Comment: In the global gadget market, perception seems to be everything

In 2012 Apple posted profits of USD 41.7 billion. That’s a lot of money and an awful lot of gadgets – iPhones, iPads, iPods and other products sold – but because the profit level was the same as in 2011 many analysts and investors were disappointed, Apple’s share price actually fell and questions started to be asked about the future direction of the company. This seems extraordinary but it appears that the global gadget market, in terms of brand perception and investor behavior, is actually quite fragile.

Apple shareholders and industry analysts have come to expect Apple to maintain its dominance in the market through uninterrupted technical innovation that provides continuously growing profit margins until the end of time. This is not possible in any market, especially one as dynamic as the global gadget industry where ‘fashion’ is as important as product design and quality. Unlike Nokia, who Apple have been firmly strangling in the smart phone sector, Samsung have recovered their position and now challenge Apple on all fronts. Indeed Samsung sold more smart phones than Apple in 2012 and their Galaxy SIII is thought by many to be superior to the iPhone. Outside of Apple’s core customer base, sometimes called a cult, Samsung’s tablets and laptops are also considered to be the equal of Apple products and they are cheaper and more easily compatible with other equipment. Other competitors – Amazon, Google, Microsoft and others in the growing tablet market - are also threatening Apple’s position. This normal market activity is scaring the cult members who believe that Apple should always lead and not follow the competition. Last year it seemed that the company was reacting to other companies’ initiatives by launching an upgraded iPhone 4S too quickly with substandard software in its latest operating system. Then came the iPhone 5, also too quickly, and new versions of iPad purely in response to cheaper competitor activity. This confusing introduction of new products in response to competitors’ moves seemed sometimes unnecessary and destabilized Apple’s smooth business strategy and efficient operating model. Now, in 2013, the industry is looking for Apple to respond to a ‘poor’ year by introducing new, innovative products that revolutionize the market. There is talk of new developments in TV but Samsung is already a strong player in that market and it is hard to see what Apple can produce that can be regarded as a quantum leap in personal gadgets. To some extent, Apple, Samsung and the others provide the perfect case-study for those wanting to understand how companies can become victims of their own success. Smart phones are very exciting but there must be limits to how far technology will allow their current evolution to go. Can there be anything beyond Samsung’s Galaxy Note ‘phablet’, the small tablet with a phone. After all the iPhone is simply an iPod Touch with a phone and the iPod Touch and iPad are tablets without phones. We have small screens, big screens and even bigger screens with producers changing their emphasis from one year to the next. What more do people want or need? Now that there are companies making these things and finding profitable niches in the market, it can’t be reasonable to expect one player to dominate as it may once have done. Consumers of gadgets now have more choice, the Apple family of products is only one among many with a price range that may not be sustainable in the medium term, as the market expands even in the current difficult business environment. This is definitely a time of change in the gadget market. However, investors can be greedy people and many are not interested in really understanding the markets and businesses from which they hope to profit. When Apple was dominant, they were happy. Now that the market is more dynamic they are panicking and being completely unreasonable – note that loyalty is never a word used in the context of investment in a listed company. As a result, minor shifts in perception, over a short period of time, can see the movement of millions, even billions, of dollars and the decline of a major company. Technology helps us meet our need to show off, don’t we just love the latest gadget, and to do things quicker. But it’s this same speed of development and stimulation of demand that introduces instability and uncertainty into the market. Not even Apple is safe.