To Beat the Law of Large Numbers, Apple Must Expand Its Product Line

[69650]

With great wealth comes great responsibility

Apple could use its wealth to improve many lives if it wanted to. For example in the 19th Century Quaker families set up factories in poor areas of the UK. That provided much need jobs for the local people. But the Quakers went further, they also built homes for the workers, schools, hospitals, social clubs, etc. This kind of corporate philanthropy has all but disappeared these days.

Following that example Apple could build its own factories rather than sub-contract to Foxconn. They could put those factories in some of the poorest parts of the world, creating jobs, wealth, housing, schools, hospitals. Such efforts would quite literally transform the lives of millions of people.

We live in a time of great wealth and yet millions of people live in tin shacks with no electricity or running water. They are born into abject poverty, they spend their whole lives in abject poverty before eventually they die in abject poverty.

I'm not making a political point or criticising Apple. It's just a idea.

 

[charlituna]

I hope they continue to make computers.

Of course they will.

The trick is that the nature of the computer is likely to change. It is unlikely to remain this notebook or desktop form that we know now.

As time changes so will "computers". 2012 might indeed be the end of the world as we know it when it comes to computers. It might be the start of an age where smart phones and tablets are our computers moreso than a desktop which might become more of a server piece and hub to those phones, tablets and even set top boxes rather than our main focus.

With this we could move into an age where everyone has their personal device which acts as newspaper, communications, education and entertainment rather than a household having shared devices for these purposes. Although through something like an Apple TV device (from Apple or otherwise), there would still be system for 'community' use of materials

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here's the analogy for the world.
(because there is a finite amount of money, which, Jack, is relevant when such large numbers are being thrown around)
So if the world has for example $100, and Apple keeps $1 of that, not ever spending it, then the world only has $99 to go round.
People are poorer, when other people become richer!

Except that that really isn't true. It was when money meant a measure of gold or silver or such. But now it is really just information and that is infinite.

 

[swagi]

Huh? Do you even know what GDP is? Of course there is a relationship between inflation and GDP because inflation is the measurement of the general increase in the cost of goods and services. Real GDP always take inflation into account.

You babbled about GDP per sem not about which you were referring to. Now I should take into account that you weren't precise enough. But then you babbled about the price of M&Ms - which in fact has nothing to do with GDP. The increase of that price is called inflation. And you are right in one point: Comparing GDPs per se you should count out the effects of inflation.

So just to let you know you have simply not stated if you are talking about Nominal GDP (which has nothing to do with inflation per se) or Real GDP, which is in fact a difference. So just for you one paragraph pasted from the Wiki:

"The raw GDP figure as given by the equations above is called the Nominal, or Historical, or Current, GDP. When comparing GDP figures from one year to another, it is desirable to compensate for changes in the value of money – i.e., for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in some base year. For example, suppose a country's GDP in 1990 was $100 million and its GDP in 2000 was $300 million; but suppose that inflation had halved the value of its currency over that period. To meaningfully compare its 2000 GDP to its 1990 GDP we could multiply the 2000 GDP by one-half, to make it relative to 1990 as a base year. The result would be that the 2000 GDP equals $300 million × one-half = $150 million, in 1990 monetary terms. We would see that the country's GDP had, realistically, increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money-value in this way is called the Real, or Constant, GDP."

 

[charlituna]

If it does keep getting bigger then it'll end up with a genuine social responsibility to give that money back to the world and not keep it in a bank account

Who says that Apple doesn't already give back to the world. It could be working on the same principle that Steve likely did. That principle being the Buddhist teaching that charity should be done silently for the sake of charity and that putting one's name on the act is more about feeding the ego than the act.

Apple could be giving to the world in a number of ways. Starting with supporting projects that make them little to no profit and perhaps cost them money. You know those electronic textbooks that they talked about last month. THe ones that cost $14.99 and Apple gets $4.50 of that cost as their cut. For all we know it costs them $10 a unit to support that system. Why would they essentially sell them at a loss. Why not push for a $25 or $30 a unit price so they at least break even (or come closer). Perhaps because they don't care about the money but want cheap electronic textbooks for schools. There could be other instances that we aren't told about

They could also be giving scads of money to various charities anonymously. We hear how much is in the bank but not how much could have been. Because Apple might not care about the press and prestige and thus aren't putting their names on these acts. In keeping with how Steve himself may have acted with his own money.

