We expect a lot from our tech companies, both in terms of the products they release to consumers and the gains they return to investors. And just like high school, the expectations are highest for the head of the class. That spot, of course, has gone to Apple for many years. As we enter a new year, it’s time to ask how our prize pupil did in 2013 and whether it will retain its rank in 2014.
The markets may already be speaking. As Forbes contributor title="chuck jones on apple downgrade">Chuck Jones reported, “Wells Fargo’s Apple analyst Maynard Um downgraded Apple from Outperform to Market Perform on Monday while maintaining his $536 to $581 target price range.” Apple stock has fallen $20 this week to end near the bottom of Um’s range at $540.98.
If you follow Horace Dediu’s logic that “The diffusion of iPhones is a Learning Process,” and that Apple has succeeded at directly transferring the consumer’s perceived value of the smartphone to its smartphone, the quality of all of Apple’s product offerings should have an immediate relation to its value. In light of this logic I was intrigued to see a post by long-time Apple product reviewer John Siracusa on his Hypercritical blog that grades the company’s efforts in 2013. Siracusa certainly has his Apple bonafides. He has reviewed every major release of OS X for Ars Technica since 1999.
Siracusa gave grades in response to his post from last February, Apple’s 2013 To-Do List, where he details, “things I think Apple can and should do this year.” When I tallied up the grades using a standard grading scale, I got a B–. Siracusa ends his assessment with the generous kicker, “I’d call that a solid year.”
Maybe I am suffering from a parental sense of grade inflation, but if my star student ended the year with a B– average, I would not call it a “solid year!” A look at the specific grades gives a good sense of what brought down Cupertino’s GPA in 2013.
Siracusa gave his highest grade (an A) for Apple’s efforts to “Reassure Mac Pro lovers.” He also gave A– for its delivery of iOS 7 and OS X 10.9, “with only a few minor bumps in the road,” and for keeping the iPad “on track.” The more important goal of “diversify the iPhone product line” earned a B+ with Siracusa affirming that, “The 5C is a good phone, and it’s easily distinguished from the 5S.”
The products that got Siracusa’ “solid” score of B– are the Retina Macs and the revival of iLife and iWork. Things start going south with the failure of iCloud to “just work” (C) and the “failure to make Messages work” without lots of bugs between iOS 7 and OS X Mavericks (D). The real downer, for Siracusa is Apple’s inability to “Do something about TV,” which earned a single word comment, “Sigh,” and an F.
Siracusa freely admits that, “The TV thing was always a bit of a reach, anyway,” so his assessment of solidity may have been discounting that grade. Indeed, if you throw out the lowest grade (as teachers sometimes do) Apple would get a slightly more respectable B, but that still seems to me an underperformance. I even went the extra mile and weighted these grades based on the share of Apple’s revenues that each of the products represent (iPhone revenues, for instance, are 3.6 times greater than Mac revenues) and I still only edged up to a B+.
So a critical assessments of Apple’s actual product performance in 2013 aligns quite well with the market assessment of the company. It is tracking the market not surpassing it. And, based on his analysis of P/E ratios, Dediu concludes that “the market suggests that Apple has 7 more years of current profitability and not 13.” Does this mean that Apple is losing its prized perch in the tech “class”? Not necessarily, but it does suggest that Apple needs to have a big year and open some new categories like connected car, wearables and, yes, a bigger move on TV, to avoid being unseated.
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