The Great Debate UK
Why we are not witnessing a tech boom
By Kathleen Brooks. The opinions expressed are her own.
The words ‘tech bubble’ have been bandied about since the Apple share price really started to climb at the end of 2011. Earlier this month, its market capitalisation hit $600 billion dollars, only the second company to see its market cap get that high. So it appears like everyone wants a bite out of the proverbial apple.
There is a dangerous precedent for markets’ believing that tech stocks can only go in one direction. The dotcom bubble back in 2000 caused havoc in the equity markets and also contributed to the Federal Reserve keeping interest rates incredibly low, one of the contributing factors to the housing crisis in 2007.
Added to this, the only other company to have registered a $600 billion market cap was Microsoft at the height of the tech boom. Today Microsoft is worth about a third of that value. So does Apple need to watch out?
We have seen the Apple share price fall quite sharply in recent days, it is down 7 percent since last week. However, it has followed the overall market lower and thus the decline may not be people getting nervous about holding Apple stock, but rather some profit-taking and a normal correction. While we certainly don’t expect Apple to continue to appreciate at the pace it has of late, good profit growth, surging sales and plenty of opportunity to expand its retail operation across the developed and developing world could help prop up the share price even at these levels.
It’s not just Apple’s incredible marketing and product quality that makes us doubt the doomsayers. In my view, the overall market does not look like it is in bubble territory. Although Apple is bigger than some small European countries (it is more than double the size of Portugal’s annual GDP), it is not the only tech stock on the block. Research In Motion (RIM), who makes the Blackberry, has seen its share price fall 77 percent over the past year. Nokia has seen its share price dwindle from $9 per share in April 2011 to below $4 today. So not every company has seen its share price surge nearly 90 percent, like Apple has. Hence the Nasdaq remains more than 30 percent below the peak reached in 2000 before the dotcom house of cards collapsed.
The key difference between then and now is that the market has a better nose for quality, revenue source and longevity. Hence why Apple – with its 50 percent control of the tablet market and dominance in the phone sector – has managed to outperform RIM and Nokia. The tech bubble was characterised by the huge valuations of companies people had barely heard of and who, ultimately, did not have viable business models. LinkedIn, whose IPO last year saw its share price double on its first day trading, has seen its share price trajectory get more volatile since then rather than surge to frothy levels. Also, LinkedIn has a viable business model. Subscribers can pay to get a premium service, which is invaluable for head-hunters, human resource managers and others. LinkedIn is a good example of the free/ subscriber hybrid model that some newspaper companies should have followed years ago.
from The Great Debate:
How Apple, and everyone, can solve the sweatshop problem
Every few years brings us another sweatshop offender. In the 1990s it was Disney, and then Nike and Gap. The 2000s brought us Wal-Mart. The past few weeks Apple has been in the crosshairs.
One question is of paramount importance: How can we use this current public conversation to finally drive a different outcome? What must companies do so that 15 years after Kathie Lee Gifford tearfully became the first sweatshop poster child, workers who make and grow products for global consumers are paid fairly, protected from danger and free to advocate for themselves without fear of reprisal?
The good news is that these years of effort have created robust experience from which to identify what has gone wrong. The fundamental driver of "sweatshops" is that multinationals do not place value on good working conditions in their supply chains. This does not mean that a company doesn’t care about how those workers are treated, or that the company intends to act unethically or exploitatively. To the contrary, big companies require good conditions through vendor standards and "codes of conduct." They build corporate responsibility departments whose staff have budgets to reduce the risk of bad working conditions at supplier factories and farms. But their work is much like the arcade game Whac-A-Mole: A problem arises in one factory that they take steps to fix, while other problems fester and ultimately break through the surface elsewhere.
For this to change, companies have to resolve the ways in which their business decisions actually drive irresponsible performance among their suppliers. Companies frequently speak with two voices when they talk to suppliers. Procurement officers responsible for ordering something from a supplier expect delivery of a quality good at a cheap price on a tight time frame. Corporate responsibility professionals embody the expectations that all those other business needs will be met, but in a responsible manner. Yet that responsibility gets ignored when a company makes last-minute design changes or increases order size. The supplier will still deliver a quality product on time, but will do so by keeping his employees at work overnight or for days on end. Without the ability to negotiate a higher price at the last minute, the supplier can’t pay the workers for their overtime without taking a loss himself. Thus responsibility is sacrificed by a company’s business decisions.