We simply have no way of knowing

 

[VulchR]

Like so many who posted here, I am appalled at the crass misapplication of statistical reasoning in this article in the NYT . There is so much flawed argumentation in that article I hardly know where to begin. Wow. Just wow. Bernoulli is turning in his grave....

The only thing this article argues strongly for is that journalism degrees should include several years of serious statistical training.

 

[neutrino23]

Who says that Apple doesn't already give back to the world. It could be working on the same principle that Steve likely did. That principle being the Buddhist teaching that charity should be done silently for the sake of charity and that putting one's name on the act is more about feeding the ego than the act.

Apple could be giving to the world in a number of ways. Starting with supporting projects that make them little to no profit and perhaps cost them money. You know those electronic textbooks that they talked about last month. THe ones that cost $14.99 and Apple gets $4.50 of that cost as their cut. For all we know it costs them $10 a unit to support that system. Why would they essentially sell them at a loss. Why not push for a $25 or $30 a unit price so they at least break even (or come closer). Perhaps because they don't care about the money but want cheap electronic textbooks for schools. There could be other instances that we aren't told about

They could also be giving scads of money to various charities anonymously. We hear how much is in the bank but not how much could have been. Because Apple might not care about the press and prestige and thus aren't putting their names on these acts. In keeping with how Steve himself may have acted with his own money.

We simply have no way of knowing

I attended the shareholders meeting Thursday. In response to a question Tim Cook said that Apple gives away roughly $750M a year to education in the form of donations of used and new equipment and other things. In addition, they have a very large program for hiring summer interns in many countries, not just the US. I imagine if you look in Apple's 10K filing there should be some mention of donations, though they probably are not listed in detail.

----------

Like so many who posted here, I am appalled at the crass misapplication of statistical reasoning in this article in the NYT . There is so much flawed argumentation in that article I hardly know where to begin. Wow. Just wow. Bernoulli is turning in his grave....

The only thing this article argues strongly for is that journalism degrees should include several years of serious statistical training.

Amen. This article is so lame. A freshman in college would get a D or F for this sort of reasoning.

I'll partly give him a pass for not understanding math and science, but as a journalist he should have the skills to find a knowledgable person and interview them and get it right. How hard is it to call someone and talk to them or write them an email?

Just because Apple's market cap is a large number compared to that of other companies some people are freaking out. If Apple consisted of the same products divided among three or four companies no one would even notice.

 

[VulchR]

...
Amen. This article is so lame. A freshman in college would get a D or F for this sort of reasoning.

I'll partly give him a pass for not understanding math and science, but as a journalist he should have the skills to find a knowledgable person and interview them and get it right. How hard is it to call someone and talk to them or write them an email?

Agreed, although I'm more damning of the journalist - why write a piece based on a statistical angle without having sufficient expertise to evaluate the argument being made? It really gets my goat, for I teach psychological statistics both at undergraduate and Master's level, and much of the effort I have to make is to undo the damage created by misunderstandings perpetuated by the mass media.

 

[macidiot]

"Apple is so big, it's running up against the law of large numbers."

Uh... what? It's running up against the law of large numbers?

Did this guy just completely miss their last quarterly report? What in the world is he talking about. The rest is just "blah, blah, blah" when you start with something that ridiculous.

If he started with "at some point, they should run up against the law of large numbers" I'd be right there with him.

But to say "It's running up against the law of large numbers" is not based in any reality at all.

The law of large numbers is a well known concept in the stock market. It eventually affects all successful companies. And the concept, as it applies to Wall St., is not just about increasingly large numbers needed to sustain growth rates, but also psychology.

You are right that Apple has not run into it. Yet. At some point it must. The question is when. Which is what I think the author, maybe not in the best or most clear way, was trying to get at.

Apple right now is a very unusual anomaly. Companies that large typically do NOT grow at more than 10-15%. Which is why a lot of people on Wall St. are, frankly, very confused about how to treat Apple stock. On one hand they look at Apple's size and say, megacap, should have slow growth, and assign it a low P/E. On the other hand, they look at 100 billion in cash, and think value (and possible dividend) stock. On the other hand, they look at Apple growth prospects and think tech growth stock that should carry a P/E premium.

