Apple's Catalysts for Future Growth In The Next Decade & Key Risks.
Updated: Apr 17, 2022
Table of contents
Catalysts for Apple’s future growth and to continuously strengthen their moat
(Bonus): Apple products, literally the easier choice for shoppers.
Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
1. Catalysts for Apple’s future growth and to continuously strengthen their moat
a. Technology & Innovation
Tech specs innovation
The Apple M1 chip released on November 2020 was a revolutionary technological feat achieved by Apple.
It has enabled a killer combination of performance and stellar battery life.
All while cheaper than its Intel counterpart.
This game changing piece of technology sets the path for Apple to target to the larger market with their now more affordable yet performance-superior computers.
It will be similar like how Tesla started out with the targeting premium vehicle buyers with their Roadster and Model S range,
But their subsequent Model 3 has really revolutionized the field of endeavour for the company since it allowed them to reach to the mass market with an electric vehicle that is cheaper and yet superior compared to the alternatives in terms of engineering performance.
The Model 3 became a clear and easy choice for the consumers whenever they are looking to purchase a new vehicle.
The same can be true for Apple’s computer range with their M1 chip,
And their computer chip technologies are expected to continuously improve in the future.
Innovation through understanding customers' importance on privacy, and setting the industry standard for other players to follow suit.
The late Steve Job was popular for having a knack delivering products which were slightly ahead of the time, but customers would come to fancy them.
Since Jobs, Apple's decision to ensure their products provide good digital privacy protection for their users was very innovative business strategy which helps set them apart from their competitors.
As the world is becoming more digitalised, the world may have not been aware of the repercussions of getting their personal information exploited yet since this is something intangible,
but Apple's move to highlight the privacy protection abilities of their devices,
definitely induced the other players in the market to follow suit in order not to miss out on the market share.
b. Brilliant Pricing strategy- Apple to continue charging premium prices for their iPhones
Although Apple has done a great job in bringing down the prices of their more products ranges which are more essential for productivity and education tasks (like their computers and tablets),
It is a good strategy for them to maintain or even continue to increase the premium prices of their iPhone devices.
Reducing the prices of their computers and tablets are merely a part of their customer acquisition strategy to entice more people to buy their other products, such as their premium priced iPhones.
Here are few statistics to be aware of:
i. On average people around the world are willingly spending more money on their smartphone devices.
ii. Whereas the price of desktop personal computers is on a downward trend
With less expenditures on personal computers, this leaves more room for consumer spending on other electronic devices like their phones & tablets too.
iii. We are also spending way more time on our smartphones compare to our computers, and the gap is expected to widen in the future.
iv. As mentioned in Part 2's article, Apples’ products are perceived to have better quality and are more highly promoted by their customers and employees compared to other smartphone brands.
v. And Apple products also have very high value for money rating (meaning customers do not really perceived their products to be expensive).
All these five points connected together indicate that there is a high probability that Apple’s customers (current or prospective ones) have lower reluctance paying premium price for smartphones as long as they continue to provide value for them (quality, improved privacy protection, great Brand, great technology, etc.).
Hence Apple does not have to worry that people will stop buying their iPhones if they maintain or continue to increase their prices at a reasonable market rate.
Bearing in mind, it is one of Apple’s ultimate objective to get as many customers into the ecosystem as possible, which will make it difficult for them to leave once they are in it.
To illustrate why maintaining their iPhones at premium price ranges may be constructive for Apple’s goal to entice more users into their ecosystem.
(Group A & B): How owning one of these Apple products entices customers to purchase more of the other product ranges.
For simplification, there are 2 groups of Apple customers:
Group A: Customers who already own an iPhone, but do not own an Apple computer nor iPad.
Group B: Customers who do not own an iPhone yet, but already own an Apple computer and/or iPad.
(Note: With Apple’s M1 chip and Apple Education promotion programs,
The amount of people in Group B are expected to increase in the future since their computers and tablets are now more affordable.)
Now consider the scenario when both groups are looking to purchase/ upgrade additional electronic devices apart from their existing ones.
This strategy works because it will make it easier for iPhone users (Group A) to justify buying MacBooks and iPads which cost less than their phones for them to start enjoying the Apple ecosystem.
