REPRINT: Blackberry – The Problem (7/19/12)

Here is a reprint of my 2012 post on why RIMM (Blackberry) failed.

What Happened – A Lesson in Psychology

The simple answer is that they have totally flubbed the move from feature phones to the modern smartphone and tablets. The Blackberry Storm did not go over well, largely due to quality of interface issues, and the PlayBook tablet was a total flop.

But for the investor this information is not enough. This is 20/20 hindsight. By the time RIM dropped to a four year low on June 17, 2011, it was too late. We want to know: How did such a smart company make such a huge mistake? What where the early warning signs?

Full post here


If you appreciate this work

Then please check out my short fiction anthologies.

(Both available in both Amazon and iBooks stores.)

50 Cent Flash v1

50 Cent Flash v1
View on Amazon

50 Cent Flash v2 Buy iBook

50 Cent Flash v2
View iBooks Store


Understanding Apple: Three Keys To Stock Price – 3. Looking Ahead

Apple  share price has been slammed recently, falling as low as $92.43 last Wednesday. The question for investors is whether this downward trend will continue, if the price will remain range bound as it has for over a year, or if share prices will reverse and continue to appreciate.

I have identified three key factors in the future value of Apple stock. The first article focused on iPhone sales which many see as leveling off in growth, or even declining in the current year. Since this product currently accounts for well over 60% of Apple’s income, this would clearly affect performance. Fears over this are what drove the price down.

The second post focused on how the Services and Other Products categories – particularly the new Apple Watch – will likely drive moderate growth.

In this post we will examine what may be the most important influence on Apple stock price:

  • Apple’s forward guidance for the March quarter

Continue reading

Apple Pay – Superficial Critiques

I really do not like to get snarky, but sometimes I see blog posts that are so superficial that I cannot help but be a little testy.

Case in point Apple Pay Has Finally Arrived! Great – But Here Are 7 Reasons It Won’t Be A Slam-Dunk Success by Robert Hof, in Forbes.

First – I totally agree with Hof when he writes

it’s apparent that Apple Pay is far from a guaranteed success.

This definitely is true. No one can predict with surety two basic factors:

  1. Will it work properly?
  2. Will the public accept it?

Typically, Apple’s products and services work pretty well, but there have been some notable exceptions. The move from .mac to was a tremendous mess, and the introduction of Maps seriously flawed. Any system failure even vaguely approaching those will be a disaster. This is people’s credit cards and payments, not simply directions to the nearest movie theater.

As for number two, Apple seems to have a really refined system, and if it works as effortlessly as in Apple’s demo, it will certainly be the easiest method of paying yet available. A simple swipe of your iPhone or Apple Watch by the NFC reader while holding the home button (on the iPhone) and you are done.

But none of this is guaranteed. That is the nature of any business, especially one that is creating a whole new product.

But Hof goes on to list seven important areas where Apple Pay is lacking.

1 –You can’t use Apple Pay unless you buy an iPhone 6 or 6 Plus

Continue reading

The Definitive Debunking of Touch ID Fingerprint Hack

When Touch ID was announced at the iPhone 5s launch, it was immediately besieged by detractors.

One area in particular for detractors is that the Touch ID system is susceptible is via spoofing an owner’s fingerprint. If true, this would  pretty much leave the whole system open to an attacker, and now, with the iPhone 6 and Apple Pay, spoofing would easily expose the owner to fraudulent charges placed on the his credit cards.

The most convincing  exposition on this was by the German Chaos Club group which quickly posted online video of how to spoof the Touch ID sensor system.

With the advent of Apple Pay based on Touch ID, this issue becomes even more critical.

Screen Shot 2014-09-24 at 8.19.58 AM

Two facts are clear:

  1. it works,
  2. it is not all that difficult.

However, there is one clarification to point #2. It ought to read:

Continue reading

Apple IWatch: What Will It Cost?

26 March, 2014

© 2014 J. M. Manness

The beauty of Apple’s (AAPL), from an investor’s point of view, is that they have, over the last fourteen years created new gadgets that have each become almost a necessity in our lives. For over a year now we have been hearing rumors of a forthcoming iWatch. We hear rumors of sapphire displays, curved displays, biometrics, health sensors, and more. While evidence mounts for some of these rumors, we are all unsure as to what it will bring, if it comes at all. For the investor, however, the specific features are less important than what this new product will contribute to the bottom line. In this article I will analyze what we can expect from price points. In a companion article I will see if we can come up with some idea as to the market for such a device. Samsung (OTC:SSNLF) has recently released its smartwatch, the Galaxy Gear that runs the Android operating system by Google (GOOG). It has a price of $299, which seems like a reasonable price to expect from Apple. Apple is famous for their high margins so let’s see if Apple can match that price given the margins they want. To do so, I have used the build of materials costs as estimated by IHS. The table shows the IHS figures for the iPhone 5s, and my estimates for correlating costs for the new iWatch. iWatch-cost-analysis

 A line by line discussion of the cost structure is given in a separate post.

