Second in a series. My last column looked at Apple’s immediate challenges in the iPhone business, while this one looks at the company’s mid-to-long term prospects and how best to face them. The underlying question is whether Apple has peaked as a company, but I think the more proper way to put it is how must Apple change in order to continue to grow?
Even as some analysts are downgrading Apple based on reported cancellation of component orders, saner heads have been crunching the numbers and realized that Apple still has a heck of an iPhone business. So if you are a trader I think you can be sure Apple shares will shortly recover, making this a buying opportunity for the stock.
First in a series. Has Apple peaked? Yes and no. I think the company still struggles somewhat to find its path following the death of former CEO Steve Jobs. But there’s still plenty happening and room for growth in Cupertino. So let’s start a discussion about what’s really going on there. I thought this might be possible in a single column, but looking down I see that’s impossible, so expect a second forward-looking Apple column.
The catalyst for this particular column is word coming over the weekend from the Wall $treet Journal that Apple is cutting back component orders for the iPhone 5, signaling lower sales than expected. I’m not saying this story is wrong but I don’t completely buy it for a couple reasons.
The U.S. government, which usually is very slow to adopt new technologies, signed an agreement to move much of the Department of Defense to Windows 8. The three-year, $617 million deal for up to two million seats is a good proxy for where American business users are headed. Or is it? Microsoft of course hopes it is, but I think that’s far from a sure thing.
This isn’t just trading Windows XP for Windows 8. The U.S. Navy, which isn’t (yet) included in this deal, only recently signed its own agreement with Microsoft to take the fleet to Windows 7. But Windows 8, being touch-enabled and running all the way from smartphones to super-clusters, is something more. It represents the U.S. government’s best guess as to how it will embrace mobile.
Third in a series. Some readers of my last column in this series seem to think it was just about the movie business but it wasn’t. It was about the recorded entertainment industry, which includes movies, broadcast and cable television, video games, and derivative works. It’s just that the movie business, like the mainframe computer business, learned these lessons first and so offers fine examples.
Whether from Silicon Valley or Seattle, technology companies see video entertainment as a rich market to be absorbed. How can Hollywood resist? The tech companies have all the money. Between them Amazon, Apple, Google, Intel and Microsoft have $300 billion in cash and no debt -- enough capital to buy anything. Apple all by itself could buy the entire entertainment industry, though antitrust laws might interfere.
Second in a series. A friend of mine who is a securities lawyer in New York worked on the 1985 sale of 20th Century Fox by Marvin Davis to Rupert Murdoch. He led a group of New York attorneys to Los Angeles where they spent weeks going over contracts for many Fox films. What they found was that with few exceptions there were no contracts. There were signed letters of intent (agreements to agree) for pictures budgeted at $20-$50 million but almost no actual contracts. Effectively business was being done, movies were being made, and huge sums of money were being transferred on a handshake. That’s how Hollywood tends to do business and it doesn’t go down very well with outsiders, so they for the most part remain outside.
Jump to this week’s evolving story about Intel supposedly entering with a bang the TV set-top box business replete with previously unlicensed cable content -- an Over-The-Top virtual cable system. This was expected to be announced, I’m told, at next week’s Consumer Electronics Show in Las Vegas.
This may seem like a distraction from my theme of Silicon Valley and Hollywood, but please stick with me for a moment as we consider the fate of Blake Krikorian, who is best known for the Slingbox and now seems to be selling his current company, the awkwardly named Id8 Group R2 Studios. I think Krikorian’s career arc and our fascination with it give some insight into the whole tech-vs-Hollywood theme, showing how aimless and confused are some of these big technology companies.
The post I read that got me thinking in this direction came from Kara Swisher at allthingsd.com, which is part of the Wall Street Journal. Krikorian is reportedly selling his home automation startup to Amazon or Apple or Google or maybe Microsoft -- in other words the usual suspects. Amazon may be now out of contention because Krikorian just resigned from the Amazon board. But in any case, Swisher says, they all want Krikorian because "he is considered one of tech’s most savvy execs with regard to video and media distribution". Yeah, right.
I wrote here nearly a year ago that there would be no more annual lists of predictions and I’m sticking to that, but I want to take the time for a series of columns on what I think will be an important trend in 2013 -- the battle for Hollywood and home entertainment.
The players here, with some of them coming and some of them going, are Amazon and Apple and Cisco and Google and Intel and Microsoft and maybe a few more. The battleground comes down to platforms and content and will, by 2015 at the latest, determine where home entertainment is headed in America and the world for the rest of the century. The winners and losers are not at all clear to me yet, though I have a strong sense of what the battle will be like.
