The terrible state of iPhone and iOS analysis

Many financial analysts don't understand that they don't understand Apple, and that's dangerous

Last week Apple announced the iPhone 5s and iPhone 5c. They'll be shipping both starting tomorrow, and shipped iOS 7 just yesterday. Surrounding this enormous product roll out has been some of the worst Apple coverage I've ever seen. It's been clear for a number of years that many mainstream financial analysts and media outlets simply don't "get" Apple. This week made it painfully clear just how badly they don't get it, and how big of a problem that is.

One major argument many have made is in regards to Google, and how their continuing devaluation of hardware could negatively impact Apple. The argument centers around price of the new iPhones, especially the iPhone 5c, which many analysts "predicted" would be much, much lower than it turned out to be. Off contract, however, the iPhone 5c remains very expensive, especially for emerging markets. A Nexus 4, for example, is less than half the price of an iPhone 5c.

But Apple isn’t competing on price and never has. Price will never be the single most important feature for Apple. Yes, I was hoping Apple would launch a lower priced iPhone for the emerging markets this year. But as I already wrote, Apple will most likely do this at some point.

Apple has a history of reducing price only as and when needed. They wait for consumer pricing to fall at the low end, and they respond by shrinking their premium prices accordingly. They still wind up with premium prices in all cases, but they move down as the market moves down. Five years ago did you ever think a Macbook Air would start at $999? I certainly didn’t.

In most developed markets where phones are sold on contracts, the retail price of an iPhone is hardly any different than any other phone. The carriers are subsidizing the hardware. Why would they over-subsidize an iPhone? Because Apple products give them sticky customers more often than not. This is a generalization, but it’s a useful one. Apple makes awesome products that people flock to because of their style and simplicity. If you ask many of the non-geek crowd they will tell you Apple’s iPhone is super easy to use, whereas Android seems complicated. Heck, people are easily confused by the swipe gestures in BlackBerry 10. It doesn’t take much to confuse some people. Apple gets that.

The next big knock against Apple's new iPhones is screen size. Competing phones have both bigger screens - some upwards of 6-inches - and pixel resolution - some up to 1080p. The resolution matters less. Most phones have resolutions today so far beyond what the average person can make out with the naked eye that it’s irrelevant. It’s like comparing the top speed on a Tesla Model S to a Porsche 911 when you’re stuck driving on streets with fairly normal speed limits. I’m a tech geek and I don’t even care about the difference.

As far as screen size goes, customers vote with their wallets. Back in August iMore's Rene Ritchie outlined the North American market realities for a bigger screen iPhone. Just like with less expensive phones, I think Apple will address larger screen phones, they just don't have to do it this month.

The third argument is dismissal of one of the new, headline features of the iPhone 5s - the Touch ID fingerprint identity sensor. It's being compared to archaic implementations from old Dell laptops and Android and Windows Mobile phones.

There is a lot more to a fingerprint sensor than the five syllables we use to identify it in language. If we are going to over simplify things this way, why not laugh at the idea of an updated anything? Isn’t a smartphone built in 2013 pretty much the same as one from 2007? Aren't capacitive touch screens the same as resistive? LTE the same as EDGE? Obviously not. And with fingerprint sensors we have improvements in hardware and software. Apple masterful at making things simple, and I’m guessing most people’s experiences with fingerprint sensors on notebook computers in 2007 would be described as anything but simple.

It all comes down to user experience, folks. These are the things Apple nails. And I think it’s important for Apple to be leading the way on fingerprint sensors in mobile computers. This technology should be a big time saver and security booster in a world where we are constantly logging into services and paying for things online. I’d love to have fingerprint sensor technology to protect documents on my phone or tablet. But it has to just work the way Apple is known to do.

Fourth is dismissal of Apple's new iWork initiative, which sees the apps going free on iOS (perhaps on OS X next month as well?) and free HTML5 versions being made available online as well as part of iCloud. Google Docs has been free for years, the argument goes, so it's irrelevant that Apple's made iWork free now as well.

In many ways - important ways to mainstream consumers - the iWork suite is much better than Google Docs. I say this as an educated user and fan of both company’s products. I use Google Docs only when I need to share my docs with a non-Apple user. And I never use Google’s presentation software. Keynote is light years ahead of Google here.

