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The iPhone was launched 29 June 2007 and in 2015 it sold 231 million units. It may be the most successful product in history.
Whether the iPhone will endure has been much debated. Some have compared Apple (AAPL) to Nokia, which is now a shadow of its former self.
Fund Hunter's view is that the iPhone franchise is strengthening and will stand the test of time.
Buffett and Munger on iPhone
Warren Buffett told CNBC in August 2018:
I have a plane that costs me a lot, a million dollars a year or something of the sort. If I used the iPhone -- I use an iPad a lot -- if I used the iPhone like all my friends do, I would rather give up the plane.
Buffett also noted that:
Hundreds, hundreds, hundreds [of] millions of people practically live their lives by it [iPhone].
In an earlier CNBC interview in August 2017, Buffett stated that
Apple strikes me as having a sticky product, and an enormously useful product to people that use it.
Charlie Munger reiterated this sentiment at the 2019 Berkshire Hathaway Annual Meeting:"
Well, in my family, the people who have Apple phones, it's the last thing they'll give up.
Berkshire is the largest shareholder in Apple with a 5.4% position. Apple is also the largest listed stock position in Berkshire's portfolio. Buffett told CNBC on 24 February that:
[Apple is] probably the best business I know in the world.
What makes Apple unique
Apple has a full suite of mobile and personal computing devices. It also offers a full array of software and services.
Apple is the market leader in tablets, smartwatches and wireless headphones. Apple's mobile and desktop operating system is only available on its products.
Apple is in part a hardware business and in part a software-relationship business.
There is a range of software that you can only use on Apple products. This includes high-end software like FinalCut Pro and Logic Pro to entry-level software that comes free with a Mac like GarageBand and iMovie.
Apple's store network provides support, courses and advice. Courses are held at no cost and explain how to use software like iPhoto.
The iPhone is the only smartphone running Apple's mobile operating system, iOS. It is the only smartphone with access to Apple's App Store, Apple Pay and other services.
The iPhone also appears to have greater security than Android devices. This may make it the smartphone of choice for firms who have moved on from Blackberry.
One global accountancy firm did offer UK employees the ability to shift to iPhone from Blackberry. The firm didn't offer employees any Android devices.
Apple's ecosystem describes how its hardware, software and services interact to make for a better user experience.
An alternative to Apple might include a Samsung smartphone, a Dell laptop, a Microsoft tablet, an LG smartwatch, Jabra wireless earbuds, Roku streaming TV box and an Amazon smartspeaker.
More of our devices need to work well together. Going with seven different manufacturers makes this hard to achieve.
The more Apple devices you own, the more useful each device becomes. This creates a virtuous cycle for Apple consumers.
A key part of Apple's ecosystem is Continuity, which was released with iOS 8 in September 2014. This allows consumers to seamlessly move from one Apple device to the next one.
Apple's Notes application, for example, can be started on the iPhone and then continued on a laptop. According to one reviewer, people with multiple Apple devices depend on Continuity everyday.
Apple's edge in mobile devices
Apple makes some of the best mobile devices if we use market share as a guide. iPhone, iPad and Wearables generated 78.3% of Apple's revenue in the December quarter of 2019.
Mobile devices are where power consumption and design are critical. With Apple designing both the hardware and the software, it may have an edge over rivals.
Apple offers the full suite of mobile products
Time spent on smartphones
Smartphones are personalised and secure in a way that computers are not. We share more personal data with our smartphones than on any other device.
Most users spend over 3 hours a day glued to their devices (RescueTime). Smartphones have captured our attention like no other device.
We use them on our commute to listen to music or read. They offer video chat, online banking and dating apps.
Smartphones have also become our digital cameras. This makes them the recorders of key moments in our lives. Camera improvements spur some users to upgrade their device.
Smartphone cameras are now more than passable. The best camera is always the one you have with you: Comparison of Samsung S10 and iPhone 11
When it comes to the most important computing device in our lives, many will opt for the best as opposed to the cheapest.
