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The Back Page

Analyst Toni Sacconaghi to Clients: I Still Don’t Understand Apple

 Bryan Chaffin - The Back Page
Bryan Chaffin - The Back Page

Analyst Toni Sacconaghi with Sanford Bernstein decided Wednesday was a good day to demonstrate to his paying clients yet again that he has no clue what Apple Inc. is about, how they operate, what their goals are, and what direction the company has consistently taken in its pursuits of the cell phone market.

This is the sort of topic we normally cover in the form of a news article, but Mr. Sacconaghi is just so far off base with his latest thoughts about what Apple should do with the iPhone, I had to lay into him with a column.

The short version of Mr. Sacconaghi's research note to clients is that he thinks Apple should release an iPhone that can't use a data plan, as the cost of said data plans prices many would-be iPhone customers out of the market. He also theorizes (actually, he states it as fact) that the standalone media player (i.e. iPod) market will disappear, and that Apple will need to move its iPod customer base to cheaper iPhones.

Let's use his own words, as reported by Baron's: "Apple's more than 100 million iPod users give the company a huge opportunity to capture significant market share in the mobile device market, if it can successfully migrate these users to the iPhone. To do this, we believe Apple needs more mainstream iPhone models."

So, that's his premise: Apple can't tap into the cheap cell phone market -- the part of the market where everyone and their corporate brother is losing money -- without offering iPhones that aren't iPhones, and they'll need to do so in order to preserve the part of the company's business represented by the iPod, as clearly no one is going to want to carry a device dedicated to playing music and videos in the future.

That's just so stupid, I don't even know where to begin.

And it shows such a fundamental lack of comprehension of anything to do with Apple, it's almost Rob Enderle-like in its scope. It's precisely the same thing as saying Apple should stop making hardware and license the Mac OS, or that Apple should try to compete on price, rather than features and quality.

Apple participates in high-profit markets. Apple makes devices that they position in the high-end of those high-profit markets. For the cell phone market, Apple executives have stressed publicly -- including to Mr. Sacconaghi during an analyst conference call in January -- that it wants to make the best cell phone in the world. Apple executives have said they wanted a relatively small percentage of the smartphone market, and that the company rejects thousands of product ideas in order to focus on making a few the company finds "meaningful."

At what point do any of these things add up to the company wanting or needing to go after the bottom feeders in the cell phone world? Of what use are those customers not wanting to pay for a data plan to a company whose product's claim to fame is its ability to use data plans (i.e. its interface and ability to get onto and use the Internet for real-live mobile computing)?

It's no wonder Mr. Sacconaghi consistently turns in estimates for the company that have been wrong every single quarter for years now. Who pays for his advice on Apple? Maybe it's the same people who turn to Mr. Enderle for is consulting services?

It drives me nuts, I tell you.

Mr. Sacconaghi: Read what Tim Cook said at that conference call. It's right there on our site in black and white. It's clear, it's concise. Heck, go and play it back. You have it recorded, you were there! Everything that Apple is about was explained in crystal clear terms by Mr. Cook, and if you'll pay attention to it, you'll see why everything you said in this research note is just wrong.

In any event, he wants Apple to offer an iPhone Touch (yes, he capitalized the "Touch" even though Apple doesn't), which would be a 2G iPhone without GPS capabilities, or the iPhone Nano (ditto on his capitalization) without the ability to do e-mail or browse the Web. He said the company could add US$7 billion in gross revenue and $4 billion in profits, even after iPod cannibalization was taken into consideration.

Whatever, blah blah blah.


Follow me on Twitter @TMOBryan.
Bryan Chaffin began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko’s guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).
You can .(JavaScript must be enabled to view this email address) directly to him, or you can also post your comments below.

13 comments from the community.

You can post your own below.

deasys said:

The mystery: Is Toni being intentionally obtuse, i.e. a tool, or is he actually the moron he appears to be?

Either way, it’s too terrifying to ponder.

   Quote

Tiger said:

Note to Mr. Sacc…..

I have two iPods AND an iPhone.

They are not mutually exclusive. They’re different tools for different jobs.

Are you next going to be telling Lamborghini that they need to create a $20,000 version so that everybody can afford it? What part of this equation do you still not get?  Apple is who it wants to be and changes when it wants to and/or needs to.

Did you notice their stock price still hovering over $90? Did you notice Dell’s hovering under $10?

Is Apple laying off five or ten thousand employees? Who just continued their streak of top quarters despite the down economy?

Methinks you’re focusing on the wrong company.

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daPrinz said:

You don’t understand?
Mr.Sacconaghi that’s exactly the reason why Steve Jobs is where he is today and you not!