And for customers who already own the Macbook and/or iPads (Group B),
it is justifiable for them to complete the ecosystem by purchasing a premium priced iPhone because they have already spent a significant amount of money on their Mac computer and iPad.
Once both Groups are locked into the ecosystem, it will increase their tendency to purchase other Apple accessories like the Air pods and iWatch,
locking them further into ecosystem and increasing Apple’s top line.
Not having to reduce their iPhones prices will also allow Apple to continue to maintain their high profit margins given that iPhones’ sale contribute up to 50% of company’s revenue.
iPhone SE 3rd Generation (now users can enjoy great iPhone performance at an affordable price)
In Apple's Peek performance event in March 2022,
they revealed that their iPhone SE (budget range) models will now be utilising A15 Bionic chip,
which is the same chip used in their highest end iPhone models.
This makes iPhone SE one of the most powerful smartphone out in the market today,
sold at an affordable price, which is expected to capture more market share from other smart phone manufacturers out there,
further increasing the amount of people who fall into Group A (as illustrated above).
c. (Concept 1): Apple Glasses
Up till this point there has been a-lot of speculation on the development of Apple Glasses,
and it is expected to be revealed by end of 2022.
Since this is purely a speculation at this point,
I will not dwell on this topic for now.
However if Apple really does succeed in this project,
it will inevitably act as a huge catalyst for the company's growth,
given the rise of Metaverse industry.
d. (Concept 2): Project Titan
Similar to Apple Glasses project,
Another exciting project which Apple fans and investors can look forward to is Apple’s Project Titan- where they venture into the Electric Vehicles industry.
Although there is limited information disclosed by Apple at this point, and production is expected to start around 2024,
the electric vehicle is a huge addressable market up for grabs and it makes sense for Apple to venture into it since they have an edge when it comes to software, design and battery technology.
A car is also a sensible component to be added into the Apple's ecosystem for its users,
as it will make Apple products more prevalently used in various areas of our lives.
This is likely why Google wanted to get car making space too.
4. (Bonus): Apple products, literally the easier choice for shoppers.
One thing which we may notice when we shop for new phone/ computer for most brands,
is that there is an overabundance of variety to choose from from the same brand provider.
As a result, their model numbers/ names end up looking like cryptic codes because there are way too many models to keep track of.
And don’t even get me started about the Laptop’s model names and numbers..
· Lenovo IdeaPad L3i (15) 82HL0010SB
· Asus ZenBook 13 UX325EA.
· Dell G5 15 SE 5505
· Acer Aspire 5 A514-54G
· ThinkPad 14-inch T490
· Lenovo Yoga C930
· Asus ROG ZEPHYRUS G15
As a vendor, giving customers and overabundant of choices to choose from can lead customers into a state of analysis paralysis,
causing decision fatigue when they are looking to purchase from them.
What Apple has done so well is that they limit the varieties of their product ranges.
And keeping their model names clean and simple (be it phones, computers, tablets, or headphones) so they are easy to remember and recognizable.
The genius and simplicity of Apple products model naming methods, making customers smarter and enabling better decision making.
Simplifying the process of their customers when they are looking to buy or upgrade their devices.
2. Keyrisks
a. What if Apple could not keep up with the latest Smartphone technology trends and the iPhone becomes irrelevant?
Because iPhone sales contribute up to 50% if Apple’s total Revenue,
If the smartphone technology evolves at a rapid rate and its main form factor evolved (i.e. to flexible screens forms) resulting in the Slate phones (which is the form for majority of the phones in the market now[54]) becoming outdated.
And if Apple still has yet to keep up with the market changes by then, they will be left behind and lose their position as one of the leading smartphones seller in the market.
(Similar to how Apple took away the majority of Nokia’s market share in the past, when they launched the iPhone, a device which moved the market trend away from keypad to touchscreen phones)
Unlike the luxury brands apparel industry,
Cutting-edge technology capabilities are important in the electronic devices industry for the players if they are to remain relevant and continue to thrive in the industry.
So, if Apple fail to innovate fast enough, they may be made obsolete and Brand power alone will not be sufficient to justify customers’ decision to continue using their products at that point.