Apple management is all for Amazon’s Kindle Fire because of fragmentation. Apparently, the more Android fragments the better it is for the iPad and iOS.
That’s the takeaway from a research note from Barclays Capital analyst Ben Reitzes. Reitzes met with CEO Tim Cook and CFO Peter Oppenheimer and sparked a good bit of discussion. Cook and Oppenheimer weren’t divulging any company secrets about the product pipeline, but their take was that Amazon’s Kindle Fire is more boon than bane for Apple.
Reitzes said in a research note:
While the pricing at $199 looks disruptive for what seems to be the iPad’s most important rising challenge, the Amazon Fire – it is important to note that it could fuel further fragmentation in the tablet market—given it represents yet another platform. While compatible with Android, the Apps work with Amazon products. The more fragmentation, the better, says Apple, since that could drive more consumers to the stable Apple platform. We believe that Apple will get more aggressive on price with the iPad eventually but not compromise the product quality and experience. Over time, we believe iPad’s will be “docked” more and more to keyboards (and these keyboards could gain touchpads), which could extend its appeal to PC users.
If you cut to the chase, Apple is arguing there’s a high-end, low-end equation. Apple will occupy the high-end of the tablet market and become more of a PC replacement. In this view, Android tablets go commodity and ultimately are derailed by the different flavors of Android.
I buy Apple’s take on the tablet market segmentation. I’m just not sure the average consumer cares about fragmentation. If Amazon’s Kindle Fire becomes a hit it will because the integration is there. A successful Fire doesn’t necessarily derail a high-end Android tablet from succeeding. Ultimately, Android needs a seamless tablet experience to compete with the iPad.
Reitzes’ recap had a few other notable bullets:
- Cook isn’t necessarily a cash hoarder. What Apple will do with its $81 billion cash hoard is an ongoing question. Cook said isn’t religious about holding cash.
- Apple is focused on China. Reitzes said Cook is very focused on China and future growth there. Apple now has 7,000 points of sales on the iPhone for greater China. Cook also thinks that the Mac could be a hit.
- iCloud is the lock-in. Reitzes said in his report:
We agree with Tim Cook – iCloud is profound. It basically makes the cloud the digital hub - not the Mac or PC. As a result, we believe that iCloud is the “sneaky” product launch of 2011, which could actually drive the most long-term value to the company. Furthermore, iCloud lays the groundwork in our opinion for a foray not only into TV’s, but devices we haven’t thought of yet. We believe that iCloud and future upgrades of the service are one of the big reasons that Apple guided for its FY12 capex to grow to $8 billion from just $4.6 billion in FY11.
