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The Back Page
Analyst Toni Sacconaghi to Clients: I Still Don’t Understand Apple
Wednesday, February 4th, 2009 at 4:54 PM - by Bryan Chaffin
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).
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