The Macalope Weekly: Against the brain

This week sees an end to our long-running game, “Is It Competition Yet?”, as we welcome the Amazon Kindle Fire! Then we turn our gaze to Wall Street, where it’s like a bell sounded and a hundred monkeys rushed to their keyboards to type idiotic naysaying pieces about Apple (one of Pavlov’s lesser-known experiments). You know, there’s against the grain and then there’s against the brain. These guys are doing both.

We have a winner!

The Macalope’s calling it. Our long-running game, “Is It Competition Yet?”, is over. Congratulations to Amazon on the introduction of the Kindle Fire.

Now, before you get your collective undies in a wad, you people should really take the time to visit Amazon and buy yourself your own individual underwear. Seriously. How you can all wear the same underwear is beyond the horny one. How do you move? Very strange. And unsanitary.

After you do that, consider the probability that the Kindle Fire is more likely to grow the tablet market by proving attractive to people who, to date, have been priced out of the market, rather than by stealing share from Apple. At that price point, and that level of capability—no camera, just 8 GB of storage, an unsightly resemblance to the PlayBook—it’s not really in the iPad’s class. Butt—and the Macalope uses two t’s because it’s a really big butt—it’s part of a credible line of products from a credible company with a serious catalog of media. There are definitely going to be people who only want a tablet for content consumption and decide that 7 inches is big enough (cough) and 8 hours of battery life is long enough (no cough).

But let the Macalope be clear: He doesn’t think the Fire will significantly hurt iPad sales. He does think it’ll affect its market share, though.

Karl’s krackpot theories

You guys aren’t going to believe this. It turns out—are you ready?—Apple is doomed.

No, really! And not only Apple, but Amazon, too! Over at Seeking Alpha, Karl Denninger describes The Upcoming Crash Of Apple And Amazon, AS WAS FORETOLD IN PROPHECY!

I’ll get flamed for this I’m sure…

Well, you were right about that.

…but I don’t care.

Crazy people on the street yelling about their crackpot theories usually don’t.

Apple’s stock price (AAPL) is going to collapse, and Amazon (AMZN) may in fact go bankrupt.

Wow! That’s… just…

Wow!

Karl starts with Amazon, which he thinks is headed for DOOOOM because he expects the U.S. government will close the tax loophole that’s meant the online retailer hasn’t had to charge sales tax in most states for all these years.

In short, this is a firm that only exists because of its ability to evade that tax structure. When, not if, that ends, the company is a literal zero.

Uh…

…

Wow!

Say, is there an adult there the Macalope can talk to?

OK, the Macalope doesn’t want to spend a lot of time on Karl’s cuckoo theories on Amazon because we need to get to his cuckoo theories about Apple. But, suffice it to say his assumptions that Amazon has no leverage here, and that its prices would go up 6 percent across the board, are, in fact, cuckoo.

Moving on.

Now on to Apple. There was a report out Monday that the firm had cut supplier deliveries by 25% out of Asia. There was a mad analyst scramble during the day to try to refute the damage that was rapidly accumulating in the stock, which was mostly successful. In my view, this was a fool’s errand and you were a nut if you followed people into the stock on that “dip.”

Karl discounts the multitude of counter-arguments, including that the report was based entirely on incomplete information about parts orders in Asia, and didn’t take into account the fact that Apple will now be getting some parts from Brazil.

What does Karl think the reason for this slowdown is? The Kindle Fire? Nope: The bad economy in Europe and the TouchPad fire sale.

HP’s “blowout” put the $99 price point in the mind of consumers and that is not going to go away.

How many consumers do you think have even heard of the HP TouchPad?

The Macalope doesn’t disagree that the economy in Europe and lower-priced tablets (primarily the Kindle Fire, though) will affect Apple’s sales, but Denninger has fantasized them into Apple-killing machines. Is he aware the company makes other products?

The problem with these sorts of firms is that when you’re running on afterburners it’s nearly impossible to pull back without losing control and crashing, simply because you’ve built a culture and corporate environment that is filled with “true believers” operating at a corporate level where everything has gone right—and thus you all believe it will continue to.

So, if that’s true, why isn’t Apple still churning out the same number of iPods it always did, despite the fact that sales are declining?

Sorry. Sorry. Logic. You were about to stick a fish in your pants, flap your arms, and sing “Ave Maria.” Please. Bring us to your nutso conclusion.