Instead, companies must learn to speak to their suppliers with one voice and reinforce that voice with action. Suppliers should get positive incentives in the form of higher prices, financial bonuses, long-term contracts or other benefits for maintaining good working conditions. In-house procurement and supply chain staff should be compensated more highly if they place orders with responsible suppliers. Taking these steps would allow businesses to integrate social responsibility with other business requirements like quality, price and delivery.
Workers must be part of this conversation as well. Line workers and harvesters are the best source of information about working conditions, no matter the industry. Only a worker can tell corporations with accuracy whether or not she is being paid according to her contract, whether she considers her work hours to be excessive, whether she is provided with drinking water and toilets during her long days, and whether she has been harassed or fired for "associating freely" by joining a union. By working with trade unions and NGOs, companies will learn what the reality is at their suppliers, providing an early warning when things go awry and a constituency that can help improve conditions.
To hold themselves accountable, companies need to communicate publicly what has changed as a result of their social responsibility efforts. Our recent survey of corporate responsibility reports captures a mind-numbing array of activities, but no analysis of what has been achieved. To its credit, Apple has demonstrated that communicating achievement is possible. The company remains the only multinational to quantify the impact of its supply chain social responsibility in dollar value for workers -- disclosing that $6.7 million was returned to migrant workers who had been overcharged by unscrupulous labor contractors. This kind of disclosure leaves no doubt about its impact and stands in contrast to the usual corporate responsibility communication.
@oneofthesheep- Re-read that sentence, adjusting where you pause for the commas.
from The Great Debate:
Jobs made Apple great by ignoring profit
By Clayton Christensen and James Allworth The opinions expressed are their own.
Steve Jobs retires as the CEO of Apple with a reputation that will place him amongst the pantheon of history's great global business leaders. Many people have written about what makes Jobs and Apple special, but I think they’re missing what truly set him apart. Jobs has succeeded by eschewing the one thing that most people view as the raison d'être for companies -- profit.
When I left the industry to come to academia 22 years ago, it was driven by a set of questions that had troubled me for some time. Why was it that the best run companies in the world -- companies that have had incredibly smart leaders, following carefully detailed plans and with tremendous execution ability -- reliably seem to come unstuck? The answer to this question is what has become known as the theory of disruption.
In a cruel twist of irony, the pursuit of profit -- something that Wall Street pushes so hard -- is what leaves companies open to being displaced. As they grow, their ability to find opportunities that are big enough to sustain their growth is reduced. They become myopic; they listen only to their best customers. They focus disproportionately on their most profitable products, and strive to improve these the fastest.
The American auto manufacturers have suffered at the hand of disruption in the past few decades; they focused on their most profitable vehicles, and abandoned less profitable markets when low-cost entrants emerged. The Japanese came along with their smaller, cheaper vehicles; the Big 3 retreated upmarket all the way to SUVs and trucks. It was not long before Toyota was winning the sales race. Now, the Japanese are going through the same process, fending off the Koreans.
In short, disruption describes how the incumbents move upmarket, and leave the bottom of the market completely open for scrappy upstarts to enter. It explains the rise and fall of many great companies.
But there has always been one company that doesn't follow that pattern. At some point in my class every year, a student raises his or her hand and asks: "What about Apple? Aren't they a high-end, upmarket player? Why haven't they been disrupted?"
One of the comments above said that “an Apple iMac almost always costs around twice as much as a factory-assembled Windows PC.” But, as the many comments in this article show, profit and price are not the same. Apple machines cost more because they’re made of metal… because they last longer… because the company invests huge amounts into R&D so that their materials and manufacturing methods will set their devices apart from the flood of cheap plastic “me too” devices. Watch the documentary “Objectified” for some insight. Subjectively I feel that any additional cost is fully justified, you can’t compare a Dell to an Apple because there’s more to the machine than the technical specs.
from Breakingviews:
Microsoft ought to kick off search for Bing buyer
By Robert Cyran The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK -- Microsoft needs to concentrate on a different kind of search: finding a buyer for Bing, its online search business. The industry's distant number two is a distraction for the software giant -- and one that costs shareholders dearly. The division that houses Bing lost $2.6 billion in the latest fiscal year. Facebook, or even Apple, might make a better home for Bing. And a sale would be a boon for Microsoft's investors.
