Could Apple Revolutionize This Industry, Too?
Technology stocks are always in a state of flux due to the rapid levels of innovation. Technology stocks that can constantly be on the front-edge of the innovative spectrum will tend to gain an increasingly large market share, and the high levels of corporate earnings that go along with that position. One of the clear leaders among technology stocks is Apple Inc. (NASDAQ/AAPL).
While many people associate Apple with the “iPhone” and the “iPad,” both of which have been massive drivers of corporate earnings for the firm, if one thinks back over the years, the company has gone through numerous permutations. While some technology stocks have tended to stick with their bread-and-butter products, Apple has continually adapted and changed. This ability to not only take chances and encroach into other sectors where existing technology stocks are already in a developed market, but to be able to change the way consumers view the market category is Apple’s edge. This ability to create a niche product and develop almost a cult-like following allows the firm to operate at higher profit margins, and, thus, earn a large share of corporate earnings.
If we look at the iPod, the industry for MP3 players was not new, as many technology stocks made such devices. Apple did not invent the MP3 player; it revolutionized the way it looked and felt, and created a market where buying the product made one “cool.” If technology stocks can differentiate themselves in a crowded marketplace in such a manner, this will obviously drive corporate earnings, as this separation within the sector allows for higher margins.
There are now reports coming out that Apple is developing a new set-top box that will simplify the viewing abilities for TV programming. In the same way Apple changed how an MP3 interface looks and feels compared to other technology stocks by cleaning it up and simplifying it, it will be able to create such a feel for the TV interface.
Most cable companies offer an interface that is not user-friendly, but a streamlined version would be instantly appealing and most likely a driver for corporate earnings. The device will allow, according to rumors, the ability to store TV programs on the Internet, allowing a person to view the show at any time. If I know Apple, I’m sure they will allow a seamless way to integrate all of their products together, perhaps offering the ability to stream your saved TV shows to your iPad. Greater integration means higher probability of increased corporate earnings.
If rumors are correct, the big change is that Apple is in talks with cable companies to offer this box to their customers. Considering how many cable subscribers there are in the U.S., this could be a substantial push for corporate earnings. In addition to the sale of the set-top box, this will allow Apple to cross-promote its entire catalog of media offerings. By linking all products into one integrated system, “iTunes,” this essentially locks out other technology stocks, driving their corporate earnings. If you already have all of the Apple products, are you really going to go out of your way to buy a movie from one of the other technology stocks? Probably not. This ability to cover all aspects of media consumption is the genius that drives Apple’s strong corporate earnings.
There are some hurdles to these rumored proposals, as entertainment companies would need to be brought into any such arrangement. I think the main point is not on the success or failure of any one product. Technology stocks that take risks don’t always hit a homerun every time. But when a new product does succeed, the corporate earnings from that one success dwarf any previous experiments. The point to take away with Apple is that for any company, not just technology stocks, to be able to maintain and grow corporate earnings, it needs to continually innovate and develop new products. If any of the firms you’re invested in is essentially a one-trick pony, be forewarned. Picking technology stocks with a management team that is hungry for innovating offers good long-term potential for corporate earnings growth.