Missing the point of Apple’s China Mobile deal; some still cannot grasp Apple’s basic business strategy

“Certain people seem not to have quite grasped Apple’s basic business strategy,” Tim Worstall writes for Forbes. “As a result they’re insisting that without a cheap iPhone then Apple won’t be able to make the most of its recent deal with China Mobile and the access that gives to their 760 million subscribers.”

“What’s being missed is that Apple simply doesn’t care about market share. As a properly capitalist company it cares about the profits it can make for its shareholders only,” Worstall writes. “An example of this is [CNNMoney‘s David Goldman]: ‘Apple CEO Tim Cook has discussed gaining a stronger foothold in China as a major priority for the company. The China Mobile deal will help Apple accomplish that. But unless Apple changes its strategy and offers a low-cost iPhone for the Chinese market — something the company has proven unwilling to do — it’s unlikely that Apple would become a top Chinese smartphone player.'”

“Apple has repeatedly said that it’s not interested in being a top Chinese or anywhere else smartphone player. It’s interested in being a top player at the top end of the smartphone market which is an entirely different thing,” Worstall writes. “They don’t go into low margin products in the chase for market share, they’re quite happy staying where they can make 35 and 40% net margins on sales.”

Read more – particularly about China’s rapid growth rate and the numbers of Chinese able to buy aspirational Apple products – in the full article here.

MacDailyNews Take: As we’ve been saying for quite some time and as recently as yesterday:

The only market Apple wants to dominate — and does, quite handily — is the market for quality customers: Those who can recognize value and who have disposable income and the proven will to spend it. General market share (market share for market share’s sake) is of no interest to Apple. Amassing cheapskates and/or the poor is a fruitless exercise better left to the patent-infringing Apple wannabes.

[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]

Related article:
Newsflash: Apple sells premium products at premium prices to premium customers – October 23, 2012


      1. This Raymond is a troll who is saying Apple killed off a netbook market that didn’t exist so that they could fill the void with a product that makes everyone a slave to Apple once more.

        But I wonder how many stars Raymond received from those who thought he was saying something positive about Apple?

    1. Actually, the original sub-$500 iPad was Apple’s answer to “netbooks.” In 2010, Apple did enter the market dominated at that time by netbooks, since there was no existing tablet market. In doing so, Apple destroyed the low-end cheap-ass PC market by creating the high-end tablet. Brilliant… 🙂

      So, in fact, Apple DOES care about market share, but Apple does NOT go after market share like other companies, with low-end low-profit products.

      And that’s what some industry “experts” cannot grasp. They know the industry, so they expect Apple to behave like the rest of the industry. But Apple does not… by design.

      1. Introducing iPad, Apple selected an entry level price point half of what pundits had predicted, but delivering superior speed, useability, and build quality compared with netbooks — factors which were not lost on actual consumers. At the same time, Apple had sealed in a respectable profit margin.

        Industry analysts were slow to catch on. When the “novelty” failed to wear off and other companies started copying iPad, they had already given up the high ground in what had been a woeful depressing low end market — by failing to recognise iPads as replacements for “real” computers.

      2. Low end net books were killed off by stripped functionality and low end, light weight laptops. The PC market doesn’t like giving up legacy ports, etc. They were killed by their own marketplace.

        Apple better damn we’ll care about market share. Businesses will adopt the cheapest solution. Apps will be written to serve those businesses and Android will become entrenched. And Androids share will continue to rise. Like the PC, Android is more interesting to the tech world. And like the PC has done for a generation, Android will defy normal business ecumen and survive strictly on volumes. Apple May be able to craft a solid iPhone/iPad ecosystem, but it will be copied. Stop punking the elitist “quality” customer line. As nice as it sounds, it just doesn’t matter in the end.

        1. Businesses are rapidly adopting the iPad and iPhone. There is little evidence of a trend for Android other than in third world countries. No evidence to support your overall theory that market share is critical other than the PC example, which happened in very different circumstances a long time ago. What happened with the PC was mostly due to a huge mistake by IBM, lots of smaller mistakes by Apple, and some very smart but generally illegal practices by Microsoft. None of that is likely to be duplicated again in the future.

          Apple is very quickly locking vast numbers of the premium customers into an wonderful ecosystem of Apps/Music/Media/Products that they will be unlikely to want to leave. APP developers have huge incentives to focus on that market. Content providers have huge incentives to work with Apple. And Android is hugely fragmented and growing more so quickly. Google is showing signs of abandoning it for Chrome. (Microsoft is far more worried about Chrome than Android.)

          Hard to see how this is going to turn around for Android in the long run. Apple’s real competitor will probably be something new in the distant future.

