While Tim Cook and the rest of the Apple board may be content for Apple to take its time in launching new product categories, investors may be less patient, warns BTIG analyst Walter Piecyk. He also argued that neither the Mac Pro nor a rumored larger-screen iPhone 6 would meet market expectations of innovation.
When we upgraded the stock in March, we assumed Apple could announce a new product that would generate $5 billion of revenue in Fiscal 2014. That new product never materialized. We can’t say we are not concerned. For example, when Apple announced the new Mac Pro at WWDC in June, Phil Schiller proudly boasted, “Can’t innovate, my ass”. If that is what the company considers to be innovative then there should be some concern for EPS growth.
In the investment note, Piecyk cautions that Tim Cook could face renewed investor scrutiny if he doesn’t deliver …
The company has set a high standard for itself in delivering products that change people’s lives. The bottom line is that if Apple can’t deliver products, Tim Cook may have to pay the price. This is a public company. The shareholders own the company and they want profit growth. Making great products is a noble goal but if it doesn’t grow the business despite the massive market opportunity that exists that would be a larger strategy problem.
Piecyk appears happy with the direction Apple is rumored to be taking with new product categories – name-checking our own Mark Gurman in citing a sensor-focused iWatch as “a potentially mammoth opportunity” – his complaint focusing on the time it is taking to bring new products to market.
Piecyk also questions Apple’s strategy of focusing only on high-end products, suggesting that the company was leaving money on the table by not offering a cheaper phone, with the 5c clearly having missed the mark.
Management is free to make the choice to focus only on the high-end, but that strategy delivered no growth in net income for the past five quarters and it looks like it will be six based on the March guidance and seven and eight quarters in a row depending on when new products are launched.
The criticism illustrates in stark terms the difference between a company with a long-term vision, and investors focused on shorter-term gains. Apple has made no secret of its strategy, and the time it takes between major new product innovations – yes, even in Steve Jobs’ day – is there for anyone to see.
The iPod launched in 2001. It was six years before the launch of the iPhone in 2007. Three more years before the iPad in 2010. There has never been a time when Apple was inventing major new products on an annual basis.
I should stress that I’m not taking issue here with Piecyk. He is accurately and eloquently describing the mentality of the market; it’s that mentality I’m arguing against. It simply strikes me as perverse to invest in a company which has become massively successful by following a clear strategy of making very few products very well, and then to complain that it is not making more and cheaper products.