Apple Inc. (NASDAQ:AAPL) has been struggling to prove to the market that it still has the Steve Jobs magic, even without Steve Jobs around. So far, the market isn’t impressed with the company’s prospects, or at least with the price it’s been paying for those prospects. The rumor of an iWatch doesn’t make that better; it may even make things worse.
Amazing Innovation
Over the past decade or so Apple Inc. (NASDAQ:AAPL)’s innovations have been nothing short of revolutionary. Its iPod music players completely reshaped the music industry, giving the company a seat atop the music business with its iTunes store in the process. Of course the music business was pretty much decimated along the way.
The iPad, meanwhile, brought the notion of a casual computer to the fore. It has completely altered the mindset of dealing with a personal computer at all, since many people only use a computer as a gateway to the Internet. While online, the tasks are usually pretty simple. That’s causing notable strife at once massive personal computer companies like Hewlett-Packard Company (NYSE:HPQ), which is trying to follow the lead of International Business Machines Corp. (NYSE:IBM) out of the hardware business. Too bad for HP it was late to the shift and hasn’t executed particularly well.
What’s Next
One big problem Apple Inc. (NASDAQ:AAPL) has is answering the question, “What’s next?” Everyone would like to know. There have been rumors since late last year that an iWatch was to be the next big release. However, it’s hard to see that as being a transformational event.
For starters, a watch is relatively small, which would severely limit the functionality of any device. There simply wouldn’t be enough screen space on a realistically sized watch to allow it. Second, voice control, while much improved from the past, isn’t up to Star Trek speed and would more than likely disappoint. The company’s Siri voice activated control system is cool, but seen as little more than a toy by most users.
Tipping the Hand
Perhaps that an iWatch is even making the news is tipping the company’s hand. With such a small space, perhaps it will simply connect wirelessly to an iPhone or iPad and act as an extension of the more powerful device. This could work in the same way that some applications use an iPhone to control functionality on an iPad (such as the iPhone becoming the paint pallet for an art program). That would leave an iWatch as little more than a neat accessory. It seems unlikely that people would give up their $1,000+ Omega watches for an iWatch for very long.
Thinking longer term, does this cement the notion that Apple Inc. (NASDAQ:AAPL) is it just a device maker that can only grow by selling more baubles. If this proves true, then an iWatch will be a great new toy for the company to hype and sell. However, it won’t transform the world.
Stiff Competition
The second problem Apple Inc. (NASDAQ:AAPL) is facing is that competition is heating up, and getting better at fighting back. For example, while Nokia pretty much gave the cell phone market away when it stumbled in the smart phone space, its recent partnership with Microsoft Corporation (NASDAQ:MSFT) to create the Lumia phone line has, so far, been received well. While it may not displace Apple, it gives Nokia a toehold that it lacked before—a decent phone. With Nokia’s strength in emerging markets, it has a good chance of regaining its footing.
Microsoft, meanwhile, has been able to showcase its mobile operating system. Since that is the heart of the phone, most of the accolades, and negatives, about the Lumia really belong to Microsoft. If it can take the success of the Nokia phone and shop around its operating system, it might yet be able to take the No. 3 spot in the smart phone wars. Not the position it wants, but a good place to be just the same. Of course, Microsoft’s “me too” tablet hasn’t been doing as well as expected, which isn’t good news.
Google Inc (NASDAQ:GOOG), meanwhile, has taken a different approach to the entire space. It just wants more devices to run on its Android operating system so it can collect advertising revenues. This device-agnostic stance, makes it look more like a pick-and-axe company, providing the tools for others to compete and collecting money along the way. The best part is that Android has been becoming increasingly competitive, notably gaining ground in the applications being offered for its operating system. Moreover, Google has the benefit of being on Apple’s devices, too, with its own apps.
Of course one of the reasons for Google’s success is Samsung’s success at competing with Apple Inc. (NASDAQ:AAPL). The Galaxy line of products, which the two companies have bitterly sparred over in the courts, has proven an ample counterweight to the iPhone and iPad. The fact that Apple went to court to hinder the Galaxy’s progress may be as telling as the iWatch idea.
More bodies
This also makes succeeding in China even more important. Indeed, the Apple’s CEO has already said that China will be its biggest market. Based on the population, many of which are entering the middle class, that seems increasingly important if the company has to sell more to make more. And Wall Street is certainly expecting more from Apple Inc. (NASDAQ:AAPL). Or at least, it was until recently.
For a few months now, the shares have been weak at best. Even hedge fund managers are getting in on the act, with David Einhorn publicly taking on the company. That would have been close to unheard of just a year or so ago. Perhaps Einhorn smells blood.
Calculator Watches
If you are old enough to remember the calculator watch, which was a very exciting development thirty or so years ago, the notion of wearing a small, functionally limited computer on your wrist probably isn’t too exciting. Unless Apple Inc. (NASDAQ:AAPL) finds a way to really knock the world’s socks off, the iWatch is destined to be a disappointment. It may also seal the belief that Apple is out of ideas and is now just a device seller working off of volume.
Yours,
The article Is iWatch A Bad Omen? originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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