Wednesday, June 8, 2011

Apple Products vs. Platform

Apple (AAPL) is an unusual stock for several reasons, not the least of which is the strong retail demand for the stock and a large contingent of customer-zealots who regularly worship at the altar of Steve Jobs.

Throw together the factors mentioned above, Apple’s history of important product announcements at major events and the return of Jobs and his unique talent for unveiling new cutting edge products and you get an interesting confluence of events – and expectations – at Monday’s Apple Worldwide Developers Conference.

These conferences are always abuzz with rumors and speculation about the next big thing that Apple is going to announce which will once again change the technology landscape. When is the next iPad coming? What new features will it include? When will the iPhone 5 be out? What will the next iOS and Mac OS operating systems do? What will be the implications for the devices they run? What is the iCloud and what does it mean?

In the end, those hoping for groundbreaking new products were disappointed. The iPad, iPhone, iPod, MacBook, iMac, Mac Pro, AppleTV, etc. were not on stage. Instead, the hardware devotees had to settle for innovations which were confined to operating systems enhancements and the iCloud – stuff you can’t wait in line for at an Apple store, take home and dazzle your friends and family with.

The irony is that the obsession with hardware misses the big point. New products are critical to Apple’s business, but at best it gets them a first mover advantage that is not guaranteed to endure. The truth is that from a strategic perspective the iCloud is much more important to Apple’s future than any new product, because the iCloud is a platform play that enhances the value of the full range of Apple products and services, including future products and services.

Let me illustrate this with a personal example. I have about a quarter of a century of PC-based computer experience. I probably owned two dozen laptops before I bought my first Apple product, an iPhone. When the iPad 2 came out, however, it was easy for me to expand my stable of Apple products. Now that I am habituated to iTunes and the App Store, it is easier for me to contemplate something like the MacBook. With all of these devices seamlessly sharing data in the background on the iCloud, the data argument for expanding my suite of Apple products becomes that much more compelling. It is a similar story for my wife, who only recently began playing with her first Apple product, the iPad. She has been so completely won over that an iPod will soon follow and then I’m betting an iPhone will be too difficult to ignore. By the time she gets around to replacing her laptop, I’m fairly sure the MacBook Air will win her over – even if she doesn’t even know what it is right now.

I suspect that something similar is in the process of happening across the globe. Many of us who have spent the majority of our careers in a PC-centric corporate environment have often found Apple products to be too much of a compatibility issue to be worth the trouble. They have been relegated to toy status rather than serving as our our central computing devices. The iCloud gives Apple a chance to convert those PC cling-ons not only to exciting Apple products and services, but to a iCloud data world that could be a platform revolution. Device-independent data sharing is just around the corner and Microsoft (MSFT), Google (GOOG) and their ilk better have a strong alternative – and soon.

As for AAPL stock, it is down about 3% since Steve Jobs took the stage on Monday. Savvy investors should be thinking more about Brian Arthur’s Increasing Returns and the New World of Business and less about the timing of new product announcements.




[graphic: Bloomberg for iPad]

Disclosure(s):
long AAPL at time of writing

Thursday, June 2, 2011

Economic Data vs. Expectations and Stock Prices

For the last year I have been posting charts of the trends in various economic data reports versus consensus expectations. The last time around, in Continued Lackluster Data vs. Expectations, I commented that the April data indicated “manufacturing and employment are no longer providing positive surprises relative to expectations, while data related to the consumer reflect consumer activity that is plodding at best.”

After a several weeks of positive surprises, the trend has been one of consistently missing expectations over the course of the last four weeks. In fact, the four weeks leading up to tomorrow’s employment report is the worst four week stretch relative to expectations since I began tabulating the data in this format at the beginning of 2010.

In order to focus on the big picture trend, this time around I have elected not to break out the data into five groups (manufacturing/general, housing/construction, employment, consumer and prices/inflation) as I have done in the past. Instead, the chart below shows just the aggregate data relative to expectations plotted against the SPX on a weekly basis, going back to the beginning of 2010.

To some extent the chart shows stock prices and data surprises have been highly correlated over the course of the past 1 ½ years, with a very minor lag time, if any. Not surprisingly, the recent data trend has been down sharply. It remains to be seen whether this is a temporary hiccup as the full extent of the Japan disruption is revealed or whether the global economy now has some large structural headwinds. Certainly the recent decoupling of data and stocks is unusual – and may come to a head tomorrow morning.

Readers who are interested in more information on the details of the economic data included in this graphic and the methodology used are encouraged to check out the links below.

Related posts:


Disclosure(s): none

Current SPX Pullback Second Longest Since March 2009 Bull Market Began

Since the current bull market began back in March 2009, I have periodically been posting a table of the most significant pullbacks in the S&P 500 index. With today’s drop down to the 1305, it has now been one full month (22 trading days) since the SPX peaked at 1370. While the 65 point drop grades out at a pullback of ‘only’ 4.7% (the mean for the 15 pullbacks is 6.5%; the median is 5.6%) it does mark the second longest pullback in terms of peak (May 2nd) to trough (today, assuming 1305 holds) timing.

While long declines are not necessarily steep ones, the longer this market continues to make new one-month lows and has difficulty climbing back into the 1370 range, the more likely this bull market is turning into a sideways move or preparing to reverse downward.

Right now last summer’s 48-day 17.1% decline looks as if it will not be threatened, but a mean decline of 6.5% will take the SPX down to 1281 and a median decline of 5.6% will drop the SPX down to 1294 – and once the index breaks below 1300, all sorts of new scenarios will begin to come in to play.

I still think we will see some buy-on-the-dip activity begin to kick in – as soon as this afternoon – but stocks do appear to be at some sort of inflection point as we await the details of the nonfarm payrolls data.




Disclosure(s): none

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