It is actually an issue I have been struggling with over the past year or so. A year ago, I thought that Apple stock was good for 450-500. At which point, I need to reassess the growth prospects of the stock (not the company). Because at some point the biggest obstacle to stock appreciation will not be the company itself, but the market cap. At some point, the psychology of market cap becomes a big factor. Put another way, conservatively, if Apple gets anywhere near the growth it has had over say the past 2 years, Apple stock should be around 750-850 in 2 years. That would give it a market cap closing in on one trillion. And vastly larger than any other company in the US. By hundreds of billions.

As I said I've been struggling with this issue. IMO, I think Apple still has enough easy growth (tablet market has plenty of room, iphone still has some room) to last 12-18 months. I think Apple stock is good for 650 or so. Or at least is should be, unless the law of large numbers kicks in.

 

[cire]

I just think wealth should be spread more evenly, and I'm not sure how you do that but surely that's not something you can disagree with.

All I know is that everyone can't be rich at the same time.

If everyone understood where wealth comes from and what acts create wealth, the disparity would decrease. Government does not create wealth. Redistribution of wealth does not create wealth. Savings and investment create wealth.

----------

Apple could use its wealth to improve many lives if it wanted to. For example in the 19th Century Quaker families set up factories in poor areas of the UK. That provided much need jobs for the local people. But the Quakers went further, they also built homes for the workers, schools, hospitals, social clubs, etc. This kind of corporate philanthropy has all but disappeared these days.

Following that example Apple could build its own factories rather than sub-contract to Foxconn. They could put those factories in some of the poorest parts of the world, creating jobs, wealth, housing, schools, hospitals. Such efforts would quite literally transform the lives of millions of people.

We live in a time of great wealth and yet millions of people live in tin shacks with no electricity or running water. They are born into abject poverty, they spend their whole lives in abject poverty before eventually they die in abject poverty.

I'm not making a political point or criticising Apple. It's just a idea.

China is one of the poorest countries per capita. The people working at Foxconn are the same shack dwelling folk you're talking about. They just happen to be chinese.

 

[TallManNY]

Imagine you're filling a glass with water. Every marginal amount of water you fill leaves less unfilled space to fill. You can't change this unless the glass gets larger.

Look of course Apple can't increase at 50% a year for ten years in a row. That isn't really the law of large numbers it is an example of exponential growth and how nothing can increase in size exponentially forever. And your example with the water is true. But suppose instead of filling a glass you are filling an olympic sized swimming pool. And you are using a teaspoon. Yes, every time you put a teaspoon of water in there there is less room. But it really isn't material.

Here is the deal with Apple and the iPhone. Smart phones are useful devices. Do you know who can use them? Humans. There are nearly 7 billion humans on the planet. Nearly all of them have access to both electricity and cell service. They can use a smart phone. Now many billions of them can't afford a smartphone . . . yet. But they are all a potential market. And once you get a smartphone, you almost always replace it within three years. Younger people are more comfortable and reliant on their smartphone. But they never age out of being interested in a smartphone. So just natural aging is bringing in 10s of millions of new customers every year.

So it isn't the lack of a potential market. Apple hasn't come close to even satisfying the current market much less the potential market. There is an analyst out there that continually predicts doom for Apple because he believes Android phones will soon dominate the market. That is at least plausible on some level. But as long as Apple has a very popular smartphone, the market is so gigantic and growing by 10s of millions every year. And since turnover is minimum every three years, Apple gets to sell again and again to the same customer basically the same device. If we weren't in a world wide recession, you would see even greater growth. The demand is there once people have enough money to afford these things.

Apple doesn't need a new line. It can double in size if it just continues to make one of the most popular smartphones out there.

 

[faroZ06]

Apple sells CPUs? What?

 

[TallManNY]

Apple right now is a very unusual anomaly. Companies that large typically do NOT grow at more than 10-15%. Which is why a lot of people on Wall St. are, frankly, very confused about how to treat Apple stock. On one hand they look at Apple's size and say, megacap, should have slow growth, and assign it a low P/E. On the other hand, they look at 100 billion in cash, and think value (and possible dividend) stock. On the other hand, they look at Apple growth prospects and think tech growth stock that should carry a P/E premium.

