Adding back Apple

We’ve owned Apple (AAPL) on and off (mostly on) for a long time. After scaling down and all the way out at about the $125 mark we have been scaling back in. Besides the obvious 10% drop in the shares we see a few new things developing that we like:

  1. The new iPhone, while just evolutionary, comes with a new model for Apple that increases customer lock-in and improves revenue visibility. It puts the carriers one step further away from their customers which is also a nice shift in market power in favor of Apple. The carriers could fight back with their own or better plans for competing phones so we’ll keep an eye out for that. Even if they do it’s not clear they will gain any ground from such a strategy.
  2. Microsoft (MSFT) can’t get out of their own way. It’s anecdotal but we tried the Windows 10 upgrade and it was an absolute horror show. We couldn’t get it done on a modern, powerful, fully updated desktop. The real problem is what you discover when you start to troubleshoot. There are pages of steps to follow if you hope to be able to complete the upgrade. These involve uninstalling drivers, removing graphics cards, creating special downloads of Windows 10 and myriad workarounds. After an hour of trying a few times to get it to work there was no way I was going to embark on the odyssey presented as a potential “solution” to make the upgrade work. They have made strides forward and Microsoft is better than it was but they are stuck with a legacy that won’t be easy to move beyond. Apple will keep gaining share.
  3. Apple TV seems ready to move fromĀ a “hobby”as Steve Jobs described it to a commercial product line. The keys to the new release slated for October is a bona fide operating system (tvOS) and new interfaces including SIRI and game controllers. The new Apple TV will support casual gaming in a way similar to how the Wii does. It’s not an XBox or PlayStation competitor but is now a far more powerful device with a high price tag ($149 to $199) versus the $69 for current version.
  4. There are some signs Amazon (AMZN) is giving up, at least in part, on devices and media content. They are not keeping up and have killed the Fire and the eliminated people in the hardware labs. The Kindle is still going strong and Echo remains an interesting product but they are losing ground and not doubling down here which leaves more room for Apple.

Taken together this pulls consumers more deeply and tightly into the Apple ecosystem and entices application builders and content owners to keep investing in products and services for Apple customers.

Finally AAPL shares are trading at 13x current earnings which makes it easy to buy and own. We’re not expecting further material declines from here but if we saw them we’d be adding to our current position. Welcome back to the portfolio Apple.


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