Apple Inc. Brand: Why It’s Still Intact

Apple Inc. Brand: Why It’s Still Intact
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I want to make a quick comment about the Apple brand. Apple Inc. (NASDAQ:AAPL)’s research and development expense was up 27% last quarter. Annualized, it is running at $5.7 billion. Let me put that in the right context. In 2007, when Apple came out with its first iPhone, the company’s R&D expense was at $782 million. Other than PCs, most of the R&D for which is outsourced to component providers (Intel, Western Digital, Micron etc.), Apple makes only one product, iPhones of different sizes. Increasing iPhone size from 4 inches to 4.7 inches should not consume billions of dollars in R&D, even for perfectionists like Apple. Thus the probability that Apple will introduce a brand new product category in the near future is incredibly high.

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Apple is more careful with product releases than Samsung

Unlike Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935), which will introduce dozens of products a year and hope that a few of them stick, Apple Inc. (NASDAQ:AAPL) is far more careful with product releases. Samsung’s strategy is fine – unless you are one of the unlucky people who wasted a few hundred dollars on Samsung’s smart watch, which looked like something out of Seiko’s 1980 catalog. The strength of Apple’s unbelievable brand (about which its customers tend to be fanatical) is driven by the fact that it doesn’t introduce unfinished products.

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Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935) just introduced new phone, the S5 – it was the non-event of the year. When Apple Inc. (NASDAQ:AAPL) introduces a new product, no other news exists that day. The Fed could announce the sudden termination of QE, the European Union could announce it was breaking up, and Russia might invade several more countries – and all those headlines would be less significant and lost in the news vortex on the day when Apple introduced a new… I don’t know, an iPhone in a different color.

That is an incredible brand. Think about how much money Apple Inc. (NASDAQ:AAPL) saves on marketing. This is why my kids have plastered Apple stickers (the ones that come with iPads) all over my house, including on my front door.

If you believe your friends, enemies, relatives or random strangers accumulated a seven figure portfolio and will benefit from our investment services, call Theresa at (303) 796-8333 and we’ll be happy to mail them a signed copy of The Little Book of Sideways Markets.

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.

Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).

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I was born and raised in Murmansk, Russia (the home for Russia’s northern navy fleet, think Tom Clancy’s Red October). I immigrated to the US from Russia in 1991 with all my family – my three brothers, my father, and my stepmother. (Here is a link to a more detailed story of how my family emigrated from Russia.) My professional career is easily described in one sentence: I invest, I educate, I write, and I could not dream of doing anything else. Here is a slightly more detailed curriculum vitae: I am Chief Investment Officer at Investment Management Associates, Inc (IMA), a value investment firm based in Denver, Colorado. After I received my graduate and undergraduate degrees in finance (cum laude, but who cares) from the University of Colorado at Denver, and finished my CFA designation (three years of my life that are a vague recollection at this point), I wanted to keep learning. I figured the best way to learn is to teach. At first I taught an undergraduate class at the University of Colorado at Denver and later a graduate investment class at the same university that I designed based on my day job. Currently I am on sabbatical from teaching for a while. I found that the university classroom was not big enough for me, so I started writing and, let’s be honest, I needed to let my genetically embedded Russian sarcasm out. I’ve written articles for the Financial Times, Barron’s, BusinessWeek, Christian Science Monitor, New York Post, Institutional Investor … and the list goes on. I was profiled in Barron’s, and have been interviewed by Value Investor Insight, Welling@Weeden, BusinessWeek, BNN, CNBC, and countless radio shows. Finally, my biggest achievement – well actually second biggest; I count quitting smoking in 1992 as the biggest – I’ve authored the Little Book of Sideways Markets (Wiley, 2010) and Active Value Investing (Wiley, 2007).
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  1. I could see the 4.7 iphone being a hit, but any bigger no. I have also noticed that Apple does not produce a bunch of products and hopes one of them flies. It appears Apple does it right the first time. It’s too bad BlackBerry does not learn from this strategy, and release one perfect device. It now appears BlackBerry is going to focus on software solutions, just like the 500 new tech companies that opened up in the region. Why does BlackBerry take on projects that pose extreme competition?

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