We trust the iPhone with our personal data. FaceTime and iMessages make it easer to video chat and message to other Apple devices. If someone has an iPad or a Mac then an iPhone fits in well.
The App Store on iPhone is by most accounts more secure that Android Play. Apple takes user privacy and security seriously.
Apple Pay appears to have a lead in mobile payments. It is accepted in a number of major cities such as New York and London.
If you want an Apple Watch, you need to use it with an iPhone. Apple's AirPods work best with iPhone.
iPhone's biggest competitor is Samsung. There is no doubt that Samsung makes great mobile devices, with the recently released S20 a case in point.
But for most people, the software experience is key. When we choose a smartphone platform, we are investing in a software and hardware ecosystem.
The smartphone race is not won on the basis of hardware specs. Consumers who prefer Apple's ecosystem will adopt the iPhone.
Leaving the iPhone
In Marques Brownlee's March 2018 video, he highlights the challenge of leaving the iPhone (6 minutes in). According to Brownlee, switching away from iPhone means that:
1) All of your App purchases are gone.
2) FaceTime and iMessage is gone.
3) Apple Watch becomes a paperweight.
4) The reminders app can't be used anymore.
5) HomePod becomes useless.
6) AirPods become useless. (I have read that AirPods can be used with other smartphone brands).
Brownlee noted that everything is tied to the iCloud accounts of Apple users. To move, consumers have to rip everything out of that account, which is easier said than done.
An Apple Card becomes useless if you leave iPhone and Apple Pay is no longer available. Apple is likely to add more products and services in due course.
It all starts with consumers buying one Apple product like the iPhone. The more Apple products and services we adopt, the harder it is to leave.
Apple has youth appeal
Apple's laptops (MacBook Airs and MacBook Pros) are popular with high school and college students. This bodes well for iPhone adoption. If you want to invest in growth, invest in what young people are using today.
Apple is a brand that is mainly home and personal use. It is therefore less of a commodity-type product than a Windows PC.
A product company
Google has struggled in wearables and recently bought FitBit. Samsung makes great phones but is also behind Apple in wearable devices.
Apple's focus is on quality and user experience as opposed to market share. Steve Jobs once described Apple as a product company.
Apple doesn't seek to make inexpensive products, it seeks to make high-quality products. This helps to build a lasting relationship with consumers.
New product development
The immediate roadmap is clear in terms of a 5G iPhone together with improvements to AirPods and iWatch.
A new version of the inexpensive iPhone SE is also expected to be released in the next few weeks. This will help Apple to get more consumers onto the platform.
Apple is reported to be partnering with BMW on a virtual key that opens cars: Apple CarKey. This compliments the Apple CarPlay media product.
Apple is also expected to launch an AirTags product. This appears to be a small device that could be attached to things like wallets so that we can locate them.
Apple may also be developing virtual and augmented reality devices. Evidence of this has cropped up in iOS 14.
The iPhone franchise looks secure.
The iPhone may not offer the best hardware in any one year. But it provides access to a unique ecosystem of services and works well with the iPad, Apple Watch and AirPods.
The iPhone franchise has strengthened in recent years. It will continue to strengthen as Apple adds new products and services to the ecosystem.
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Previous articles covering Apple:
1) Fundsmith/Terry Smith's view on Apple
This article was inspired by Fundsmith/Terry Smith's negative view on Apple. Apple was compared to Nokia at Fundsmith's February 2020 Annual Shareholders' Meeting.
Smith noted that when Nokia was thriving, people would highlight its ecosystem. I am not sure Nokia ever had much of an ecosystem, if it had one at all.
We have never seen an ecosystem as extensive as the one Apple has today. It covers hardware, software and services.
Smith's view on Apple is puzzling. But he is not alone. Most quality-focused investors have given Apple the cold shoulder. Many view Apple as just a hardware company making high-priced devices.
