Analysing Apple’s Strategic Errors
Writing for SeekingAlpha, Michael Blair set about quantifying Apple’s strategic errors that the lack of competitively price products in the market place and failure to capitalize on that rich ecosystem is hurting the company.
“I have written a number of articles suggesting that Apple (AAPL) is making strategic mistakes and ignoring the inevitable shift to content and software from devices as the smart connected device market matures,” Michael Blair said. “The fact is that Apple is not growing and now relies on share buybacks to improve earnings per share. Despite rapid growth in both smartphone and tablet markets, Apple’s operating income in its fiscal 2013 declined in every region where it operates except Japan.”
According Blair, Apple should aim for 40% of the world market for smartphones and tablets by pricing competitively and building the user base for its rich ecosystem:
But what if Apple had priced iPhones and iPads more competitively, for example, at $200 less for each iPhone (about $399 per device) and $100 less per iPad (about $299 per device)?
I have used $399 as the base price for iPads despite the fact that iPads averaged $439 ASP in fiscal 2013 to reflect the fact that the mix is shifting to smaller screen sizes according to IDC as set out earlier so its mix is likely to shift in the direction of lower priced iPad minis. I have used $599 as the base price for iPhones (which averaged about $637 in the December quarter) to reflect Apple’s decision to sell iPhone 4s in India at a lower price point going forward.
In my view if Apple had chosen to price competitively throughout the piece it would have held a 40% share in the smartphone market and maintained about a 50% market share in tablets. The prices I have suggested are not “cheap” or “low end” but are simply competitive.
Maintaining a 40% share of smartphones and a 50% share of tablets would have produced the following volume forecast.
Source: Michael Blair analysis
“The larger user base would have resulted in substantially higher revenues from Content and Accessories,” Michael Blair posits.
Does Michael Blair have a point?