Apple has always been an aggressive price leader on productivity software. They’ve always offered iWork at a much lower price than Microsoft Office. And on consumer software? Apple has been giving us incredible desktop apps like GarageBand and iMovie on OS X for nothing all along. Given this history, I have a hard time with any argument saying Apple is copying Google's software strategy, or that it's irrelevant in the face of it.

The fourth and last argument is that Apple's return to polycarbonate is somehow a giant step backwards in terms of quality and brand image, and that their addition of a first-party case is an admission it will be a poor quality product.

Here's what's being missed: Accessories are hugely profitable. HUGELY. The 5c cases cost insignificant amounts to manufacture and sell for $29. Do the math. When you think about selling to a consumer you have to understand the law of relative comparison. Ordering a big mac? Want fries with that for an extra buck? Spending $150 on a new pair of pants and dress shirt? How about a new belt to really make the outfit shine for an extra $30. People buy these things because they seem cheap in comparison to the stick price of the main item in the shopping cart. And on a gross margin level, these upgrades add huge profit for the seller.

Apple understands how to make money like most retailers do not. Cases have always been a part of the iPhone business, and it’s silly to suggest that a plastic iPhone case should suddenly cause Apple to shut down such a highly profitable product line.

I understand where the bad analysis is coming from. These are intelligent people. Insightful people. They simply don't understand Apple's business and, what's worse, don't understand that they don't understand it. Arguing that Google has incredible products, fair prices, and will continue to gain market share is all true. I’m a shareholder of both Apple and Google. I’m also quite bearish on Microsoft. I agree with many of these analysts when it comes to the big picture. I just don’t agree with the poorly reasoned anti-Apple arguments that have been spewing out over the internet lately, and especially over the last week.

Here's a pro tip: Apple doesn't run their business the same way Google or Dell any other company does. You can't apply the same preconceptions, assumptions, and logic to Apple as you do Amazon or HP any other company. You have to base analysis of Apple on Apple and on the markets Apple's in.

Spend less time preaching Apple is doomed, and more time thinking about how people buy based on emotion and later justify their actions with logic (even if they have to manufacture that logic)

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 21 comments. Add yours.

revtech says:

And on the subject of cases its a double-win; putting all the holes in the case brings in buyers who would otherwise say "I don't want to cover up my new brightly-colored phone", and it also allows apple to sell a case which uses half as much raw material for the same price they would charge for a regular case.

Lt_Solorna says:

Good, well stated article Chris. My takes: Apple is increasing screen size incrementally to get what is best for size and shape for both the consumer and developer side. They also are bringing back the dock-stand for both the 5s/5c. Alot of these analysts are working to giving knowledge to the more common day-trader and unfortunately the long-term investor is waning from sight. On the 5c: I was predicting that it was the only release they would have and that the c stood for color not cheap.
On the fingerprint sensor: I know someone who reads the Drudge Report and said mis-information about the Fingerprint Sensor and thus they actually believed it.
So if they are looking at the wrong sites for information....

Mago27 says:

Apple just missed the conoetitive push, facts:

No matter how good is TouchID people isn't that concerned about safety as about easy readable screen (read bigger phone).

And in general the iPhone 5s now has the same position of the 3GS which few hardcore fanboys favored against devices with 800x600 resolutions, not to mention the lack of "eye popping" features as NFC, Wireless charging, digitizer 13 mpx.

On other hand Android is leading now in features that later Apple adopts (notification toggles, live wallpapers, just to name few).

Plus add this how cheap and easy to find/ hack are androids

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gerardo2068 says:

You are wrong. NFC is obsolete now. Google, the company that pushed it gave it up. Now is being replaced by iBeacons. Many people will love the fingerprint. Not just for security but for the times it saves on password. Most people don't want to hack their phone. The data proves this.

No other phone have fox the wireless recharging.

You missed all the points and iPhone still the best selling phone*

*android is not a phone.

I rather wait for Apple to do things right and not first.

OrionAntares says:

That's fine. Some people just want to stick with things that have been well proven in other areas. Nothing wrong with that. That's been the basis of the iPhone since release and it's clear there are a good number of people that want that.

