategy last year, but Microsoft executives realized they needed a response to the rapidly growing popularity of smaller tablets like Google’s (GOOG) 7-inch Nexus, which was announced last summer, and the 7.9-inch iPad Mini introduced by Apple (AAPL) last October.

Consumer Reports : Apple’s iPhone 5 Is The Worst Of The Top Smartphones

One of the reasons Apple’s stock has gotten clobbered lately is that many people think Apple has lost its edge in its most important product line: smartphones.

The iPhone has been such a mind-boggling success that it drives more than half of Apple’s overall profit. And for most of the past five years, Apple has had a lock on the “best smartphone in the market.”

In recent years, however, competitors have caught up with the iPhone. Some reviewers think Samsung’s new phone is superior to Apple’s latest phone. And many people expect Samsung to leap ahead when the new Galaxy S4 comes out this spring.

Another respected product reviewer, Consumer Reports, agrees with those who think Apple has lost its edge.

In fact, Consumer Reports’ conclusion is even more depressing for Apple fans.

Consumer Reports actually rates the iPhone 5 the worst of the top smartphones.

CR doesn’t spell out the reasoning for its numerical ratings (yet), but the results are still startling.

Below is the summary box of CR’s lab tests, which appears in the February issue of the magazine. The numerical ratings are close together, but they’re unequivocal.

As you can see, on AT&T and Spring, the iPhone 5 is rated behind two phones:

As you can see, on AT&T and Spring, the iPhone 5 is rated behind two phones:

* The LG Optimus G (Android)  [The what?]

* The Samsung Galaxy S III (Android)

On Verizon, meanwhile, the iPhone 5 is rated beneath at least three smartphones:

* The Motorola Droid Razr Maxx (Android, and owned by Google)

* The Motorola Droid Razr HD (Android, and owned by Google)

* The Samsung Galaxy S III (Android)

Consumer Reports iPhone 5

Consumer Reports

Not even ranked in the top 3 at Verizon? Ranked behind Google phones in addition to Samsung phones? That must feel like a bit of a slap in the face.

Apple had better be cranking on the iPhone 6…

Google And Motorola Are Working On A Top-Secret ‘X Phone’

Image representing Google as depicted in Crunc...

Image via CrunchBase

Reuters) – Google Inc is working with recently acquired Motorola on a handset codenamed “X-phone”, aimed at grabbing market share from Apple Inc and Samsung Electronics Co Ltd, the Wall Street Journal said, citing people familiar with the matter.

Google acquired Motorola in May for $12.5 billion to bolster its patent portfolio as its Android mobile operating system competes with rivals such as Apple and Samsung.

The Journal quoted the people saying that Motorola is working on two fronts: devices that will be sold by carrier partner Verizon Wireless, and on the X phone.

Motorola plans to enhance the X Phone with its recent acquisition of Viewdle, an imaging and gesture-recognition software developer. The new handset is due out sometime next year, the business daily said, citing a person familiar with the plans.

Motorola is also expected to work on an “X” tablet after the phone. Google Chief Executive Larry Page is said to have promised a significant marketing budget for the unit, the newspaper said quoting the persons.

Google was not immediately reachable for comments outside regular U.S. business hours.

Amazon And Google Are On A Collision Course In 2013

* Amazon, Google rivalry will escalate in 2013


* Companies compete in increasing number of areas

* Areas include: Ads, retail, mobile, cloud computing

SAN FRANCISCO, Dec 23 (Reuters) – When Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize product catalogs a decade ago, the seeds of a burgeoning rivalry were planted.

The news was a “wake-up” call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.

“He realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitized” and then sell electronic editions, the former executive said.

Thus began a rivalry that will escalate in 2013 as the two companies’ areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.

It could upend the last remaining areas of cooperation between the two companies. For instance, Amazon’s decision to use a stripped down version of Google’s Android system in its new Kindle Fire tablet, coupled with Google’s ambitious plans for its Motorola mobile devices unit, will only add to tensions.

The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others’ turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.

“Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset,” said Chi-Hua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. “So when you marry those facts I think you’re going to see a natural collision.”

Both companies have a lot at stake. Google’s market capitalization of $235 billion is about double Amazon’s, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent net profit margin, according to Thomson Reuters I/B/E/S. By contrast, Amazon is seen reporting a small loss this year.

Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage – more likely if it grows in higher margin areas such as advertising. Google’s share price, on the other hand, is vulnerable to signs of slowing margin growth.


Not long after Bezos learned of Google’s catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.

Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Google’s main search website.

Amazon’s fledgling ad business is still a fraction of Google’s, with Robert W. Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue – tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96 percent of Google’s $38 billion in 2011 sales came from advertising.

But Amazon’s newly developed “DSP” technology, which taps into the company’s vast store of consumer purchase history to help marketers target ads at specific groups of people on and on other websites, could change all that.

“From a client’s perspective, the data that Amazon owns is actually better than what Google has,” said Mark Grether, the chief operating officer of Xaxis, an audience buying company that works with major advertisers. “They know what you just bought, and they also know what you are right now trying to buy.”

Amazon is discussing a partnership with Xaxis in which the company would help Amazon sell ads for the service, Grether noted.