  1. What matters most to Apple shareholders is although Apple might not believe in market share, Wall Street certainly does. No one is talking or cares about Apple’s profits in China, only market share. The big investors play market share because they believe profits are not sustainable and growth is limited without gaining market share. Of course, they’re wrong but it doesn’t change the fact of Wall Street’s belief that without Apple having market share, Apple’s shareholder value is completely capped.

    I’m sure that’s why Apple’s institutional ownership percentage of 61% won’t increase while all the other tech stocks are pulling close to 70%. Apple is the crippled one of the bunch due to its perceived high risk factor. Apple is clearly not making itself attractive enough to investors. Apple is seriously F’d up in that respect.

    Institutional ownership:
    Apple 61%
    Google 72%
    Priceline 98%
    Cisco 76%
    Microsoft 70%
    Hewlett-Packard 78%
    Intel 65%
    Amazon 70%

    So many people know of Apple and Apple has very high visibility yet institutions are staying away in droves. Apple has some serious investor confidence problems and it needs to be corrected.

    1. institutional accounts have rules limiting how much of each type of security they can hold the precent of apple in a portfolio may have little to do with perceived risk. the dividend they pay is enough on its own to attract some funds. buying back shares and paying a great dividend is F’d up? i think your point of view is the only one askew.

    2. Well. That’s one way of looking at it. Amazon is quite popular on Wall Street — with a P/E in excess of 1,000 and no dividend payout. There are any number of stocks that were very popular on Wall Street — Enron, Bear Stearns, Lehmann Brothers — and that’s all well and good. Wall Street makes its money in short-term chunks. Real investors know that one reason to buy “quality” goods is that they last longer. If you want to play around with the Wall Street guys, go ahead and do so. But don’t imply that those folks are “investors.”

  2. Tao,

    I don’t think LB48 was knocking AAPL. He was knocking the Wall Street impression of Apple. While it’s true that each individual hedge fund allocates only a certain percentage of dollars to tech funds, LB48’s point was that of all institutional investors, only 61% of them are invested in AAPL compared to the higher investment percentages for some of those other companies.

    Looking at some of those other companies, I’d get nervous that the bubble will burst for some of them. How can they support sustained profits to justify their present valuations? I think I’ll stay long AAPL.

    1. Hmm… I thought 61% meant the portion of the shares outstanding that was owned by institutions, not the share of institutions that own AAPL.

      As I see it AAPL appears ‘risky’ due to its narrow product line relative to other technology stocks. If any part of their offerings is perceived to falter it tends to create a more significant reaction to their stock price. Due to its perceived risk I believe there is a resistance to having a portfolio too heavy with AAPL. I have noted that there are some Analysis companies (like TREFIS) which seem to favor AAPL over say GOOG or FB and consistently miss the mark as shown by their overly optimistic price point for AAPL.

      As current HW tech becomes a commodity the focus for profit will begin to shift to the content and methods to consume such content. As long as Apple can continue providing the best content at reasonable prices it will remain safe. However there are companies like Amazon and Sony who already have and continuously generate new original content and simply need a good way to allow it to be consumed over the greatest number of screens/devices. I believe they are the ones that Apple has to focus on keeping up with in that arena.

  3. There are a lot of stupid people working in Wall Street, and a lot of stupid people in the media. No doubt most of them use Windows, and they just don’t understand what Apple is about – seeing the Apple “cachet” as being a fashion thing, rather than product excellence.

    These stupid people are easily manipulated by those who salivate over Apple’s cash hoard, or those who manipulate the market in Apple shares for financial gain.

    As long as Apple keep these people, or their stooges, out of their boardroom Apple can ignore the lies and stupidity in the media. But to retain their independence, Apple have to run faster than everyone else. So far, so good. But a major mis-step could open the door for the financial charlatans to rip Apple apart.

    The financial market will never recognise Apple’s strategy – because (a) its different, and (b) it suits the market not to do so. Icahn is a case in point: naked self interest is his only motive, and a short-term financial windfall his target.

  4. Apple doesn’t care about marketshare, but not for the reason proffered by Tim Worstall.

    Profits matter, but not at the expense of the Apple brand. Apple is intent to fill the China smartphone void before someone else’s platform does, therefore diluting the Apple brand.

    Apple’s goal is to provide the entire world a smart solution to their computer housekeeping, just as Henry Ford saw everyone driving his car or truck.

    Apple is the market and not a share of Android or Nokia or Dell or HP. When people speak of Apple, everyone else is an orange!

  5. a little true story; my boss and her husband are 1990’s dellionaires. her husband, until recently, worked for dell for years and years in a fairly high-level position. she always bought dell computers at her husbands employee discount and both are windows die-hards from way back. during the last few years, her attitudes have softened, she’s had an iPhone for about 5 yrs and also has an apple TV and she loves both. her whole family has iPhones. i really mean this, she intensely LOVES BOTH. fwiw. there’s probably a meaning in there somewhere. oh yeah, of course, she loves them for the value they provide.

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