As the father of a precocious first grader I can relate somewhat to the children and parents of Newtown. My son Fallon goes to a school with no interior hallways, all exterior doorways, and literally no way to deny access to anyone with a weapon. Making this beautiful school defensible would logically begin with tearing it down. But the school design is more a nod to good weather than it is to bad defensive planning. The best such planning begins not with designing schools as fortresses or filling them with police. It doesn’t start with banning assault weapons, either, though I’m not opposed to that. The best defensive planning starts with identifying people in the community who are a threat to society and to themselves and getting them treatment. And our failure to do this I generally lay at the feet of Ronald Reagan.
I’ve written about Reagan here before. When he died in 2004 I wrote about a mildly dirty joke he told me once over dinner. It showed Reagan as everyman and explained to some extent his popularity. Also in 2004 I wrote a column that shocked many readers as it explained how Reagan’s Department of Justice built brick-by-brick the federal corrections system that it knew would do nothing but hurt America ever since, making worse both crime and poverty all in the name of punishment.
By now most of us have read or heard that Instagram (now part of Facebook) proposes a change to its terms of service to allow the company to use your pictures and mine in any fashion it chooses, including selling the pics to third parties. So if you don’t want your baby pictures to risk being used in a beer ad, we’re told, you should close your Instagram account by January 15th. One pundit called this move Instagram committing suicide, but I think something else is going on.
Can’t you just see the meeting at Facebook in which this idea was first presented? ”It’s a whole new revenue stream!” some staffer no doubt howled. “If our users are oblivious or stupid enough to let us get away with it, that is. Maybe we can sneak it through over Christmas”. We’ll see shortly, won’t we?
Most of us have had mentors, and when it came to becoming a writer three of mine were the late Bill Rivers at Stanford, who taught me to think and not just report; legendary book editor Bob Loomis at Random House, who felt I might be able to stack enough of those thoughts together to fill a book; and a guy most of you know as Adam Smith, who let me copy his style.
Smith, named after the English economist and writer, helped start both New York and Institutional Investor magazines while at the same time punching out books like The Money Game and Paper Money -- huge best sellers that taught regular people how the financial system really worked. That gig explaining the inner workings was what appealed to me. So 30 years ago, having been recently fired for the second time by Steve Jobs, I went to New York and asked permission of Smith to imitate him, though applying his style to technology, not finance. Many such impersonators exist, of course, but I was apparently the first (and last) to ask permission.
Just weeks after I wrote a column saying Apple will dump Intel and make Macintosh computers with its own ARM-based processors, along comes a Wall Street analyst saying no, Intel will take over from Samsung making the Apple-designed iPhone and iPod chips and Apple will even switch to x86 silicon for future iPads. Well, who is correct?
Maybe both, maybe neither, but here’s what I think is happening.
I heard from dozens of readers yesterday morning about a message IBM sent to its current employees concerning their 401K plan -- changing it from a contribution in every paycheck to a single contribution at the end of the year. Of course if you are laid off that means no annual contribution, less retirement savings, but a real bonus to the company. This, in itself, isn’t worth a column. It’s just Scrooge IBM being more Scrooge-like in search of that 2015 earnings target. What is worth a column is putting this news in the context of IBM having failed its recent internal security audit, which should concern IBM customers.
What, they didn’t tell you?
Do you remember Napster? Not the paid streaming music service sold last year to Rhapsody, but the original peer-to-peer music sharing service that was hugely popular from 1999-2001 when it went down in a legal ball of flames over copyright infringement. Well something Napster-like is emerging from Amoeba Music, the huge pre-owned music and video stores in Berkeley, San Francisco and Los Angeles and some musicians and vinyl junkies are up in arms about it, though I can’t understand why.
Napster was a peer-to-peer service that allowed people to share their music collections online. Amoeba's Vinyl Vaults service is similar in that the company rips tracks from old records as they come into the stores then throws them up on a webpage where they can be downloaded, but not for free. Amoeba charges money.
Corporations, especially big American ones, file lawsuits all the time for many reasons. Often they sue to force others to comply with agreements or to punish non-compliance with the law. But sometimes they sue, well, just because they can. I suspect that is what’s happening in Hewlett Packard’s current fight over Autonomy, the UK software company HP bought two years ago for $11.1 billion. The HP board seems determined to demonize Autonomy founder Mike Lynch for being smarter than they are.
Given the smarts that HP board has shown in recent years, we may all be at risk of being sued by the company.