Apple To Build Macs In America Again : CEO Tim Cook

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

Bloomberg News

Apple Inc. plans to spend more than $100-million next year on building Mac computers in the U.S., shifting a small portion of manufacturing away from China, the country that has handled assembly of its products for years.

“Next year we’re going to bring some production to the U.S.,” Cook said in an interview with Bloomberg Businessweek. “This doesn’t mean that Apple will do it ourselves, but we’ll be working with people and we’ll be investing our money.”

Apple, which until the late 1990s made and assembled many products in the U.S., moved manufacturing to Asia to take advantage of the region’s lower labour costs. The planned investment makes up a sliver of Apple’s $121.3-billion in cash, and probably won’t meaningfully affect profit margins. Still, it reflects pressure on companies to create even a modest number of domestic jobs as the unemployment rate hovers near 8% and the economy rebounds from the recession that ended in 2009.

“I don’t think we have a responsibility to create a certain kind of job,” Cook said. “But I think we do have a responsibility to create jobs.”

Cook discussed the investment plans in an interview that touched on his relationship with Apple co-founder Steve Jobs, the recent dismissal of senior executives and the company’s competition with Samsung Electronics Co.

While Cook didn’t outline where the manufacturing would happen or how much would be produced in the U.S., he said the company will work with partners and that the operations would include more than just final assembly.

Shares Decline

Apple’s shares declined the most in almost four years Wednesday on concern that the company will lose ground in smartphones to Nokia Oyj in China while giving up market share to Google Inc. in tablets.

China Mobile Ltd., China’s largest wireless carrier, agreed to carry the Lumia 920T, a device based on Microsoft Corp.’s Windows Phone 8 software.

In another announcement that may have fuelled the stock’s slide, research firm IDC said Wednesday that Apple’s share of the tablet market will slip to 53.8% this year from 56.3% in 2011, while Google’s will increase.

Creating Jobs

Many of the parts that go into the iPhone and iPad already are made in the U.S. This includes the display glass, which is made in Kentucky, Cook said.

Apple also has created jobs in the mobile-software industry through the introduction of the iPhone in 2007, which fuelled an explosion in creation of applications, he said.

Besides building a new headquarters in Cupertino, California, Apple is working on a campus in Austin, Texas, Cook said. The company is building new data centers in Nevada and Oregon, while expanding an existing one in Maiden, North Carolina, he said.

Before shifting work abroad, Apple had handled manufacturing in such locations as as Elk Grove, California, near Sacramento, and Fountain, Colorado, near Colorado Springs.

Mac desktop and laptop computers — once Apple’s cornerstone — have been dwarfed by the iPhone and iPad more recently. With sales of $23.2 billion on 18.2 million units last year, Macs accounted for just 15% of total revenue. The device is currently manufactured mostly in China.

Other companies that have said they’ll shift production back to the U.S. from overseas include Caterpillar Inc. and General Electric Co. Google Inc. this year delayed a wireless media device that it had pledged to build in California.

Cook, in the interview, also addressed his recent decision to revamp Apple’s management team to improve cooperation among groups. Senior Vice President Scott Forstall, a main architect of the iPhone software that’s now on more than 400 million Apple devices, was fired in October amid complaints that he clashed with other senior executives.

Samsung Ties

“These moves take collaboration to a whole different level,” Cook said, without discussing specific executives. “We already were — to use an industry phrase that I don’t like — best of breed. But it takes us to a whole new level. So that’s what it’s all about.”

Cook also said Apple has a complicated relationship with Samsung, one of Apple’s biggest component suppliers and its chief rival in the smartphone and tablet markets.

Samsung Ate HTC’s Lunch

Android on HTC Gene

Android on HTC Gene (Photo credit: Wikipedia)

Nov. 23

Thanks to the incredible sales of its Galaxy SIII and other Android phones, Samsungbecame a juggernaut in 2012. It now dominates smartphone market share worldwide, and its being rewarded with massive revenues and profit.

Over the past 12 months, Samsung revenues were $173 billion.

The operating income from its mobile business alone is more than $4.5 billion per quarter.

Soon, Samsung’s mobile operating income well be twice as much as Google’s overall operating income.

What’s truly incredible about this rise is that as recently as a year ago, Samsung wasn’t even the leading seller of Android phones.

Back in 2011, that was HTC.

And that’s why, even in the year of the Facebook IPO, Zynga’s collapse, and Hewlett-Packard’s $8 billion write down, you have to say that the biggest business failure of 2012 was HTC’s.

In the past year, HTC smartphone sales shrank by 36%.

HTC’s October 2012 revenues declined 19% over September 2012, and 61% from October 2011.

The weirdest thing about HTC’s decline, especially in relation to Samsung’s rise, is that, according to our phone reviewer Steve Kovach, HTC’s top-of-the-line phone, the One X, is basically as wonderful as Samsung’s flagship, the Galaxy SIII.

So what happened that HTC, leading in market share in 2011, producing phones on par with Samsung’s in 2012, could have collapsed so drastically?

What went wrong?

