Apple’s Worst Enemy: Moore’s Law

Yesterday, Apple announced the ‘New iPad’ its 3rd generation tablet device which is already outselling the number of PC’s sold by any individual manufacturer.

Apple did not invent the portable MP3 player, the touchscreen mobile phone nor the tablet computer … but what they most certainly did is create truly user-friendly versions and use their immense brand following to push them into the mainstream & dominate the competition.

Apple as a company is growing at an insane rate and expectations for continued growth are high. 70% of Apple’s revenue now comes from the iPhone and iPad. Plenty of people, including myself, are already wondering whether Apple’s share price could top $1000 and whether it can be the World’s first $1 Trillion company. If track record is a guide, then Apple most certainly can within two years … but there is a big problem.

Moore’s law dictates that the performance of processors dramatically improves over time, and the cost to the consumer drops. In order for Apple to grow, they need to maintain their price points … at the same time their rivals will cut prices aggressively to steal market share.

Apple always have an initial advantage over the competitors, using their buying power to ensure they have some technologies before anyone else. Unfortunately they only update their iPhone / iPad once a year, and their rivals can innovate more quickly as they actually manufacture some or all of the components they need internally (like Samsung).

The iPad’s screen resolution is Apple’s last advantage over their competitors (operating system aside) and it will only be a matter of months before there are both Android and Windows 8 devices available to consumers. From that point on, price becomes an increasingly important factor for consumers … can Apple charge a premium for a device that is only ‘as good’ in terms of specifications as the rivals? What happens the year after when the competition drop their prices by 30-50%? Screen resolutions cannot improve further as we’ve reached the limits of the human eye, processing power is already plentiful and increasingly irrelevant.

It is possible that Apple’s price-points simply cannot be maintained, in the same way that PC’s have got cheaper and cheaper over time. Apple therefore will need to shift more units just to maintain turnover and profitability. Should they resist dropping their prices, it is possible that without serious innovation their sales growth will dramatically slow. Consumers will not upgrade every year unless there perceived value in doing so. Nor will they pay significantly more for the Apple brand if a rival product is widely-acknowledged as better.

Lets also remember that Intel have just entered the game and will be keen to steal market share from Apple’s ARM-based devices. There is an arms race going on in mobile computing devices right now and Apple make none of the hardware themselves. For that reason as time progresses, Moore’s Law could be Apple’s worst enemy in its quest for continued revenue growth.