Mago27 says:

You miss by far, iBeacon (an implementation of Bluetooth lp) is not competitor for NFC, no way while am NFC tag cost cents, an iBeacon cost tens dollars, while NFC is an media not just an implementation (as iBeacons) it can have n embodiments, not just as tag (in fact it's stronger feature is tamper-proof security, not ad Bluetooth lp which is intended to be reachable signal fat away the emitter, there is no way to intercept NFC key sharing coz there is no way to catch NFC signal from few inches away).

TouchID is very nice, so if you're kidnapped your kidnappers only need to touch your phone with your fingers to unlock it an do everything, no way the phone to know you're hogtied.

Wireless chagrin is hot technology, you don't need to plug nothing to charge your phone, and in fact you can charge your phone n times a day w/o worries about to prematurely fatigue yours phone data connector.

But the big sales mover are rows, just stand 1hr I'm a row with people using they 5" galaxy's playing, surfing all the time on such big screen as easy to see that you far away can identify what they read, you automatically got jealous of having that, same situation as when you're in the living enjoying a 32" hdtv and then your neighbor got an full hd 55" HDTV no matter the features you have on your 32" TV, you want that of 55" (maybe not as featured but you 32" but you enjoy more that 55" )

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gerardo2068 says:

See you are wrong again. Thanks to iBeacons long range it cost 3 times less than NFC to implement. NFC has less range, it is less accurate. NFC has a limit if devices IDs it can handle so they need more transmitter in a location than they need iBeacons. A single iBeacon transmitter last for years with a watch battery. When Google decided to give up on NFC that should tell you something.

Lol iPhone user gets kidnapped on a daily basics? Lol

Wireless charging is a good idea but no company has implemented in a practical way yet.

Galaxy sales are down.

Mago27 says:

It's not range, it's safety N(ear) F(ield) C(omm) is deliberately short range, to avoid the signal being peep by spy devices. And Actualy NFC tags don't use battery the magnetic field powers the transistors on it.

By price an NFC tag cost 5c as much while one iBeacon cost 40-80$, NFC sensor cost less than Bluetooth due licensing is very cheap instead 20$ per Bluetooth only for licensing the tech

Let me you remember that All passports in all countries use NFC to store a digital image of the user biometrics

Let me you remember Visa, MasterCard and other are deployed NFC payment since 2yr on several markets, now it's popularity in Europe rises and it's mainstream.

Let me you remember most new gadgets use an NFC tag to pair with your device (as Sony qx10 camera) so you don't need to type strings nothing on an android I windows phone to safely setup the data link, same on some new routers you can provide an NFC tag to stablished a high safety wifi zone w/I typing complex password (while actually using it).

And so on, to date iBeacon has only few supporters.

About wireless charging:

From Galaxy S3 and Google nexus, all galaxy's and nexus gave wireless charging integrated while the charger had it's sold separately (about 20-30$ now) also most Nokia Lumias (windows phone) and some Bluetooth headset have adopted it.

You said something true, few iPhone users where kidnaped yet because there wasn't the iPhone 5s, now if some friend got an iPhone 5s and is kidnaped (or sleeps ) you have no way to know if he/she actually unlocked his/her phone and sent you some message.

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gerardo2068 says:

NFC is in the past.

People already praising the fingerprint sensor.

SFCMM_Spuds says:

As a consumer and only slightly a tech geek. I moved from Microsoft / android 3 years ago and have not looked back. I used apple when you got a 5 1/4 floppy and a box. Apple I my first. Used a apple 2e and C. And moved away to dos when Lisa came out. And sold my stock. (Bad decision) sold for a big loss 10,000 shares) (real stupid). But article is right it is ease of use and quality and security (virus malware) is why I came back I don't have to worry about fragment operating system hardware compatibly or lack of updates for bugs and also I have a large assortment of software for a lot of companies. All said that is a big selling point for use and connivence. Ok enough said. Article nailed it. Apple is apple and not a normal company

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Solamar says:

I've not known a single person call NFC, Wireless Charging or a 'digitizer' eye popping. I have heard that about the iPhone 5c colors though.. You're lost in the world of a stat sheet and you obviously are looking with the same eyes Wall Street is..

Not sure what your talking about with the 3GS and being in same position.