Microsoft has been pouring money into Bing -- this year's losses are greater than the previous year. The company thinks search makes Microsoft's offerings in everything from mobile phones to business software more compelling. Perhaps, but there's little evidence to date. And Bing and sites it powers like Yahoo still only control about 27 percent of the U.S. market. Google has more than twice as much.
Advertisers don't want a monopoly in the search business, which should assure Bing of some future revenue. And Google may be partially hamstrung in competition by antitrust probes worldwide. But the business has more value to a buyer that could bring it traffic.
How much? Microsoft's online services unit, of which Bing is far and away the biggest component, had $2.5 billion of sales in the year ended June 30. Google is valued at about six times sales over the last 12 months. At a 25 percent discount to Google, the unit would be worth about $11 billion if sold.
Moreover, there are potential buyers. Facebook already works with Bing. It might be interested in buying the site, keeping more traffic onsite, and perhaps using its voluminous data to better tweak search results -- that would be a potent weapon in its fight with Google, which recently rolled out social network Google+. Apple might even be interested, given its growing online ambitions.
In a deal, Microsoft could either get paper in a highly coveted company or cash, which Microsoft to its credit has been good about returning to shareholders. Equally, it could buy back stock, as the company trades at nine times estimated earnings -- almost a 20 percent discount to the S&P 500.
from MacroScope:
The iPod – the iCon of Chinese capitalism
Walking past Apple's sleek shop along London's Regent Street on Sunday, my wife asked me what I wanted for Father's Day.
"An iPad?" I ventured, half-jokingly.
"Are you sure you want one? Don't you care how they're made?" came her disapproving reply.
She was, of course, referring to the rash of suicides among Chinese workers at Foxconn, the Taiwanese manufacturer of Apple's much desired iPads and iPhones.
The deaths prompted the company to raise salaries and cut working hours but lingering concerns over conditions for its over 1 million workers in China were underscored by a plant explosion last month that killed at least 3 people.
Workers like those who live and work in Foxconn's sprawling Chinese facilities have long been the backbone of the country's vast manufacturing sector which churns out a torrent of consumer goods for export.
But the recent labour unrest that has erupted in parts of China suggests that this low-cost export-fuelled growth model may be wheezing towards its expiry date.
Thank you for your comment.
Apple is working with Foxconn to prevent more worker suicides, including auditing the Chinese plants of its supplier to ensure conditions comply with its standards.
The point of my blog is that the iPod is an interesting prism through which to view China’ economy and gauge its shift in emphasis from manufacturing and exports to domestic consumption.
At first glance, the iPod encapsulates China’s manufacturing prowess. It is able to assemble very sophisticated products at a cost that is low enough to attract global companies. So much so that these Made-in-China iPods and iPad contribute to the trade surplus in China’s favour against the U.S.
But a closer examination of the iPod story also reveals the limitations of the Chinese model. The country remains far behind in innovation and doesn’t own the intellectual property behind many of the products it exports.
A University of California study, for instance, found that the iPod accounted for almost 41,000 jobs worldwide in 2006, of which only 30 jobs were in manufacturing in the US.
But more than two thirds of all the wages paid to workers in the iPod value chain were estimated to have been paid to US workers.
from MediaFile:
Apple and Twitter: A New Power Duo?
One big winner coming out of Apple’s developers’ conference on Monday is Twitter.
Apple announced that the Internet microblogging service will be integrated directly into future versions of the iPhone and iPad software.
That means iPhone users can quickly publish information on Twitter by tapping on a photo taken with the iPhone’s camera, or by tapping on a news article in the phone’s Web browser.
It’s the kind of front-and-center placement that any of Apple’s thousands of app-makers would kill for, and it will likely provide a nice boost to Twitter’s traffic of 140-character Tweets.
