Tuesday, April 23, 2013

Apple, Samsung and Google

            Most discussions of the swoon in Apple stock focus on competition from Samsung, but that overlooks the fact that Apple is as much of a software company as it is a hardware company.  What makes Apple devices so attractive and easy to use is the seamless integration of hardware and software, not either one alone.  Of the two components, it is the software that is more difficult to copy and, therefore, provides the barriers to entry that allow value creation for shareholders.  For that reason, the real threat to Apple and its stock price is not Samsung, but Google.  Profit margins on pure hardware look to be headed toward PC levels, while margins on creative software remain largely intact.

            What makes the Google threat particularly dangerous for Apple is that Google appears to be innovating at a much higher rate.  Hardly a month goes by in which there is not an announcement from Google of one type of new product or another.  Meanwhile, Apple remains hidden behind its curtain of secrecy.

            If Google can overcome the difficulties of providing software across a variety of manufacturers, as they appear to be doing with Android, and if that software is as good as Apple’s, the reason for paying a premium for Apple products may disappear.  That poses the greatest risk for Apple investors.

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