And then they ignore the tech growth angle because the stock is trading at a very modest p/e ratio.

I don't think apple is like most tech companies because so much of what it does is based on hardware and is hardware constrained. Most tech companies are software or cheap hardware and can scale to whatever size the market demands of them. Apple continually is unable to satisfy the demand for its products due to the realities of hardware manufacturing. They are more like a car company in that regard. Yes, there main advantage is the simple effectiveness of iOS and Mac OS. But they can't just put that on any device, so the folks who are interested in using the program are left waiting for the hardware to run it.

The risk for Apple is that (a) they will make a dog of an iPhone one of these days and (b) there iPhone and iPad will be undercut in price by something comperable (note I don't think anyone is going to try again to compete with the iPad on quality, the Kindle Fire and 7" screens are the way folks will compete). If the iPhone doesn't sell for a year because no one likes the current model, that would crush Apple's profit. But considering how easy it must have been to make the minor upgraded 4S and still be on pace to sell over 100 million in a year, I don't see any way Apple could stumble badly on iPhone in the next year or two.

 

[Chupa Chupa]

But then you babbled about the price of M&Ms - which in fact has nothing to do with GDP.

I know what school you went to but every well regarded economics school always teaches the M&M Quantification Theory.

Hey, look you are just reading way too into my post. The retort about the M&Ms was not intended to relate to GDP. It's was what we call in the world of reality a non-sequitur. Notice how the date given for the price did not connect to any of the other dates? Guess not.

But you are wrong that the price of M&Ms have nothing to do with GDP. They contribute about $425M to the U.S. GDP. That's somethin'!

 

[faroZ06]

By "CPU" do they mean "PC"? A CPU is in most Apple products.

 

[zukernik]

BREAKING NEWS​

Companies cannot indefinitely grow to infinity because there is a finite amount of resources and customers in the world

 

[gnasher729]

The law of large numbers is a well known concept in the stock market. It eventually affects all successful companies. And the concept, as it applies to Wall St., is not just about increasingly large numbers needed to sustain growth rates, but also psychology.

The complaint is that the article quotes Bernoulli's "Law of large numbers", which is (1) something completely different, (2) totally unrelated to Apple's situation, and (3) a deep mathematical theorem, and not just some trivial observation which plainly doesn't deserve being called a "law" of anything.

 

[gnasher729]

The law absolutely does apply to Apple, the question is WHEN.

Over the past few years, Apple has been doubling its annual revenue every two years.

For that to continue, in 2013 Apple would have $200 billion in revenue.

2015: $400 billion.

2017: $800 billion.

Will Apple have $200b in revenue by 2013? It appears so. But it is highly, highly unlikely that Apple will have $800 billion in revenue in 2017, disruptive force or not.

Take iPhone sales instead.

90 million iPhones in 2011.
180 million iPhones in 2013.
360 million iPhones in 2015.
720 million iPhones in 2017.
1440 million iPhones in 2019.
2880 million iPhones in 2021.
5760 million iPhones in 2023.
11.5 billion iPhones in 2025. More than one for each living person.

As an exercise, calculate when the total mass of the earth / of the universe is converted into iPhones.

 

[ablashek]

Apple expands its product line is like Microsoft doing the same during the late 90´s. Selling a product in various fields, games, operating systems, applications, database, desktop development, web development, phones, hardware (mouse / keyboards), web services, mail services, servers, etc.

Its pretty a big player in many areas, but isn´t a master in any.

Apple should focus on areas that need development, forget going into many areas that people are content with the products they are gettings to avoid growing like microsoft and then stagnating for more than a dedicate (check out msft stock price from 2002).

 

[TrollToddington]

You countered your own point. The solar system has all the resources mankind will need for the foreseeable future. Only the relative abundance of those resources on Earth makes extraterrestrial gathering infeasible. But with extreme shortages that will change. Hence, the "for all intents and purposes" part of my reply. Now, a shortage of a single essential resource could stymie our progress, but I doubt it.

----------



Therefore, Lesson 1 is wealth creation is not a win-lose proposition. Lesson 2: Currency is not wealth.