It may also represent the latest alliance in the ongoing battle of the technology titans.
The collaboration between Apple and Twitter could signal a new power duo, playing in smartphones and social networking – the two powerful forces that are re-shaping today’s computing, advertising and media markets.
How deep the Apple/Twitter partnership may be is still unclear. Twitter referred questions to Apple about whether the integration involved any financial terms, and Apple did not return a request for comment.
from Breakingviews:
Apple needs more formal delegation of Jobs’ power
By Robert Cyran The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK -- Apple needs a more formal delegation of Steve Jobs' power. The tech giant's chief executive is handing day-to-day control to chief operating officer Tim Cook due to health issues. Yet he retains his CEO title. This is the third such move, and this time the handover is indefinite. However painful, a more formal transfer to an acting CEO would have been better.
Both the company and its shareholders can take comfort from the fact that the last two transfers -- also to Cook -- took place smoothly. Apple's operations showed no signs whatsoever of impairment under caretaker management. Cook has worked at Apple for more than a decade and has been COO for several years. He's clearly a safe pair of hands. Moreover, Jobs has promised to retain control over big strategic choices.
But Jobs' fitness is, sadly, an increasing concern. The company hasn't said exactly what the matter is, but this latest setback follows previous treatment for liver pancreatic cancer and an organ transplant. Furthermore, the open-ended nature of Jobs' current respite will add to the worry for employees and investors alike.
In these circumstances, Apple would have been better served by explicitly naming Cook as acting CEO. That would leave Jobs as chairman where he could retain say over the Apple's strategic direction without the gruelling daily chores of running the company. That is where he is most valuable anyhow. Such a division would provide clarity and give Cook a proper mandate given the responsibility of overseeing a $300 billion group.
Jobs plays an outsized role at Apple. He is arguably the best executive in technology. But his reputation also depends keeping the company on the soundest footing possible -- even if that means formally loosening his grip.
This sounds pretty ham-fisted I’m afraid. Jobs spearheaded the initiatives that have made Apple a world beater with products that have revolutionized the tech market… to remove him entirely from the picture at Apple or to severely diminish that capacity is to destroy that which makes Apple what it is. I would expect that barring a miraculous recover for Jobs (part deux) that the pricing premium that Apple stock receives should be cut down to industry standards, namely from 20+ times earning down to the 10-12x range – which means Apple below $200, and probably rather quickly.
CES 2011 – Consumer Geek or Future Enterprise Insight
-Danny Wootton is director of innovation at Logica. The opinions expressed are his own.-
As ever with the Consumer Electronics Show, there has been a flurry of announcements of new technology and the latest must have gadgets. However, depending on how you look at what comes out of this show and what your view is on the consumerisation of enterprise IT, then you can either think of the show a geek heaven or an insight to the technologies and tools we’ll all be using in our organisations in years to come.
So I thought I’d look through some of the major announcements and trends and take a look at how and when we can expect to see them in business.
The World In 3D
The show saw a plethora of 3D related announcements covering 3D content, products and services. The range of hardware devices included 3DTVs, Blu-ray players, AV receivers, PCs and Games Consoles, with Sony showing 3D gaming on the PS3. From a service perspective we are also starting to see organisations such as Sky and ESPN provide 3D TV. There is also a promise of 3D mobile devices, tablets and the emergence of Autostereocopy, the delivery of 3D with the need for special eyewear.
So what for business, well one element will be that over the coming years, 3D technology will enter the workspace subtly through standardisation, where equipment will incorporate 3D as a standard feature, such as PCs, Laptops etc. However, will there be a business need – well yes I think there will, but in a fairly niche way, with 3D being used to enhance areas such as data visualisation solutions, and virtual world asset management solutions in sectors that have large and complex physical assets such as oil refineries, power stations and water treatment plants.
I enjoyed the blog post Danny, I’d recommend watching the video on the site below, I think it brings to life a number of the observations you make, very well.