So here’s the predictions: Apple trades under $100 at the trough and Amazon may well be a flat-out zero.

Uh…

Wow!

Yeah, I know those are both audacious calls…

Those aren’t audacious, Karl. They’re bananas. Cigarette-smoking-chimp-in-a-tutu bananas.

See, here’s the thing, Karl. If these effects you’re talking about are going to be as bad as you think, then they’re going to affect more companies than those that start with the letter “A.” You haven’t presented anything that’s uniquely wrong with Apple’s business that should warrant a 75-percent drop in its share price.

This isn’t unusual. Karl has a rap sheet of saying bass-ackwards things about Apple. You weren’t right then, Karl. Why do you think anyone would think you’re right now?

Saturday Special: I’d like to have an argument, please

The Macalope gets the idea of having diverse opinions and that it’s healthy to have someone try to contradict the general wisdom. What he doesn’t get is simply making things up that fly in the face of reality, just to take a contrary position.

Tim Hanson, writing for the Motley Fool, follows Karl’s lead (tip o’ the antlers to Robert Synnott):

Apple, however, has never sustainably earned a 40% return on equity or even a 20% return on equity. Go back 20 years, and what you’ll find in Apple is actually a (gasp!) cyclical business. A boom from 1990 to 1992 was followed by a bust from 1993 to 1997, followed by a boom from 1998 to 2000, a bust from 2001 to 2004, and a boom from 2005 to the present.

Uh-huh. And those busts didn’t have anything to do with the fact that Apple was run by guys with the collective IQ of rock salt during one, that another was after 9/11, or anything else. It’s all based on cycles of commoditization. And, jeez! It’s not like there’s any well-known saying about whether or not you should use past performance as an indicator of future results!

Commoditization, in isolation, is not an insane theory—it just doesn’t hold any water when you actually look at what Apple sells.

The word “commoditization” might as well be a four-letter word for the tech industry. What it means is that a once-novel product is swamped by competition, resulting in rapidly falling prices. Consider the Walkman, the Discman, the MP3 player, the mobile phone, the desktop computer, the laptop computer, the server—you name it. They’ve all been commoditized.

Before you go into your lesson about how markets commoditize and how Apple simply won’t be able to survive because people will just all buy the cheapest pieces of crap they can get, let’s look at some of your examples vis-a-vis Apple products. The company still sells MP3 players—albeit not as many of them as they used to—but what’s the biggest seller among them? The iPod touch, which starts at a whopping $229. Does that strike you as a commoditized price for an MP3 player? Of course not, because Apple’s been able to inject more value into it, almost—oh, what’s the word?—reinventing it.

In the case of the laptop, for example, the average selling price dropped from $1,640 in 2001 to $615 last year—a roughly 10% annual decline.

Right. And what price do Apple laptops start at? $999. Does Apple seem to have any trouble selling MacBooks? Not so much. But Tim pretends not to know this, because it’s hard to engage in an exercise of such extreme jerkery when all those pesky facts get in the way.

This isn’t to say there aren’t still laptops selling for more than $615. There are. In fact, Apple released a MacBook Pro last year that was so fast and had such a big monitor that it retailed for more than $3,000. But that’s a boutique product with a small addressable market, since so few users need that much computing power. Indeed, an analyst last year called the new MacBook Pro “The $3,000 Laptop No One Needs.”

Wow, that certainly is damning. Say, Tim, who was the “analyst” who wrote that piece? Oh, turns out it was long-time Apple derangement syndrome sufferer Douglas A. McIntyre. But, still, you should totally believe him when he said last year that Apple laptops were overpriced and wouldn’t sell well, even as they continue to sell really, really well.

To buy Apple today, an investor has to believe one of two things:
1. The iPhone and iPad will not become commoditized. 2. If the iPhone and iPad become commoditized, Apple will innovate, develop, and launch a new product to overcome the resulting revenue declines.
Neither scenario is, of course, impossible…

Actually, far from being impossible, the second scenario describes exactly what Apple does. That’s the company’s freakin’ business model, dude. So, to believe Hanson’s naysaying claptrap, you only have to believe one thing: that Apple will stop doing what it does best.

The Macalope will leave it up to you to decide if that’s likely.

(Disclosure: the Macalope holds an insignificant number of Apple shares.)

[Editors’ Note: In addition to being a mythical beast, the Macalope is not an employee of Macworld. As a result, the Macalope is always free to criticize any media organization. Even ours.]