Learn these two rules and you'll be on the way to rejecting Socialism in all its myriad forms.

You know, now you have to define what the "forseeable future" is. How long is this, 1 year, 50 years, 100 years or 1000? After that you'll have to provide a proof that the solar system has the resources the mankind will need during that period. Are you a planet specialist or do you work for NASA? Are you a futurologist? Throwing general terms to prove your point won't make your argument believable.

I think the possibility to settle down another planet is still as far fetched as the proof extraterrestrials exists. Besides, what will happen if they find us first and start a battle for our resources? Your golden bar statuette will diminish in value instantly unless some Martian decides to make a war trophy out of it.

Regarding your lessons, I have spend 12 years of my life living under the government of communists so that I pretty much know what it looks like. Currency is not wealth but it is an abstraction of wealth. They say " the total household wealth in the world has been estimated at $125 trillion (USD 125 x10^12) in year 2000" http://en.wikipedia.org/wiki/Wealth

 

[Renzatic]

As an exercise, calculate when the total mass of the earth / of the universe is converted into iPhones.

And when you reach the sum of the equation, you get The Answer: Paniphoneism.

There is iPhone. iPhone is one. Singular. Yet iPhone is all. Plural. How can something be both singular and plural at once? Because it is all. It is iPhone We all use iPhone because we are iPhone. It is with us, encompassing us, used by us, and is us all in the same breadth. We are iPhone as much as the universe is iPhone, and iPhone is the universe as much as it is us.

This is why I dismiss your silly notions of Appism. Why do you need apps to enhance functionality, when iPhone encompasses the very notion of functionality by simply being?

 

[quickmac]

I agree, I have a relative newbie 17" Pro, so won't be updating this year, but it's still a mystery where they are going to take it...It needs a revamp for sure, but I'm not sure I would replace mine with another 17" unless they cut the weight...Maybe drop the optical and use a high capacity SSD...But then it begins to look a little like an MBA, which I must admit I use a lot more than my Pro these days.

Where do you think they should take the MBP next?

Uh I think the poster was talking about Mac Pros, the desktop towers. You're referring to the 17 inch Macbook Pro a laptop. The Mac Pros are a dream machine and I'd love to get one someday, but as others have said on hundreds of posts over the months here the Mac Pro desktop tower hasn't been updated in nearly 2 years and many people want to see an update.

I don't think Apple will kill off the Mac Pro. People are afraid Apple will get blinded by the billions of revenue thanks to iPhones and iPads and ditch the laptops, desktops, and iPods. But this is cold and calculated growth by Apple. They knew the iPod was going to be a smash hit, they knew the iPhone and iPad were going to crush the competition.

And they know that once people buy an iPod, iPhone, or iPad and later find out that Apple makes desktops and laptops too...they'll be lining up at Apple to get their next computer too. This is why I think Apple's iCloud project is being pushed so much, it urges people who have one or two Apple devices to get as many as possible...all your music, movies, files, documents, data on your iMac, or Mac Pro at home and seamlessly on your MBP or MBA, and suddenly on your iPad or iPhone when you don't want to carry about your laptop. It takes the hassle out of juggling different devices and what files are on what device.

The only reason I can figure that Apple would kill off the Mac Pro is if they want to upgrade the iMac to be the powerhouse. But people like the Mac Pro for the ability to add video cards, storage, and easy upgrading. The laptops will become more and more powerful.

On the flip side, Apple may drop off on making powerful hardware and rely on cloud technology to run everything. For example why install power graphics that take up board space and use power and generate heat that mean you need more space for cooling? In the future you can just access huge banks of supercomputers with cutting edge processors and video cards and stream all your needs onto your ultra thin, 1 year battery life, stunning micro MBA Pad.

 

[Swift]

Thinking more about it

The mathematical "law of big numbers" shows you just how the Apple business plan has worked so spectacularly for the last ten years. You know, the business model just sounded crackpot to the people on the Apple board that fired Jobs. Turns out that making a small group of fantastic, innovative products is worth more than making millions of commodity clones.

If Apple succeeds in, say, the Apple TV or the Apple Mind Reader, in a project that many, many people want to use, then the "law of big numbers" be damned. That's the law of creativity: make a new market each time and Apple will be successful for many years to come. When somebody actually competes with them with another creative idea done perfectly, then they'll be limited by competition. The way the market's supposed to work.

