Apple, newfangled iWatches and becoming a mature company

Apple, newfangled iWatches and becoming a mature company

Summary: News of Apple potentially chasing smart watches highlights how the company needs big hits in big markets just to keep up with increasingly ridiculous expectations.

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Apple is reportedly looking into wearable devices such as next-gen watches, but the development is just one more sign that the company is maturing and needs some new tricks.

The big news Sunday into Monday---and rumored before---is that Apple is testing a smart watch. This smart watch would apparently go nicely with Apple's television set that has been rumored to change the world.

These new markets for Apple illustrate what has Wall Street a bit worried these days: What can Apple do as its next trick?

Here's why answering that question is such a big deal: Apple is projected to report fiscal 2013 net income of $42.2 billion on revenue of $183.1 billion. In fiscal 2014, analysts currently expect Apple to report net income of $48.1 billion on revenue of $207.2 billion. In 2015, Wall Street analysts project Apple to report net income of $52.45 billion on revenue of $235.76 billion. For what it's worth, IBM is projected to report net income of $20 billion on revenue of $111.2 billion in 2015.

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Apple shares over the last five years.

 

Apple's 2015 estimates are apparently from analysts ballsy enough to think they can really see the future. In any case, you get the idea. Apple is expected to always be perfect, always find new markets and always manage market transitions well. Some of these expectations are earned since Apple's iPod begat the iPhone, which begat the iPad. Nevertheless, these expectations might just border on ridiculous.

So what's Apple going to do? The short answer is that it will have to play Wall Street's game somewhat. Apple will have to hone its message. It will also have to dish out more cash to keep investors interested. Why? The reality is that it may be impossible for Apple to meet expectations.

In a research note Monday, Barclays analyst Ben Reitzes pondered what would Apple say if it held an analyst day. Apple last had an analyst day in 2003 and having another would signal that the company has reached maturity. After all, mature companies tell Wall Street what's going to happen so analysts don't go crazy.

Reitzes noted that investors need guidance from Apple about its business model and steady returns. He said:

Over time other great American companies, like IBM, have come to realize this fact as well – leadership in the stock market creates an aura around the company. IBM perhaps spends the most time in our sector honing its message and asking shareholders what they want to see – and actually listening. The company has constructed a board of mostly industrial company heavyweights and seems to get the most it possibly can out of its business model.

In reality, the IBM as we know it today took several years to create – even after the departure of Lou Gerstner. Investors won’t be so patient with Apple in our opinion. No company has accumulated this kind of cash or garnered this much attention in history. We know it is not Apple’s style to conduct itself like IBM. However, we believe that Apple can convey a philosophy and guidance that maintains its secrecy and mystique.

I agree that Apple is in a tough pickle. Sans some uber product categories Apple won't be able to keep its pace up enough to satisfy everyone who bought shares. Frankly, it's a shame, but we've all seen this set-up before.

What would Reitzes want to hear from Apple's analyst day? He said the first topic would be the plan to be a platform company. That question is huge given Google is a platform and cloud play. Apple's cloud history could be better.

Reitzes said:

One could argue that Apple’s shares hit an inflection point to the downside in September 2012 when investors realized that the Apple Maps endeavor was a significant mistake. The maps debacle showed investors how valuable Google’s technology was – how hard it was to replicate – and how Apple may struggle as the world moves beyond iTunes toward cloud based services. In short, we believe Apple needs to up its game in this arena.

Reitzes added that Apple should outline its total addressable market. Would Apple make cars? Smart clothes? What could the Apple brand really do?

appleTAM021113

 

The other items on Reitzes list are standard fare. Naturally, he wants to hear about gross margins, views on distributing cash and how Apple sees its competition.

Luckily for Apple, CEO Tim Cook appears to know the game he has to play regarding expectations. First, Cook is open to distributing Apple's pile of cash. And second, Cook came from IBM so gets the Wall Street jig. Finally, Cook gets the enterprise game, which can provide another leg of growth while the masses are pondering low margin gear like watches and TVs.