Apple has a strong customer franchise with loyal consumers. It enjoys pricing power and high switching costs. A number of key software applications only work on Apple's devices.
At the 2020 ASM, Smith stated that Apple sells expensive products with curved corners. I don't subscribe to this view. Apple is not a hardware business for the most part, it is a software-relationship business.
If Apple products weren't worth the candle, we wouldn't see IT professionals use them. Health care professionals do not buy Nurofen because it isn't differentiated from the generic alternative.
2) Where Apple fits in
The PC wars were won a long time ago by Microsoft. Apple is not going to become the computer of choice for most business customers.
But the iPhone has allowed Apple to re-enter the corporate world. It offers the most secure smartphone platform available.
Apple's computers have a strong foothold in the home. Students are offered special discounts on Apple hardware. This is another way that Apple can help acquire customers for life.
The Mac OS is something that many prefer over Windows. The video below highlights some of the reasons:
Whether a computer looks good or not is not very important in an office. But in a home environment we prefer good looking machines. Apple's iMac looks great and may be one of the best all-in-one desktop computers on the market.
The iMac is an excellent all-in-one desktop computer
3) Anecdotal research
In researching this article I asked various people why they use an iPhone or an Android device. One person responded that they already owned an iMac and so wouldn't change.
Another comment was that Apple products work well together. This was also from someone who owned an iMac.
My web developer for this website stated that he preferred iOS and MacOS to Android and Windows. He needs to use Mac computers in any event on account of some of the software that they offer.
One comment noted that FaceTime and iMessage were easy to use. WhatsApp was described as a hassle to work by comparison.
A relative noted that he liked the support that comes with Apple products. This has been a key reason why he moved over to Apple's ecosystem. He used to visit their stores but now calls up a support line.
Another response from an iPhone user was that they wouldn't change as they were used to Apple's functionality. They had started with iPhone after the firm they are working for offered it for free.
If corporate users offer iPhones rather than Android devices, it will help hook more people onto the platform. The iPhone may be the leader in work phones that companies make available to employees.
At the same time there were people who moved from the iPhone to Android.
One person moved because they felt the iPhone was too expensive. This was after the increase in price with the launch of the iPhone X.
Another person moved for what they viewed as the greater flexibility with Android. They also thought that the Galaxy S10 was a superior phone.
4) Apple Mac sales
Computers are not a growing part of Apple's business. But they support the ecosystem and help differentiate the brand with consumers.
An Apple laptop could be the gateway product to other Apple devices.
Unit sales of Apple Mac sales (millions units)
5) My Apple history
Apple consumers always start with one device. For me it was the iPhone 4, which was released in June 2010.
I had previously owned lacklustre mobile phones from Sony. One device had to be replaced twice because it failed to work. Syncing devices to desktop applications proved to be impossible.
Calendars were synced and then failed to sync or in some cases the entire calendar was deleted. Calendars are an application that shouldn't fail.
Against this backdrop, the iPhone 4 carried out basic functionality well. The iPhone 4 was reported to have reception issues and Apple gave customers a free iPhone case.
I have also experienced issues with Windows laptops and desktops. There seemed to be a gap between Windows and the hardware makers.
Windows itself has often had poor updates (Vista) and tends to need additional anti-virus software. After the iPhone 5, I went on to buy a MacBook Air and an iMac.
Apple's ecosystem makes things easy. I can take notes on my iPhone and then use them for a report I am writing on my iMac.
Apple makes most of the key applications itself. This means that we don't have to turn to a host of third-party apps with new passwords and syncing issues.
The ability to learn when using Apple products is second to none. I am likely to be using Apple products for as long as I continue to breath.
Articles covering the iPhone
1) Q1 2020 iOS activations in the US
While Apple and Google share a "stable duopoly" in smartphone user share, the scales are slowly shifting in favour of iOS. Since a low of about 32% in the first quarter of 2018, iOS has steadily regained marketshare to take 44% of the whole in the most recent March period [January to March 2020].
2) US Teen iPhone adoption