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Investment News and Views, Direct from Our Team.

Apple and the story of the DVD player

Most people love to invest in the latest and greatest tech fad, but as many pervious high flying tech giants such as Palm, Sony Walkman, Blackberry and Nokia have shown time and time again, it is a very difficult way to make money.

Those who bought Apple in the early to mid 2000’s have had tremendous success.

However for this success to continue, Apple needs to reinvent the way we lead our digital lives again. This unfortunately is unlikely without Steve Jobs.

The more likely scenario is that Apple goes the way of the DVD player. When DVD players were first introduced, they were selling for $800 a pop. These days you can pick one up from ALDI for less than $30.

As HP has shown with its latest release tablet, the price wars have well and truly begun, but are probably only just getting started. How cheap will iPhone and Ipad competitors get? $100? $50?

The problem Apple is facing is that their competitors have caught up very quickly and are actually selling better phones. The Samsung Galaxy phones really are better than the Apple ones (and I am a very loyal Apple consumer). With the price of a competing phones less than half the price of an Apple device, I am sorry to say that I will be switching over.

This cost differential is going to continue to eat away at Apple’s margins. If Apple goes from making a few hundred dollars of margin to a few dozen dollars of margin, then their profits are going to take a dive. There are not enough consumers in China and India to buy Apple products at multiples of the price of their Android competitors to offset the margin contraction.

With enormous amounts of cash, there is a price to pay for Apple, but that price is significantly lower than it is currently trading at.

Apple is set to follow the story of the DVD player over the next few years…

On a purely observational point, I noted that the Apple stores that I have visited in LA and New York in recent days have been significantly less crowded than previous years. Interesting…