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Kass: Apple's Cycle of Abuse

If there is no larger screen and it's just better hardware features (it will run faster or the camera is a bit better), well, then in addition to being generally unexciting, more importantly, this is, again, a radical change in the investment hypothesis.

In essence, Apple will have gone from a disruptive innovator and category creator with unique and different products to a company competing on the basis of run-of-the-mill hardware features. This is not much different than the low-margin handset industry before Apple entered it and disrupted it.

Another issue I would raise is how unfriendly Apple's suppliers have been to their employees. The problems at Foxconn and other companies have been well-chronicled (labor walkouts, worker suicides, etc.). These stringent working conditions lower the cost of goods to Apple and thereby increase Apple's profit margins. In fact, I suspect Apple continues to bid suppliers aggressively based on price, as opposed to reforming their labor practices. By continuing to use suppliers with these policies in place, Apple can be viewed as directly guilty of these practices as well, in my opinion.

Let's compare Apple to another high-profile company: Wal-Mart (WMT - Get Report).

Suppose a Wal-Mart supplier was accused of these conditions. Many Wal-Mart customers would protest Wal-Mart for use of these suppliers, refuse to buy the products or even shop at Wal-Mart. And all sorts of scathing editorials would follow, the combination of which would force Wal-Mart to change its practices. Some Apple customers who would likely take these actions against Wal-Mart hypocritically line up days in advance to buy the latest Apple products. How does that make sense?

In my opinion, Apple is hypocritical -- the company is every bit the abusive monopolist that it once accused Microsoft (MSFT - Get Report) of being (including the latest iteration of foisting a bundled inferior map product on its customers, which is ultimately what got Microsoft in trouble for being a monopolist, when it started bundling Internet Explorer with Windows as Netscape was gaining traction); it is also an incredibly greedy corporate entity, as opposed to the socially responsible company that it positions itself as (again, see what goes on at its suppliers with which it continues to do business).

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