Quote Originally Posted by PMREdmonton View Post
When consumer sentiment to this type of electronic changes and as competitors produce at increasing scale and decreasing cost. We can already see that Samsung has reached this scale now and is selling as many smartphones as Apple.

Android now has double the market of Apple worldwide after starting from nil in 2009.

The competitors have already caught up to the point that Apple devices are not superior anymore in any major way according to many of the review sites.

Anyhow, my argument is largely historical - it has happened to every other device in consumer electronics. There are no real moats in this field. Something is hot for awhile and then something else comes along and steals a good chunk of the market. I think Motorola has had about 3 cycles on top of this market and maybe they'll rise again now that they are being absorbed within Google.

This is obviously the overhang on this stock. Otherwise growth stocks don't trade with these metrics - it never happens. It has happened because the market doesn't believe Apple's dominance and margins will be sustainable in the long run. This belief keeps this stock down.
The problem with your argument is that Apple has never settled for average market margins for any of their product lines. The iPhone is now over 5 years old and getting higher margins than ever. There is no basis to forecast a drastic drop in margins - people have been doing this for years and continue to be wrong. How long has Apple been selling computers and laptops and how are their margins on those doing? Still fantastic last time I checked. The phrase that all devices suffer from margin compression may be true but it doesn't happen in a couple of years, and there are always iterations and the odd revolutionary update that justifies maintaining margins, at least in Apple's case.

Apple most certainly does have a moat. It is total product integration. There is no better experience than owning a Mac, iPhone and iPad (and AppleTV, possibly iTV?) that all work seamlessly together with iCloud and iMessage. People will say you can create an equivalent experience with Android but even if true I doubt more than a tiny fraction know how or would even bother. The appeal of Apple products is how well and how effortlessly they work to provide a meaningful user experience. This is a very real moat - billions of dollars have been put into its creation and I don't think there is a single company that has the resources to match it. Every time an Apple device is sold, or a song or app on iTunes is bought, it creates a huge incentive for that user to buy another Apple product, either in addition to or to replace their existing device. The strength of Apple's moat is highly undervalued.

Some people prefer Android because it is more "open" but this benefit to some creates huge fragmentation issues and inhibits a complete vertical integration strategy from being possible. Citing Android marketshare numbers is a silly argument. It's like saying Toyota doesn't do well because they don't sell more cars than all other vendors combined. Apple's marketshare is what it is - they sell every phone they can make and that's all that really matters. Marketshare jumps every time there's a new release because they have built up some inventory for a huge launch. This shows that demand far outweighs supply and that margins are likely to stay high for the foreseeable future.

Another thing that can throw a wrench into Android is the ongoing litigation. There is a very real chance Android loses important patent battles against Oracle or Apple and has to either strip features or pay royalties. These royalties will be passed on to the vendors forcing them to increase cost and reducing their competitiveness.