This "superphone" company is becoming a far less efficient business nowadays. Here's why!
Each Wednesday, we talk about various tips, insights, and coaching comments about investing, the stock market, the economy, and companies you might be planning to invest in. Our goal in writing these articles is to help you improve your financial decision-making and achieve financial stability in the long run. For now, let’s focus on one of the greatest smartphone technologies in the world. Continue reading to learn some of the changes—both good and bad—this tech company went through over the years.
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This "superphone" company is becoming a far less efficient business nowadays. Here's why! The iPhone 14 is one of Apple’s most powerful phones to date. What is new about it? First off, every generation of iPhone shows better functional specs than the last… and so far, the iPhone 14 is the first one to have Apple’s most powerful phone processor and most diverse set of cameras. There’s more! It’s the first iPhone without a physical SIM card slot! In fact, it can hold up to 8 different digital (eSIM) cards at the same time, all while saving room for other components. Aren’t these features amazing? The list of accolades goes on and on. There’s no denying that the iPhone 14 is truly impressive.
However, while this new generation of iPhone is a “superphone,” Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, believes the late Steve Jobs would never have let this model be released in its current state. Why? Professor Litman says throughout almost 4 decades at Apple’s helm, Jobs never lost sight of the company’s #1 goal: Making the customer’s life better. As the late Apple CEO put it: “You’ve got to start with customer experience and work back toward the technology - not the other way around.” This explains why despite the iPhone 14’s laundry list of powerful features, it also includes a glaring flaw that hurts the customer experience. This has to do with the very design of the phone. iPhone 14: A Modern Digital Camera You might have heard about recent short films being shot on the iPhone 14 Pro. The smartphone is great for everyone—from photography enthusiasts to industry professionals. However, there’s one issue: The iPhone 14 camera sticks out waaaaaay too far. This makes the phone unbalanced and wobbly when placed on a flat surface, and also makes it harder to use a wireless charger. Customer after customer has complained about this design flaw. … and it’s not just that the wobble is annoying; it’s also harmful. With part of the phone resting that high, it’s easy to accidentally apply too much pressure and bend or crack it. While this is bad from a “form” standpoint, it might not seem like such a big deal for a multi-trillion-dollar tech giant. A small form flaw hardly presages the end of Apple’s smartphone reign. The thing is, there’s a deeper flaw behind that physical flaw: Someone—or an entire team of someones—from Apple hyper-focused on technology AND forgot about the customer experience. The Importance of Both Form AND Function Professor Litman says this issue in the iPhone 14 doesn’t mean Apple has been doing everything wrong since Jobs died in 2011 and CEO Tim Cook took over. The company flourished under Jobs’ vision and inspiration, and Cook kept the trains running on time. It’s just that the firm is missing that kind of thought to both form AND function. The numbers prove that this departure has hurt the business. Here’s how… Apple released the first iPhone in 2007. That year, the company’s Uniform return on assets (ROA) was 55%. That’s not bad. In fact, that’s more than quadruple the 12% corporate average! That was only the beginning for Apple, too. Because of that, Jobs was obsessed with improving both the form AND function of the iPhone. Through the years, every new generation of iPhone made better use of these factors: The screen took up more of the phone’s surface, and the device got thinner while still featuring a higher resolution. This led to Apple’s Uniform ROA soaring even further and hitting 159% in 2011. That’s a tremendous return on a piece of hardware! Sadly, after Jobs died, the form of the new generation of iPhones suffered… and so did returns. Take a look at the photo below:
Jobs worked on the iPhone 5, which was released in 2012. That time, Apple’s Uniform ROA was still 149%. After that, things took a turn for the worse. The iPhone 6 was so thin that some customers accidentally bent them out of shape in their pockets. Additionally, as the cameras have improved, the iPhone bump has only gotten worse. It’s no surprise then that Apple’s Uniform ROA has suffered. It’s back to where it was when the first iPhone was released. — According to Professor Litman, the failure to focus on form doesn’t seem like it has hurt Apple too much—at least not at first glance. Apple is still the BIGGEST public company in the world. However, Uniform Accounting shows just how damaging this trend has been to one of the world’s most creative businesses. Apple earns a lot less for each dollar invested, like 70% less than it did in 2011. Simply said, it’s a far less efficient business nowadays. The issues with the iPhone 14 aren’t exclusive to just this generation of iPhone. They’re representative of more than a decade of problems since the company lost Steve Jobs. Apple has forgotten that what set it apart was its ability to leverage form and function TOGETHER, not just function by itself. The bottom line? There’s no denying that the iPhone 14 is one of the best smartphone products out there—IT TRULY IS! It’s just that, it’s not as good as it could have been or would have been… and according to Professor Litman, Apple’s numbers reflect that. Hope you’ve found this week’s insights interesting and helpful. In 2015, Cliff Asness was about to become the next investing household name. Learn more about “factor investing” in next week’s article! |