In the end, Apple's next great feat may have nothing to do with new products. Should the company be able to navigate lofty expectations---or even top them---Apple will be a business case study for the ages.

Topics: Hardware, Apple, CXO, Cloud, Mobility, Smartphones, Tablets

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30 comments
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  • Now if they open up

    integration of Watch with non-iOS devices, I see a lot potential.
    Ram U
    • It'll be like Knight Rider

      where you just talk into the watch, and the iCar drives up and picks you up at the door.
      William Farrel
  • Suggests Apple under Cook is committed to growth!

    This is a neat idea! Whether you like the iwatch or not what this is indicating along with the new 50 patents Apple just received and the 3 new R&D centres Apple has built in Isreal along with other R&D is Apple is appearing to be committed to some real innovation not just refreshes to current products which will make money but it does not have the energy and entrepreneurial spirit that creating entirely new products and services does. This is good news for long-term investors and Apple fangals and boys as it shows Tim Cook sees Apple as a growth company not a mature company. I think that is great it is not just about the money but that I think what Cook is doing is rolemodelling to people is creativity is infinite as lots of Apple pundits have been saying Apple's creativity/innovation is over ect.. but that is ridiculous the human mind can keep creating infinitely and that is what is so amazing about imagination, dreaming and innovation. Consider people like Walt Disney to the day he past over he was still drawing, creating stories ect.. Go Apple keep imagining magical products and services which enrich people's lives and are very importantly environmentally sustainable.
    exercisehealth
    • Wake up man

      Steve Jobs is gone, wake up from your dream. Tim Cook is desperate to release something and will end up putting out junk because he has no real vision. Sorry - accountants run Apple now.
      Sean Foley
    • Yes....

      ...it shows that they're committed to growing into a an embarassment.

      Come one, people... Apple needs BIG wins in the pipeline; not a foolish toy.
      shoutout
    • Ask the workers at Foxnet how "enriching" Apple has made their lives

      Come on...wake up and smell the decomposing body of Steve Jobs.
      shoutout
    • Not much of a dream

      Not much of a dream to wake up from if the iWatch is just a peripheral to an iPhone/iPad. It was great that Apple directed the smartphones to a new direction but that only worked because a phone is essential to everyday thing. I don't like Apple way of thinking but I'm greatful because the iPhone motivated others to make what Apple lacks in UI features.

      This iWatch is going to sell but the life span will be extremely short if it's just a peripheral to the iPhone/iPad. Not sure about other people but the wrist watch have become useless since the cell/smartphones have the time. Also just like mdrapps says the arrogant & GREAT salesman Steve Jobs is gone. Steve was pretty creative on convincing people on buying decent products at high prices.
      lares3k
  • what's an analyst

    Thing is, if you pan out from the graph, you'll see all the ups and downs, rises and falls that is the stock market and sales. These "analysts" always seem to have blinders on or are making some sort of manipulated storyline. Profits do not just keep rising in a simplistic linear equation..... Actually there seems to be a sharp dropping on the right side - market saturation? Supply issues? (an apple car? really? would Apple patent the "four wheeled mobility platform" then sue the automakers?)
    rehabeng
  • Apple keep imagining magical products...

    and services which enrich people's lives and are very importantly environmentally sustainable.

    Apple products enrich people's lives - really? Apparently similar Samsung products just sit there doing nothing.
    Apple products are envitonmentally sustainable - are you kidding me?
    Apple products are magical? iUnicorns, anyone?

    Speechless.
    ForeverSPb
  • With all of their money...

    They could probably buy all of the apple orchards in the world and corner the market on the fruit and apple pies.

    I never was a Dick Tracy fan, and I haven't worn a watch in nearly 40 years. I won't start now. I was, however, a Get Smart fan. Perhaps they can come out with a shoe iPhone. That would be cool.
    jvitous
    • If I could give a hundred votes to this post

      I would.

      :-)
      ForeverSPb
  • Apple should...

