Apple needs to turn investor sentiment by taking one of the four following actions. All are within Apple’s reach and could change Apple's current course on a dime. Investors stay tuned.
Software Innovation
This statement will create controversy: What makes great technology companies great today is the software. In previous decades, hardware advancement was critical. Today, hardware is pushing up against the limits of Moore’s Law and, as a result, the way to get more processing, more memory, faster speeds, and engaging features is through more efficient and advanced software. Even for consumers, the characteristics that engage are software related: Facebook, Search, games, to name a few. The novelty of a great screen or beveled edges fades quickly relative to what a device can do for me. New smartphones like the Nokia Lumi boast new and interesting form factors, but the reaction of the great tactile feel fades with the cascading tiles that a user can play with the size, shape, location, etc. Siri drove iPhone 4S sales even when consumers were expected and wanted a new form factor. The iPhone 5 was a new form factor but did not receive the accolades of the iPhone 4S.
Apple recognized the integration of software and hardware early on. Most analysts back at the beginning of 2000s considered Apple a computer company and included it in the same silo as HP, Dell, and IBM. One key characteristic that distinguished Apple was that it had its own operating system. Previous to Apple, success in the computer industry was being an effective distribution channel for Microsoft Windows. Dell was superb at that. Today, Dell does not have proprietary software and has seen its fortunes and market dominance dwindle. It was a long slog for Apple to become a force to be reckoned within the computer industry, and it got there by introducing the world to intuitive software that created a delightful user experience. And then it redefined the computer industry altogether.
Apple achieved success by introducing the mass market to intuitive software via the iPod. Otherwise, Apple would have remained a high-priced pretty desktop computer that would have only reached a limited audience. Instead, hundreds of millions of people have used Apple’s products and software. Apple’s greatest nemesis today is Google. Until recently, Google just provided the software to drive other manufacturers’ products, and has been very successful in rivaling and toppling Apple’s operating system market share position.
Since the iPhone 4S was introduced in October 2011 with iCloud and Siri, Apple announcements have focused on hardware. New product sizes, new displays, greater memory, and new power connectors are all hardware improvements and, frankly, easier to re-engineer than software innovations. And the recent Apple-Samsung suite of lawsuits indicate that the repercussions from hardware re-engineering are little, if any, and a long time in coming. Apple must focus on the delightful user experience through great software integration. If it does, it will serve as a catalyst to hardware sales.
Apple tv
Apple’s greatest contribution to the television industry may be as simple as introducing an intuitive and convenient user interface. Without a universal remote, it can take at least three remotes to turn on a television, the cable/satellite and the sound system. And with hundreds of channels to chose from, scrolling through those channels can take longer than watching a show. Apple has the software today to improve that experience. Think Playlists and Genius.
Then Apple could apply Siri or AirPlay to commanding the television. A user may be able to simply tell the television what he wants to watch or beam the show or command to the television from his iPad or iPhone. By using what Apple already has, the experience can be substantially enhanced, without even changing the content.
Apple could add content to the experience, without major disruptions to the television or movie industry. Apple offers hundreds of thousands of apps plus content for rent or purchase through iTunes. By integrating what we currently think of as a television with the Internet or software programs, one could toggle between watching traditional content, Internet content or checking email between shows, or possibly while watching shows in a FaceTime-like separate box on the screen.
A television-like device would serve as the next step-function up in Apple’s growth trajectory, and a catalyst for the next 5-7 year product cycle. Apple could change the way we organize television content, access television content and what we refer to as television content.
Marketing campaign
Apple was enormously successful with its "Get A Mac” campaign when it highlighted to consumers the difference in conventional behavior (using a PC) with the new way (Apple). There was a pattern: here is how most people do things with a computer now, here are the annoyances everyone addresses, but those inconveniences don’t exist with Apple. And the commercials were funny, which made them more entertaining than just marketing.
Today, Apple advertises a benefit. Take, for example, the Venus and Serena Williams “Do Not Disturb” feature ad. While entertaining, it’s not enough to sell a high-priced phone. If consumers are bothered by their phone waking them up, they will turn it off or put it in a different room, both of which are easier than remembering to turn on and turn off Do Not Disturb. Because the first day that one forgets to turn the Do Not Disturb off and misses an important call is the last time that person will use Do Not Disturb. Futhermore, it does not address why an iPhone is better than the competition and, now, more than ever, Apple needs to address this.
Other smartphones are less expensive. Carriers are promoting other smartphones. In many stores, carrier representatives will talk up other models and, with periodic availability issues, it gives carriers the opportunity to sell phones that may carry a smaller subsidy. So, to reiterate, now more than ever, Apple must ramp up its messaging on why the iPhone is better than the competition and why free isn’t better. There are switching costs to moving away from an iPhone and Apple could market these. This initiative could sway investor and consumer sentiment.
Stock split
Apple needs to split its stock. A stock split does not make the stock cheaper, it makes it affordable. It brings the ability for the very consumers that eagerly buy iPods and iPhones to own the stock. Today, it is more expensive to buy one share of Apple stock than it is to upgrade to an iPhone 5 (with contract) or buy an iPad Mini. That makes it prohibitive for the people who are loyal to the company to participate in its success.
A stock split would widen ownership to a larger retail audience who, arguably, would be more loyal to the stock than the hedge funds that are whipping it around. A larger, more stable ownership profile would enable Apple to stay within consistent valuations, rather than experience the wild fluctuations that it has periodically over the past ten years.
Today, Apple is undervalued by any metric. Even if one thinks Apple will revert to simply industry growth rather than outsized growth, it should be trading 40% higher. By splitting the stock and bringing another investor audience in, the stock would trade closer to its intrinsic value. When Apple announced a dividend and opened the stock up to funds who could not invest without a dividend, the stock moved up to a new level. The same would be true with a stock split.
Any one of these four events would give Apple a deserved boost to its stock price. Apple investors, or would-be investors, should keep these ideas on their radar as they look to greater opportunities in the stock.