It seems HTC made two mistakes:

  • It didn’t spend enough on marketing. In September, Jason Mackenzie, president of global sales and marketing at HTC, told us the reason Samsung was kicking his butt was the size of his budget. He told Business Insider’s Jay Yarow: “Samsung spent four to six times more in advertising than us.” This rings true. You remember all Samsung’s ads making fun of iPhone users waiting in line. Anyway, HTC’s slogan is “quietly brilliant.” Clearly, it shouldn’t be so quiet about it.
  • HTC got pushed around by carriers. Samsung sells the Galaxy SIII on all four major carriers and some smaller ones too. HTC’s top phone, the One X, is only available on AT&T. Carriers want “exclusive” phones, and HTC caved to them on this demand.  T-Mobile sells a version of the One X, called the One S, but it’s not as good.  Sprint has a version called the One V, but it’s even worse than the One S. Verizon passed on the HTC One series altogether.

HTC could have afforded to spend more on marketing. In 2011, HTC had an impressive profit margin of 13%+.  And the decision to have an exclusive with one carrier on a phone without the brand recognition of the iPhone was probably also a mistake.

Apple Is Now Getting Its Butt Kicked In China Smartphone Market

Nov 21

A few weeks ago came the startling news that Apple has now been reduced to a niche player in the global smartphone market, at least from a “platform” perspective.Android is now running away with the race with ~75% global market share.Apple’s iPhone, meanwhile, has only ~15% share.

If the smartphone market were merely a “gadget” market, this wouldn’t matter. Apple still has tremendous scale, and as its devoted fans often observe, it still arguably makes the best smartphones in the world. As a result, Apple is still the dominant player in the “premium” segment of the market, winning the hearts, minds, and wallets of rich consumers who have $600 to spend on a phone (or, more relevantly, carriers who will subsidize their phones).

The smartphone market isn’t just a gadget market. It’s also a platform market. (Third-party companies build products and services that are built on smartphones.) And platform markets tend to standardize around the platform with the most market share, because it’s easier and cheaper to build products and services for only one platform. Thus, in smartphones, platform market share matters.

Also, the “premium” segment of the smartphone market, the one Apple dominates, is already maturing rapidly.

More than 1 billion people worldwide now have smartphones.

These “golden 1 billion,” not coincidentally, are the people who have most of the world’s money. The next 6 billion smartphone buyers, meanwhile, don’t have much money. So, for them, the price of their smartphone is going to be extremely important.

And, as yet, Apple doesn’t offer low-priced smartphones that these folks can afford.

Kai-Fu Lee, a former Googler who now runs startup incubator Innovation Works in China, described the key dynamics of China’s exploding smartphone market in a recent LinkedIn post.

The Chinese smartphone market is growing spectacularly quickly: From an installed base of about 50 million phones last year to a staggering 500 million by the end of next year.

smartphone market share

Android’s running away with the game.

Importantly, this explosive growth was triggered in part by the launch of affordable $100-$200 Android smartphones.

As in other areas of the world, Apple is a premium brand in China. But most Chinese can’t afford to shell out $500 for a phone. And the Chinese wireless carrier business is not built around subsidies, the way the U.S. and European carrier businesses are.

So even though Apple is enjoying huge growth in China, it’s missing out on the truly explosive growth segment of the market: Mainstream Chinese consumers.

Kai Fu Lee explains:

Originally, China’s market developed more slowly because of two reasons. First, usable 3G networks took much longer to develop than other countries.  Second, there are few subsidies in China, so users had to pay one or two month’s salary for an iPhone or Android.  These inhibited the growth.

But both issues have changed.  Broadband wireless is now over 58%, and smart phone prices have dropped to about $100 for an acceptable Android phone, and about $200 for a full-featured Android phone. Smart phones are now spreading like wildfire.

About a year ago, there were less than 50M users, basically affluent or tech savvy users who were willing to pay $500 for a phone and $30 a month for 3G.  But now, students, young white collar, and even blue collar workers are swarming into the smart phone market!

The same thing is happening in India, another vast and burgeoning smartphone market. In India, though, Apple isn’t even a strong “premium” brand, because it doesn’t have the distribution system it has in China. Samsung and other Android vendors are cleaning up in India, while Apple tries to figure out how to sell $500 phones to people who don’t make that much money in a month.

Apple’s dominance of the “premium” segment of the smartphone market has allowed it to become the most profitable company in the world.

But the “premium” segment of the market is maturing, and the next phase of explosive market growth is going to come from lower-priced phones.

As Apple surrenders more and more market share to Android, meanwhile, it risks becoming an “also-ran” development platform. If that happens, the value of Apple’s “ecosystem” will drop, and even the company’s position in the premium segment might become threatened.

Apple isn’t helpless here, but it also can’t have everything.

Apple will soon have to choose between:

1) its extraordinarily high profit margin, or

2) its global market share

If Apple wants to defend, much less grow, its market share relative to Android, it’s going to have to offer low-priced phones.

If it offers low-priced phones, however, its profit margin will almost certainly drop.

Defending market share is much more important to the company’s long-term value than maintaining a particular profit margin, so this shouldn’t be a tough decision for Apple. But it may cause some angst among the company’s investors.


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