Processor – A8w

One thing that should be discussed is the processor. I believe that a new processor is being developed to going to this product. I am calling it the A8w. The reason for this processor is that they need a processor which is powerful yet small and has very low power consumption. So this will be produced on the new 20 nm chip processing technology. The regular A8 will be for larger products so the A8w will be a much smaller cousin. In particular, the smaller chip Will have greatly reduced graphics processing systems built in. Additionally, it will be beneficial to have the chip running a 64-bit architecture so that Apple will need only one iOS code-base. (it will, of course, be only a subset of the full iOS.) To my mind, this is one very important reason that the iWatch is not yet out. It is waiting for a processor that is capable and power efficient and small enough for the application. This is one thing Apple does well (at least most of the time): note release things before the proper technology is available.


Dear friends – if you appreciate my commentary please consider viewing my product linked below.

Elegant, Handcrafted, Genuine Leather

iPhone Holster



Bottom line

As you can see, the total projected cost Will be quite a bit less than the iPhone. Figure I come up with is a total BOM cost of just $71. If we want the same gross margin for the iWatch as for the iPhone 5s (16 GB), then it can sell for as little as $249, fifty dollars less than the Galaxy Gear. Of course, this does not including the development costs which must be exorbitant. So perhaps they will stay with $299 anyway. Of course it maybe possible that there are other expenses than I have not anticipated. Still, this seems a reasonable estimate of what it will cost to build the new iWatch.


Apple’s stock price is stalled. Revenue growth has slowed significantly from earlier years, and many investors do not see Apple as a growth stock any longer. While many argue that Apple is undervalued even for current revenues and income, others see a danger of the iCompany losing even more ground to competition, if not in unit sales, then to decreasing margins. New devices are critical to the stock price. Outside of the leadership, no one knows for sure if an iWatch is in the works or not, and if so then what features or price structure it will have. Here I have shown at least that Apple could produce an iWatch at a competitive price and keep its high margins. A follow up post will cover just how many iWatches we could expect to see sold, and how much that would add to revenue.

UPDATE: 25 Oct., 2014

[I have fixed a few typos above.]

This was, of course, early speculation. I was right about a separate processor (yes I originally meant 64-bit since I said it would be the same.) Of course we do not know if this is true until Chipworks pries it open.

I think my cost analysis is reasonable accurate but only for the electronics. The added costs for the housing, etc. will be additional. Still, I think Apple will not be doing badly with their base price of $349, and higher priced models will definitely contribute to the bottom line. Of course this does not account for development costs which assuredly have been astronomical.

The apparent success of Apple Pay may turn out to be a huge driver for the Apple Watch.

===== Related Articles:

Detailed line item description of iWatch costs

Apple’s A8 — What It Will Be And Why It Matters

Apple’s Missed Opportunity

The pundits will go on about the initial weekend sales for the new iPhones, but one thing is clear:Apple (NASDAQ: AAPL  ) has missed an opportunity here.

It’s no news that the iPhone 5s is the new flagship model, with a blazingly fast processor, and breakthrough fingerprint sensor. The colorful 5c models have replaced the previous flagship iPhone 5, with only small changes aside from the plastic bodies.

So what’s been missed? Apple stock dropped after the September 9 announcement that the 5c would be priced just $100 below the 5s. Investors had been looking for a drop into the lower price range. Personally, I agree with Apple that the 5c should be priced exactly where it is.

What is missing, however, is the iPhone 4c.

There should have been another model added that would relate to the 4s just as the 5c does to the 5s, priced $100 bellow the 4s, unsubsidized at $350.

Model Unsubsidized Price
 iPhone 5s $650
 iPhone 5c $550
 iPhone 4s $450
 iPhone 4c $350

Source: and author’s estimates.

Apple iOS’s main competitor is Android, built by Google. Recently they have pushed their global smartphone market share to almost 80%,  largely by dominating the low end market, a segment that Apple does not care to enter – and rightfully so. However, to drop below 14% looks bad. It makes them appear marginalized. A 4c entry would allow Apple to enter a lower tier, and regain significant share.

