Sunday 10 November 2013

MacPro, 4K displays, and supply chain co-ordination

Many including me, have regularly hailed the innovative character of Apple.  In previous posts though, I have noted their innovation in areas other than product which normally steals the limelight. These other areas include in retail and in company cultural learning etc.  Tim Cook, now CEO, was previously in charge of supply chain, and it is this in which we see some clever co-ordination if not yet another example of innovation.

The MacPro product line has hit the headlines in the last twelve months for its delayed upgrades, and since the new radically different design was announced, the fact that it will be assembled in the USA rather than the far east.  One specification detail however has caught my eye, the fact that it can drive two 4K (ultra HD) resolution displays as well as an HDMI screen all simultaneously.  It's not the technical spec itself that peaked my interest (a lesson many traditional tech commentators and analysts should remember) but rather an aspect relating to market size and supply chain.  

Consider the market size for the new MacPro.  It's really aimed at supporting the most demanding professionals in music, video and software development roles.  And even some of those who would have previously bought the MacPro line will now be satisfied with the top end iMac models, given their capabilities. So the market size is likely to be less than it ever was.  The screen components are typically one of the most expensive parts of computers, so how could Apple repeat the trick of economy of scale in their supply chain for 4K displays which they exploited so well across other product lines (e.g. flash storage in iPod and iPhones, and wireless chipsets between computers and mobile products etc.)?  The answer may well lie in their rumoured entry into the television market.  4K TVs have so far sold in very few numbers due to many factors including very high price.  

The provision of an ultra HD 4K screen option in any TV offering (and not touted as the main selling point as others have mistakenly done - the Apple TV will headline other more consumer-friendly distinctive selling points) would offer a way to make economies of scale for the 4K display for MacPro and essentially lower the bill of materials (BoM) cost for both product lines by giving Apple much bigger purchasing volume potential for the cash that they hold.  Secondly, the storyline of the need for 4K display panels when negotiating with suppliers, many of whom like LG and Panasonic may well also be competitors the Cupertino firm wishes to beat in the TV marketplace, is at least useful and at most a strategic masterpiece.  Such competitors have no need to be nervous about 4K displays for the MacPro; their interest in a new player in the TV market would be rather different!  

Thursday 25 April 2013

Apple, Analysts & Innovation

Well it has been a while ... very busy with work ... but I couldn't resist a post about Innovation and Apple and Analysts, given the recent stock price performance of the most successful consumer electronics and computer maker of the last two decades, and the reaction to their quarterly financial results this week.

The sales and therefore revenues of Apple in the last quarter were higher than the same quarter in 2012, and higher than the so-called expert analysts expected.  The profits were down compared to the year ago quarter, and this is because the company has deliberately (including forecasting it in previous quarters) reduced its gross margin which has been traditionally exceptionally high amongst any company. The analysts who seized upon the profits report this week are the same analysts who have been critical that Apple have not made a cheaper low-end iPhone to attract more market-share!   They can't have it both ways.

Next, we are told that Wall Street and the analysts are concerned by the hint from CEO Tim Cook that exciting new innovative product classes (not just upgrades to existing top-selling products) may not be released until the Fall this year and into 2014.  This is criticism of the company that revolutionised the personal computer in 1984, revolutionised the music industry in 2001 with the iPod, and again stunned the world with a revolutionary mobile phone in 2007.  They then ignited the tablet computing market, where other big names had previously failed, in 2010.  Revolutionary products do not come around (even from the leading player) annually or quarterly or monthly.

Also innovation requires not only technical advancement, clever design, and vision to identify solutions which advance the status quo, but also an element of timing in the marketplace too, and the Cupertino company have shown that actually they are very good at timing.  I have no doubt that Apple will revolutionise other product categories in the decade from now, but it will be when they decide the time is right, not ignorant observers.  It's a pity that the market traders don't seem to share this confidence in a company with a proven track record.  Meanwhile competitors in Apple's existing markets are not seeing their stock similarly devalued while they play safe and make cheaper, lower quality plastic copies of lightweight razor thin notebooks, smart phones and tablets.

Finally, while on the subject of innovation, lets not forget that Apple don't only have a track record of technology and product innovation, but also business model innovation, which is in some sense much harder.  The iPod not only revolutionised how we listen to music, but the whole business model of the music industry.  The iPhone not only revolutionised the phone, but again the business model behind cellular data services and transparent charges for them along with seamless WiFi switching models  previously defended by the mobile network providers.  Their retail stores have also revolutionised the high street in terms of the profitability per square foot used for product shelving.  Lastly, the app store model for paying software developers who write apps for iOS is another example of how a traditional business model has been re-shaped by Apple.  

I have no doubt that the biggest obstacle to addressing some of their new potential product classes which the analysts all crave, is how to break and redefine business models underpinning the new products themselves.  This requires partners to be convinced outside of Apple, just as had to happen (with record labels, movie studios etc) to make the iTunes Music Store such a runaway success.  When you develop not just revolutionary products, but also revolutionary user experiences, you invariably rely on convincing third parties outside of your own organisation to begin a disruptive journey with you so that the complete user experience from purchase to service to upgrade and transition is consistent.  This takes time.  I only hope that Apple's future partners show more confidence in them based on their track record than analysts do!