Killing those Apple bears

I am not an Apple cheerleader. And I have not owned the stock in a decade — every time I've wanted to get in, I’ve considered it overvalued. A P/E of 46 is pretty rich for a 30-year-old growth company.

Nonetheless, looking for an answer to an unrelated question, I was amused to find an Seeking Alpha recommendation (elaborating on one from Piper Jaffray) from last March to short Apple. The stock was at $95; Wednesday it closed at $166.

This reminds me of a friend (now at Apple) who wanted to short eBay in the late 1990s; his wife fortunately talked him out of it. Shorting Microsoft and Cisco in the past decade could have been very smart if you timed it right — but the timing was not about the company’s competitive advantage, but shifts in market demand and growth multiples.

I never did find the answer to my question, which is how many AppleTV units has Apple sold. Projections prior to the March 21, 2007 ranged from 800,000 to 2 million. I would be shocked if they sold 1 million this year. My MBA students, Seth Baron and Richard Burnside, estimated 206,000 units sold in April-June, which implies (absent a model refresh) they’d be lucky to sell 600,000 units this year. But, as Seth & Rich noted, AppleTV is an “extendable software platform,” so who knows? Maybe important functionality will be added down the road.

I was dying to buy the rumored iTV, but then when I saw one in January, I said “what’s the point?” I don’t buy that much from the iTunes Store (10 songs over 3 years), but I would buy a DVR replacement for time-shifting 24.

Get off e-mail and pick up the phone!

Will probably remain behind on blogging under both sets of MBA grades are filed. For decent blogging productivity, I also need a few hours to reinstall/reconfigure my blogging software.

One of the points I try to remind students is how e-mail can cause more problems that it solves. For example, some people (unknowingly) adopt a passive-aggressive stance that says “this is what I’m going to do — let me know if you have a problem with that.” As in “I’m going to miss class tomorrow. Let me know if you have any questions.” And maybe they don't intend it to be passive-aggressive, but without context it’s hard for the reader to tell.

Certainly around our house and at the office (both industry and now university), more than one or two back-and-forth prompts the cry “just pick up the phone.”

The NYT this week has an article about all the reasons that e-mail is prone to misunderstanding. In trying to be the definitive article on the subject, it perhaps takes itself a little too seriously, but it provides a comprehensive view of why excessive reliance on e-mail can be very risky for your career and relationships.

Favorite innovation movies

In my MBA class tonight, guest speaker Vincent Paquet (celebrating the one year anniversary of his company’s public launch and 3 month anniversary of joining the Google mother ship) talked about the life of a successful startup entrepreneur.

After Vincent left, the topic of startup funding came up. It reminded me of my favorite startup movie, Startup.com, about about an unsuccessful dot-bomb. The scenes about the CEO trying to get VC funding are the closest thing I’ve ever seen to the real process about getting funding.

I don’t believe in showing movies in class, but these VC scenes in Startup.com are one exception. The other exception is the open source documentary, Revolution OS. I normally show the scenes providing insight into the two key figures of the free/open source software movement, i.e. Richard Stallman and Linus Torvalds. If I have time, I show excerpts of the 2nd DVD, specifically the interviews of these key protagonists.

EU considers Qualcomm as next Microsoft?

As predicted, the European Commission has wasted no time in going after another American firm using the anti-monopoly precedent established with Microsoft. This week, the target is Qualcomm. Still on deck are Intel, Rambus and Google.

The EC investigation of Qualcomm is following up on a request 23 months ago by Qualcomm’s two main chip rivals — TI and Broadcom — as well as European handset (and chip) makers Nokia and Ericsson, as well as Panasonic (Matsushita) of Japan. The investigation could take as much as two years, although the EC was careful to say the action “does not imply that the commission has conclusive proof of an infringement.”

The main issue is not that Qualcomm is blocking other firms from using its technology, but the price that it charges. Specifically, Qualcomm charges the same royalty (about 4-5%) for both major flavors of 3G mobile phones — cdma2000 and WCDMA. Its accusers — including the leaders of the WCDMA camp — argue that Qualcomm should charge less for WCDMA because they successfully added lots of other IP to the WCDMA standard and thus Qualcomm’s share is proportionately less. The WSJ [registration required] quoted these rivals as saying that the fee should be less than 2%.

The case may end up focusing on that most vaguely defined standardization concept, Reasonable and Non Discriminatory licensing terms, aka RAND aka FRAND (Fair, Reasonable and Non Discriminatory). Anyone who studies (or participates in) standardization knows that the term has been left deliberately vague as a way to win agreement among various parties. Rather than come up with a more specific ex ante definition to provide predictability for all concerned — something ETSI has notably shied from doing — key ETSI members want the chief EU regulator to impose an ex post definition based on its own judgment.

There are key differences between US and European law that make this action unlikely to succeed in the US. One is the (current) policy favoring patent holders in the US; the second is that US monopoly law requires demonstrating harm to consumers, while EU law considers harm to competitors to be an important issue. There is also the issue that the EC seems to be choosing unpopular defendants first — Qualcomm being the only company more hated than Microsoft in the European ICT industry — presumably to set a precedent. Once the precedents are established, they could be applied to other, less controversial firms (which today would still include Google).

Qualcomm faces other legal challenges, including its expired patent license with Nokia and its ongoing legal fights with Broadcom. Qualcomm hired a new general counsel Friday — Donald Rosenberg, formerly of Apple, and before that a 30-year IBM veteran. He certainly has his hands full.

Technorati Tags: 3G, antitrust, EU, Microsoft, standardization

iBrick fiasco

Still badly behind on grading, but wanted to quote a few quick articles.

The successful efforts to unlock the iPhone (by George Hotz and others) did not go over well with those that did the locking.

On Sept. 27, Apple released its innocuously-named iPhone 1.1.1 update. I don’t have an iPhone, but as I understand it, iTunes (on the Mac or PC) reports the availability of the update and recommends that users install it. It was nominally a security update with some small feature enhancements, but it also broke all the hacks that allowed the iPhone to work on networks other than AT&T.

I’m of two minds here. That Apple would respond should not be surprising, so it seems silly that people are shocked! SHOCKED! that Apple would try to disable these hacks. (Some are already trying to reverse the update, while others will eventually find ways to unlock the updated phones). It’s also unclear whether Apple is passionate about locking people in (not implausible) or if they have a contractual obligation to Cingular (now AT&T) to use all possible technical means to enforce such locking.

On the other hand, this is terrible PR for a company and a product that has enjoyed a charmed existence this year, earning the nickname “JesusPhone.” This includes:

• an online video mocking Apple’s image campaigns
• a new reluctance by iPhone owners to take security updates
• a new nickname — iBrick — that is being attached to Apple and the iPhone, potentially nullifying the 9 months of fawning PR.

Apple has been here before — they’ve overreached in their efforts to exploit their lock-in of loyal customers. Will they pull back from the brink? Can they? Or will they become even more aggressive (and even more Microsoft-like) in pushing around their customers?