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aardman said:

Here’s what I don’t understand.  Why is a stock analyst indulging in corporate srategizing?  Is he trying to impress his clients with his ‘strategic acumen’?  His job is to predict what Apple will do and how that will impact the stock.  His job is not to recommend courses of action for Apple.  Obviously, despite how much he loves the sound of his own strategic thinking, he’s not very good otherwise he would be making billions as a CEO instead of writing commentary as an ‘analyst’.

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David said:

I think most analysts don’t understand Apple. And most “helpful” comments from analysts, if followed, would quickly make Apple more like Dell or Sony than Apple in its success. But I do think there could be a market for some of us who would like an Apple phone without the data plan. I right now use a Motorola Razor and would love to get a phone that works. That simple request seems beyond the capacity of other manufacturers. While I would love an iPhone, I cannot really justify or afford a data plan. So I stop to consider that perhaps Mr. Sacconaghi is not as far off the mark as it would seem. I would find an iPod touch that would use wifi for data and could handle cell phone calls with a regular cell calling plan a very nice phone to have.

   Quote

Constable Odo said:

Apparently most of the analysts prefer companies to build junk.  Cheap disposable goods that need to be repurchased over and over.  In theory, the longer an item lasts, then the company can’t sell to that person until the device falls apart.  I suppose that does cut down sales to some degree.  But these analysts are really perverse in their thinking.  It’s good to fire a lot of employees to cut overhead, never take a long range look at a product, only design for today.  Most analysts don’t get why a company would rather sell higher quality goods with good customer support.  It just rubs them the wrong way and companies that do this are punished for it.  I think this sort of thinking is bad for America.  Apple products are more expensive but if something goes wrong, many times they’ll exchange the product and you can always get a Genius to look at it if you need help.  A unibody Mac notebook would clearly last a lot longer than a plastic notebook and would be undoubtedly easier to repair.  What do analysts have against quality products?  I’ve never bought goods just because they were cheap.  Maybe most people do and that’s what I fail to understand.  These analysts look at Apple like it was a failing company.  Only the stock is failing, not the company itself.  And why is the stock failing, because analysts keep trying to say that Apple is not worth investing in because they don’t cater to bottom feeders.  And what companies that cater to bottom feeder companies are doing well?  Possibly Acer and Asus because netbooks happen to be popular now.  But overall, those companies are not as strong as Apple nor are their products better.

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Bosco (Brad Hutchings) said:

He spells his name “Toni”. What more do you need to know? But seriously, there are lots of people who respond to “if X does [or doesn’t do] Y, then catastrophe Z”. You can find it all around you, and at least a quarter of the people in these comment sections operate by that so-called logic. It’s bullshit, but some people eat it up. If I could predict the people that would eat it up, I would be a multi-millionaire.

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rpaege said:

He trolled and you all fell for it.

   Quote

adamC said:

@rpaege

If he is a troll no one gives a damn but what he writes may cause the Apple share price to fall is another matter. And this is the kind of garbage who lurk around trying to kill a good company thru their lies and FUD.

   Quote

grshaner said:

“it’s almost Rob Enderle-like”

LOL!!!!

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Everett said:

My first thought was to agree with David to have an iPhone without a data plan, an iPhone touch, could have a market.  Currently I have an iPhone, but that’s because I’m single and out of college.  When I have a family I might not be able to justify $30/mo extra just to have internet on my phone.  My mom has an iPod touch and is green with envy over my iPhone, but Dad can’t afford it.  (She also needs a new phone now anyway.)

However, it isn’t a good strategy to make such a device.  My mom’s main complaint with her iPod touch, besides not being as cool as my iPhone, is that she can’t use it when she’s driving around town b/c there’s no public wifi.  Thus an iPhone touch is only slightly better than an iPod touch + cheapo phone (being one device) would leave customers unsatisfied.

All we can really hope for is a cheaper data plan, which could happen if AT&T’s exclusivity runs out and opens the iPhone up to the free market.

(Or wifi ubiquity (_free_ wifi), which would make the iPod touch phone idea be ok.)

   Quote

brett_x said:

“he thinks Apple should release an iPhone that can’t use a data plan…”

Am I missing something here? We don’t need a new product to do what he’s suggesting, do we? We just need to change the terms that AT&T (and Apple?) cram down our throat for buying one.  I know I wouldn’t get visual voicemail and all that, but can’t the data plan just be an OPTION rather than a mandate? 

I mean, I’d love to have an iPhone, but I also can’t justify the cost of the data plan. I can afford, it but it’s just not something that is valuable to me. I bought an iPod Touch and absolutely love it. I’d just like it to have a phone built in so I didn’t have to carry 2 devices around.

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Bosco (Brad Hutchings) said:

brett_x has a point. I love my iPod Touch too, and would like to have just one device to carry around. However, it has to be a flip phone form factor because I like my Dickies with their phone pockets at the side. And I’d like the data plan.

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