The theoretical iPhone 4c would sport these feature changes:

  1. Case: colorful plastic
  2. CPU: A5 chip of 4s
  3. Screen: Revert to pre-retina display resolution (163 ppi)
  4. Memory: Revert to 8 GB
  5. Camera: 6 Megapixel

It’s quite possible that Apple could produce such a device for under $150 in hardware and component costs, which suggests that a $350 iPhone 4c could fetch hardware margins of over 57%. In contrast, IHS iSuppli estimates that the new iPhone 5s costs $199 to build after including manufacturing costs, while the iPhone 5c total is around $173.

With the strongly reduced feature set, I do not think that the 4c would significantly cannibalize higher priced models. This is seen in the new 5s. Reports have sales of 5s outnumbering 5c by 2.4 to one. It shows that the existence of a lower priced model does not necessarily cannibalize the higher priced one when there is significant differentiation.

Fortune’s Philip Elmer-DeWitt wrote a few weeks ago of Apple’s low end opportunity:

In a note to clients Thursday, RBC’s Amit Daryanani used Strategy Analytics’ market research to estimate what a $300 iPhone 5C might do to Apple’s bottom line…

And he quotes Daryanani:

“From an EPS perspective we believe the Company can add $4.00+ in EPS to our CY14E estimate of $39.74, with a successful launch of an affordable iPhone. On a 12x multiple, this would add roughly $50 to Apple’s stock-price. We believe our ~56M unit estimate is conservative given that it represents 12% of the total low-end Smartphone market.”

Granted, he is talking of a sub $300 price point, so let’s round his 56 million units down to 50 million. Even if there was some cannibalization from the 4s, this would bring in more than $17.5 billion new revenue. . This could potentially add over $4.40 in earnings per share.



Dear friends – if you appreciate my commentary please consider viewing my product linked below. Thank You!

Elegant, Handcrafted, Genuine Leather

iPhone Holster




Some would argue that this would only increase Apple’s woes by further compressing margins. But there are two points to make here. First, the gross margin is significantly lower for the 5, but not horrendously lower. More importantly, $17.5 billion is a large number for incremental revenue, and would go a long way to reducing overhead and operations as a percentage of overall revenue, so it is likely that this would counteract the slightly lower gross margin.

Apple has a great game plan and will probably thrive on its new iPhone product line. Still, it seems to have thrown away a great opportunity to expand its reach into the smartphone culture and bring in millions of new customers. This would reach into the growing share of Google’s Android operating system led by Samsung, and Apple could have done this without sacrificing the quality that they prize so much.

Apple will thrive, but I believe they could have done even better.

New York Times on Apple Job Growth

The New York Times has published a rather silly article in which they claim that Apple has never contributed any jobs to the economy.

Well – they do not put it exactly that way – but their article practically says it outright.

I will agree with the quote:

… said Gary P. Pisano, a professor of business administration at Harvard Business School. “It’s hard to say the exact size.”

I agree as well that the methods used by the company they hired could be the subject of legitimate debate (as long as that statement is NOT interpreted as an innuendo that someone was dishonest.)

However, the following quote is a bit odd:

David Autor, an economics professor at the Massachusetts Institute of Technology, said via e-mail that the “entire business of claiming ‘direct and indirect’ job creation is disreputable” because most of the workers Apple is taking credit for would have been employed elsewhere in the company’s absence.

They go on to note:

Mr. Cappelli said. “If you say, ‘If there had been no Apple, those people would not have jobs,’ that’s not true.”

Of course it is not true that every single one of those individuals would be jobless, but if there were no Apple and engineer X took a job at HP then there would be some other engineer who would not have a job.

According to the logic provided, then no business anywhere creates any jobs at all. Everybody else would have been working somewhere else. This is – of course – utter foolishness.

I will admit that they do conclude with the statement:

Apple is, however, an innovative company that created a market for tablets and radically increased demand for smartphones.

In reality – the smartphones existing before the iPhone are not today considered smartphone. Additionally, the app business was relatively nonexistent prior to the iPhone, so perhaps they should be credited with ALL the apps developers (snicker).

As for people buying alternative products if Apple did not exist… sure they would be buying Asus and Lenovo computer that are totally designed, engineered, and built in China in factories with absolutely NO oversight at all. And…

They would be running DOS 12.1. (What a pleasant thought.)