A futuristic look at productivity in the workplace that features lots of human gestural interfaces, machine to machine and is full of intuitive dataviz apps.
http://www.officelabs.com/projects/produ ctivityfuturevision/Pages/default.aspx
Enjoy!
from Breakingviews:
Apple still looks a bargain after $100 bln run
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK -- Large companies rarely grow fast due to their sheer size. Yet Apple increased sales by more than 50 percent in 2010. That sent the company's value up by an astonishing $100 billion to nearly $300 billion. The odds of the tech firm led by Steve Jobs repeating this wondrous performance are low. The shares still look a good bet, though. Apple's valuation looks oddly subdued once adjusted for its hulking cash pile.
Apple's shares trade at about 19 times estimated earnings for fiscal 2011. By contrast, the forward multiple of the S&P 500 is just over 13. Yet Apple has more than $50 billion of cash and investments on its books, with zero debt. Subtract this cash, and Apple trades in line with the broader market.
That might make sense if Apple's growth was sputtering. Analysts predict, however, that sales will increase 35 percent this fiscal year, thanks to the popularity of the iPad and iPhone. That's astonishing given that revenue growth for the market as a whole should be roughly equal to U.S. GDP. Moreover, Apple's business has operating leverage, which means profits should grow faster than sales, meriting a substantial premium to the stock price.
True, Wall Street often trends toward inflexible optimism. Yet a gut check suggests continuing sunny times in Cupertino.
Let us count the ways. Sales of iPads are taking off sharply among big companies. Smartphone penetration in the United States is forecast to double in 2011. Macs have been gaining share, but are still less than 5 percent of the global computer market. And Apple's push into ads and TV could become new and big sources of growth. Moreover, all of the company's devices play well together, so people who use one Apple device often buy others. These trends will end someday, though probably not in the next few seasons.
It seems unfathomable that Apple will shine quite as brightly next year as it did in 2010. But the company could well be the most valuable company in America by the end of 2011.
It honestly appears that nobody seems to be buying this stock because it isn’t moving at all. It could be that the share price is too high for individual investors and only hedge funds will buy Apple when they’re good and ready. Apple has such high price targets and current share price is lagging way behind which could be a cause for concern and that why shares have stagnated for a couple of months.
from MediaFile:
Berners-Lee: Apple, Facebook are enemies of the web
2010 is a great time for the web. Innovation is thriving as new services and content flourish on smartphones and laptops, thanks in good part to industry leaders like Apple and Facebook.
But according to Tim Berners-Lee, - often called “ the father of the web” - the open and democratic structure of the web is threatened by sinister forces trying to redesign the web in ways that make it more closed for their own personal gain. These enemies of the web don't just include totalitarian governments. They include industry leaders like Apple and Facebook.
As the web turns 20, Berners-Lee has written a 3,800-word article for Scientific American celebrating its achievements and documenting threats to its future. Most of his words are dedicated to the threats.
The Web as we know it, however, is being threatened in different ways. Some of its most successful inhabitants have begun to chip away at its principles. Large social-networking sites are walling off information posted by their users from the rest of the Web. Wireless Internet providers are being tempted to slow traffic to sites with which they have not made deals. Governments—totalitarian and democratic alike—are monitoring people’s online habits, endangering important human rights.
If we, the Web’s users, allow these and other trends to proceed unchecked, the Web could be broken into fragmented islands. We could lose the freedom to connect with whichever Web sites we want. The ill effects could extend to smartphones and pads, which are also portals to the extensive information that the Web provides.
Social network sites like Facebook, Berners-Lee says, are silos, connecting data and content only within its walled gardens. Apple's iTunes traps people into a proprietary store. Even Google, whose search revenue is dependent on an open web, is chided for abandoning its support of Net neutrality. All lead to a fragmented web, damaging the "single, universal information space" that made it work in the first place. They can also breed monopolies, which the web was initially designed to resist.
These tech giants might dismiss these arguments as alarmist and argue that their success shows that people are responding to the way a less-open web is evolving. Their counter-arguments might be more persuasive if the Cassandra making the warnings wasn't Tim Berners-Lee.
Mark Zuckerberg, Steve Jobs and Eric Schmidt all owe a huge debt to Berners-Lee and everything he has fought to achieve over the past two decades. They know they would be nowhere without the web as he designed it – even as they pick apart at the very principles of openness that made the web the web.