It's interesting how, once Apple is big in the culture, there's a lot of journalistic money to be made making up horror stories. "The law of big numbers" limits the market value of the mundane manufacturer of furniture of office equipment, but it will also limit Apple. I don't think of it as a bad thing that Apple becomes an institution that isn't a monopoly, that retains a good part of the market, keeps on innovating. And you should see what they're working on.

Stock holders get to hold a stock until they can't make money anymore. I don't believe that the stock market serves Apple much. Somebody tell me what it does. Jobs always seemed to talk about things like that as if they were crazy, and certainly temporal. You're up, you're down.

 

[iSee]

Apple could use its wealth to improve many lives if it wanted to. For example in the 19th Century Quaker families set up factories in poor areas of the UK. That provided much need jobs for the local people. But the Quakers went further, they also built homes for the workers, schools, hospitals, social clubs, etc. This kind of corporate philanthropy has all but disappeared these days.

Following that example Apple could build its own factories rather than sub-contract to Foxconn. They could put those factories in some of the poorest parts of the world, creating jobs, wealth, housing, schools, hospitals. Such efforts would quite literally transform the lives of millions of people.

We live in a time of great wealth and yet millions of people live in tin shacks with no electricity or running water. They are born into abject poverty, they spend their whole lives in abject poverty before eventually they die in abject poverty.

I'm not making a political point or criticising Apple. It's just a idea.

I guess it's all how you spin it.

Before China's own version of an industrial revolution you've written a good description of the plight of the average person living in china:

"yet millions of people live in tin shacks with no electricity or running water. They are born into abject poverty, they spend their whole lives in abject poverty before eventually they die in abject poverty."

Except it was over a billion and I don't think the shacks were tin. Indeed, one "of the poorest parts of the world."

Since then, along with many, many others Apple has invested heavily in manufacturing in China, creating, as you say, jobs, housing, wealth. (I expect the wealth will lead naturally to schools and hospitals.) This has transformed the lives of hundreds of millions.

As I see it, Apple has been a very effective corporate philanthropist, despite that it was for a profit motive rather than an altruistic one.

Changing topics a bit, this is one thing that bothers me about people who suggest Apple should build in the USA for moral reasons. Morality know no national boundaries. Why are people in desperate straights who live in China (or Mexico or wherever) less important than people who live in America? In all likelihood it helps more people in more fundamental ways to manufacture in much poorer parts of the world than the US. (Not that I have anything against self-interest. In my own self-interest I'm still happy Apple is manufacturing in China because I live my gadgets to be a cheap as possible.)

 

[JosephKr]

The Law Of Large Numbers May Not Apply

I left a similar analysis on NYT the other day when this article appeared, but to sum it up, this may not apply to Apple, for two main reasons and one auxiliary one:
1.) Every time there is an update, the existing number of Apple aficionados/users/fans is essentially reset to zero. This is because many want to update to the latest iteration of any device, while many who have not previously updated may choose to do so now (an example being myself updating iPhone 3Gs....plural.....to iPhone 5s), and those who have not yet switched to our superior environment are a market waiting to be tapped.
2.) When Apple brings out a totally new device and reinvents or creates a category, then by definition there is an unlimited number of potential customers to tap, as well as those of us who already use other Apple devices.
and the auxiliary:
3.) As the superior Apple ecosystem continues to evolve in a cohesive and logical manner, more and more potential customers who currently use a competitor's device(s) may choose to switch (which many do every day) for the experience and the pleasure of stuff that just works right from the get-go.
So in effect the complete market potential is infinite and therefore there is no reason to think that growth can't continue at the present pace. If anything the limiting factor might be the production capabilities, but that's it.

 

[marksman]

Wirelessly posted (Mozilla/5.0 (iPhone; CPU iPhone OS 5_0 like Mac OS X) AppleWebKit/534.46 (KHTML, like Gecko) Version/5.1 Mobile/9A334 Safari/7534.48.3)

I know that there are a lot of long term apple fans and while the iPod set the stage super apple did not really start coming into form until 2007 and real things did not really solidify until 2009.

Apples supercharged journey has actually been fairly short but monstrously successful.