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Kass: More Bruises on Apple

Last week Tim Cook apologized for the botched-up Maps app. Some folks in the store that I visited were saying he should also apologize for the new connector and the generally less cool look vis-à-vis other products on the market.

Back to Maps as the canary in the coal mine. Analyst Jamie Townsend of Town Hall Research has recently been critical of Apple on several fronts:

The embarrassment of Apple's failed new maps effort is unlikely to derail the mobile juggernaut that has been trampling competitors for the last five years. At the same time, we believe that the momentum for Apple is increasingly at risk over the next 12 months. Smartphone penetration is growing, Samsung is still firing strong smartphone and tablet salvos, and other lesser vendors are narrowing the perception gap. Perhaps, most importantly, Apple's ability to stay ahead of the competition seems to be increasingly at risk of becoming more of a catch-up game (4G as one example). For now, we will focus on the importance of the maps mishap and location in general, but we are also keeping a close eye on the ability of Apple to sustain its momentum through 2013.

To those who say that the problems with Apple Maps are less serious than the controversy over the antenna design on the iPhone 4 in 2010 (under Jobs' leadership), Townsend argues the opposite, postulating that "accurate geolocation data is a bad place for Apple to fumble."

Townsend continues:

Analyzing the competitive environments of location markets recently, ABI Research had to triple-check rankings. Apple consistently scores much lower than Google or Nokia and Microsoft. On alternative location technologies, Apple was the first to take a chance on Skyhook Wireless, yet it stopped there. There is little sign that Apple plans to support newer, more accurate technologies concerning the likes of the indoor space, where again Apple belligerently shows neither signs of innovation nor a willingness to support Wi-Fi- based start-ups. Granted, GPS IC vendors will fill many of the raw, ubiquitous location gaps here, but there is so much more to location today than just identifying the location of a device. More worrying is how Apple is failing to develop an ecosystem in which location-based advertising can thrive. Fundamentally, it does not have its own search engine (Safari uses Google); its map/PoI offering is now weaker than when ABI Research completed its location analysis earlier this year. Apple's advertising business has yet to take off. It has no real social presence, no mobile payment solution (although Passbook is a step in the right direction). Apple has already badly burned itself on privacy and location data aggregation. When combined, these services will drive the analytics engines that will facilitate the next big battleground -- hyper-local mobile search and advertising.

In addition to concern no. 4 in my original post, I forgot to mention that Apple is no longer the dominant ecosystem. As of second quarter, Android had 68% of global smartphone share vs. Apple at 17% and was growing faster as well, more than doubling year over year compared to Apple at 28% growth. So, Apple is losing relative market share.

Also in the second quarter, in the U.S. the Samsung Galaxy alone sold more units than the iPhone 4S. Recent reports by independent research firms also suggest that Android and Windows 8 are gaining enterprise mindshare for phones and tablets due to being cheaper, more secure and more enterprise-ready.

It all comes down to valuation. Bulls feel that the company's prospects and profit stream are not baked into today's share price, but given my concerns, which could emerge after the December quarter, and given Apple's market cap, price-to-sales and meteoric rise this year, is there anyone that doesn't own Apple's shares at this point in time? And how many money managers (in part because of the weighting in the indices) are now overweight in the stock, particularly after the aforementioned period of outperformance?
At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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