Android didn't make notification center, live wallpapers, or even multi-taksing tiles it has now.. it COPIED THEM from webOS bud.. just as most of the features Android has now.. Hell, OS X has had widgets for years before Android existed.. Apple just decided it didn't have a place in iOS.

The difference is Apple refined said features and made sure they were a good fit rather than doing an immediate carbon copy of many webOS features.

I miss webOS, it was just soo far ahead of Apple and Google.. To bad HP execs are idiots.

mrjspeed says:

In total agreement. I'm about done mourning for webOS - I do miss it but I'm glad to see its core features find their way into other operating systems.

BBooDad says:

Amen brother!

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GeniusUnleashed says:

How long have you been an Apple user Chris? Doesn't seem like long.

At the current rate of market decline worldwide, Apple will slip back into it's pre-iPod days with a small but strong and healthy <15% computer marketshare. At their current slide (and Google's growth), their mobile side could see this in another 5 years.

While Apple has always seemed happy as their role of the Merc/BMW of computing and mobile computing, their stock was weak at best, pre-iPod. So from an investors view, watching Apple slide back to those days, if you own plenty of stock, it SEEMS like Apple is doomed. When in reality, they are are still a healthy player in the field and probably always will be.

Over the last few years, Apple has consistently been behind the curve in innovation, whether it be hardware or software. Between finally going wide screen and increasing the phone size a half inch, to finally having an Android style notification drop down menu with widgets 5 years after Android, to trying a finger print scanner, Apple has been dragged forward by Android. They did this in their computer line as well with wide screen adoption years after everyone else.

Apple's surge in stock price was an anomaly, and their sinking price is the market self correcting. So if you own stock, then yes, they are doomed, because it will probably slide back down to slightly above pre-iPod days (since they now have a mobile division). But this doesn't mean they are doomed as a company.

Galley says:

I enjoy being able to use my iPhone 5 with one hand. I don't want a phablet!

OrionAntares says:

I use my GS3 with one hand. Not everyone has smaller hands.

BBooDad says:

Me too. When I want a bigger, screen, I pull out my iPad Mini, instead of fumbling with a ginormous phone that screams "geek" and won't fit in a normal jeans pocket. Same reason I always liked Palm Pre's, and with new apps, too.

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Ken_FSU says:

I'm an Apple user, but the cheerleading can get a little nauseating. We get it, Chris. You are smarter than all of the other analysts combined. Based on your own personal opinions (many of them as subjective as "pixel density isn't important, because I can't tell the difference), Wall Street on a whole is wrong and dangerous for daring to think that Apple isn't as forward thinking and innovative as you believe them to be. And where's the mention that demand for the new iPhone models aren't proving nearly as high as many expected? Would love to get a little bit more balanced coverage instead of seeing something like this pop up every time Apple shows a chink in the armor.

Apple ain't invincible. You need only look at a company like Nintendo to see how quickly today's hottest gadget becomes yesterday's news when the parent company exhibits too much hubris or is too slow to adapt to changing consumer preferences.

Not even suggesting that Apple is in trouble, it clearly isn't, but do we really need the "Wall Street is so stupid!" stories every time the stock dips?

bassmanxu says:

This.

Apple had been growing revenues roughly 40% annually 2006-2012 and growing earnings almost 60% annually over that same time. When you drop those numbers down to single digit growth this year and next (and earnings will actually be down in 2013), it's not surprising that the market reacts negatively. Wall St. paid up for Apple while it was growing sales and earnings at a furious (and admittedly unsustainable pace) and now it's paying a lower multiple for a company that is maturing. It's not rocket science, but Wall St. isn't dumb for suggesting that Apple might not be as good of a stock as it has been the past 5, 10, 15 years, etc. And using today at the end point, if you bought Apple anytime before early to mid 2011, it has handily beat the market.

Genepsu says:

I guess you have not seen the lines and preorder numbers on the new iphone . Looks like they will surpass last years numbers please tell me one android that has those kind of numbers

BBooDad says:

Writers and others like to predict the death of the front runner simply because it makes them feel important and guarantees readership. Adequate self-image might help the first motivation; as to readership, everyone needs to make a living. Believership however? "There's a sucker born every minute"!

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