Android putting the squeeze on Apple
John Shinal's Tech Investor
Commentary: Why iPhone fans should fear Google’s earnings report
Reuters
Then, as now, Apple was building both hardware and software to attack the consumer market, while Google — like Microsoft back in the day — chose to focus only on software at first.
Then, as now, Apple took the early lead in hardware innovation, which allowed it to charge more for its products and wring massive profits from them. But as the tablet and smartphone markets continue to mature, they will become more commoditized, just as the handheld consumer-device market has evolved since it was born in the 1990s as a cellular-phone business.
SAN FRANCISCO (MarketWatch) — There was a fair amount for Apple
Inc. investors to fear in Google Inc.’s fourth-quarter and full-year financial
report, because the Android mobile economy is a clear threat to the iPhone and
iPad economy.
Now we know why Apple (US:AAPL) shares
went from about $700 to about $500 over the last four months: concerns that how
the battle between Apple and Google (US:GOOG) in
the mobile market will play out, just as Apple and Microsoft Corp. (US:MSFT) fought
it out in the 1980s over PCs.Then, as now, Apple was building both hardware and software to attack the consumer market, while Google — like Microsoft back in the day — chose to focus only on software at first.
Then, as now, Apple took the early lead in hardware innovation, which allowed it to charge more for its products and wring massive profits from them. But as the tablet and smartphone markets continue to mature, they will become more commoditized, just as the handheld consumer-device market has evolved since it was born in the 1990s as a cellular-phone business.
Thanks to makers of Android smartphones and tablets shouldering the costs of
hardware development, Google has been able to focus its research efforts on
making as much net income as possible from its Internet-advertising machine.
That’s why Google on Tuesday was able to post a small rise in fourth-quarter profit, even though it’s still digesting its acquisition of hardware maker Motorola.
Apple, meanwhile, must either continue to out-innovate Samsung and other hardware makers to justify charging more for iPhones and iPads, or simply outspend them on marketing. Both of those things cost lots and lots of money.
That’s why Apple on Wednesday may report a slight dip in profit.
If all those Android sales are cutting into Apple’s top-line growth (expected to be about 20%, or the same growth rate as Google’s core advertising business), the company may soon face margin pressure.
Granted, Apple has a more dominant position in the mobile market for consumers than it ever did in the PC market, so its ability to keep producing hardware profits is a more defensible position. This is why Apple’s market capitalization is so high, and why it’s expected to post a quarterly profit of $13.47 a share, compared with the $10.65 a share Google just reported.
But the corresponding fourth-quarter reports for the two Silicon Valley companies suggest that Google has a good chance to someday overtake Apple as the most valuable tech stock.
At the moment, as the market digests Google’s earnings report and waits for Apple’s, Google’s market cap sits at about $230 billion, or just under half of Apple’s $475 billion.
What’s different this time The biggest difference between Microsoft and Google, as rivals of Apple, is that Microsoft made its profits selling software to consumers and businesses, while Google sells advertising to businesses that market to consumers.
That’s why Google on Tuesday was able to post a small rise in fourth-quarter profit, even though it’s still digesting its acquisition of hardware maker Motorola.
Apple, meanwhile, must either continue to out-innovate Samsung and other hardware makers to justify charging more for iPhones and iPads, or simply outspend them on marketing. Both of those things cost lots and lots of money.
That’s why Apple on Wednesday may report a slight dip in profit.
If all those Android sales are cutting into Apple’s top-line growth (expected to be about 20%, or the same growth rate as Google’s core advertising business), the company may soon face margin pressure.
Granted, Apple has a more dominant position in the mobile market for consumers than it ever did in the PC market, so its ability to keep producing hardware profits is a more defensible position. This is why Apple’s market capitalization is so high, and why it’s expected to post a quarterly profit of $13.47 a share, compared with the $10.65 a share Google just reported.
But the corresponding fourth-quarter reports for the two Silicon Valley companies suggest that Google has a good chance to someday overtake Apple as the most valuable tech stock.
At the moment, as the market digests Google’s earnings report and waits for Apple’s, Google’s market cap sits at about $230 billion, or just under half of Apple’s $475 billion.
What’s different this time The biggest difference between Microsoft and Google, as rivals of Apple, is that Microsoft made its profits selling software to consumers and businesses, while Google sells advertising to businesses that market to consumers.
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