    Use their cash to buy up stock and go private again and tell Wall Street to go take a flying ****.
    NoAxToGrind
    • Not necessarily the solution. Even if Apple had that much cash.

      As Michael Dell is probably going to learn, a CEO is far more beholden to a small number of Private Equity bankers than hundreds of thousands of shareholders, and they can be very hard to please.

      I don't doubt Tim Cook often fantasizes about telling "Wall Street to go take a flying ****", but as CEO of the world's most valuable company he can't, out loud at least. However, there's no reason he can't essentially ignore them.
      matthew_maurice
      • Minor correction.

        Apple is no longer the world's most valuable company.

        Source: http://news.yahoo.com/exxon-passes-apple-most-valuable-company-174308345--finance.html
        TechNickle
  • Watch technology.

    I purchased a Casio Wave (Atomic watch) about 4 years ago. The technology has developed to a point where it's become probably one of the best watches out there.

    The watch sells for about $50.00 at Walmart. It has an analog face and a digital readout. The black face is actually a segmented solar cell that recharges the battery. The receiver portion checks for a timing signal from Fort Collins Colorado 4 times a day and makes adjustments to the watch so it always keeps perfect time (to the second), without any adjustments. It's completely waterproof to 330 ft., has a stopwatch and dual time feature. If you put it in a drawer and forget about it, it goes into a sleep mode (where the motor and hands stop moving), but still keeps time properly. When you take it out of the drawer, into the light, the hands begin spinning to the correct time and begin working normally. If you put the watch in direct sunlight, it will completely recharge the battery in bout 5 minutes. It comes with a rubber strap or an adjustable link bracelet.

    This turns out to be permanent watch with perfect accuracy.
    Joe.Smetona
    • re: Watch technology

      I recently bought a digital G-Shock version of that watch, as my 20-year-old G-Shock digital finally succumbed to old age. It was on its third battery, the backlight was dead, and it seemed to be going back in time, rather than forwards. It gave me great service and was honorably retired.

      The G-Shock goes for about $45 more at Walmart, has the features you mentioned (including auto-DST adjustment, temperature, barometer, and altitude).

      Finally, a watch that I will never have to fiddle with. If it has the same lifespan as my previous G-Shock, it will almost literally be the last watch I'll need to buy.

      On topic: I have no use whatsoever for a purported "iWatch".
      M.R. Kennedy
    • An iWatch will be able to do that, and a whole lot more

      Your watch sounds cool, but it's no Apple watch.

      The moment it’s made available, old technology watches like your Casio Wave will become obsolete. It will be a watch that does everything your watch does, and able to run apps, play music and video, and do Facetime with other Apple users. I predict it will make the smartphone obsolete in few more years after that.

      People have thought about it in comics, but it takes a company like Apple to make it a reality.
      I Am Galactus
      • Hmmm

        Reverse the current trend of people moving away from wristwatches? - hmm, maybe not.
        Run apps - these are the new shrunken apps that you don't need a screen to see - hmm maybe not.
        Make the smartphone obsolete - definitely not.

        We get how you like apple so much but you don't really believe your statements do you? I presume apple is right now, scanning ebay to look at which current model to copy. Of course when they do, it will be labelled innovative by people like you even though it does nothing more than current options. Do I want to lose a 4.8" screen - NO. Do people want to do everything mobile on a 1" screen - NO. So tell me again how it's going to replace smartphones.
        Little Old Man
      • But, Americans are idiots.

        They will play with the thing while driving causing countless deaths and accidents.

        I had an idiot in a brand new Ford Mustang ram the car into a tree (one car accident) 2 houses away from me on a residential street because he was texting while driving. Ever in a car on an interstate doing 70 while the idiot driver is repeatedly sending and receiving text messages to his son? There is such a thing as too much freedom and convenience, especially here.
        Joe.Smetona
      • The Government should legislate disabling cell phones in cars.

        Why not. People aren't smart enough to realize they should not talk/text and drive.

        It's against the law in NJ and a primary offense, but I still see people doing it.
        Joe.Smetona