Why Apple will become Intel in five years
An old friend who has been involved with Intel from the mid 80s visited recently. We both have a love of tech, business and strategy. I am firmly planted in the Apple echo system while he is living in the Google/ Android world. It was fun to compare products and discuss the business strategies of these and other relevant companies.
But I was reminded of my days at Intel and the mixed blessing of being extremely profitable. At one point, Intel has the highest market capitalization in the world. Something that Apple experienced recently. Now many tech companies are worth much more than Intel. Intel would not take on new business ventures which on their own might have been excellent compared to most business opportunities but looked meager when compared to Intel’s microprocessor business.
Many successful companies have this problem. This is why I am so bullish on Amazon. Bezos does not believe in making a profit at least at this point in time. He would rather invest the money into growing the business. He is in the admiral position of just having to slow down to make a profit. He also understand that high profits come from high margins and the creates room for companies to compete with lower prices. He knows that over time it is harder and harder to add functionality to a product line to justify the higher price.
So if a companies strategist goes to the CEO of a very profitable company and says, “things are going to change. If we take action now, our stock price will be $400 in five years. However, since our current stock price is $500 a share, the action I am recommending will cause it to drop by at least 40% first. That is plan A.
If we take no action, our stock price will stay up for a while. It might even increase but then it will slowly fall and we will find ourselves with a $100 share price in five years. Which plan shall we take dear CEO”?
And the CEO answer “Plan C. We will take Plan C. We will keep doing what we are doing and we will figure something out before we find ourselves on Plan B (or before another CEO takes over). Then he fires the strategist.
Long on Amazon and short on Apple anyone?