Apple’s Creative Destruction of Competitors

One of the things that seems to have gotten lost in the avalanche of Steve Jobs coverage has been the impact he has had on technology investors. I refer not to the entire technology sector as an investable asset, but rather, the utterly crushing effect Apple has had on specific competitors as Jobs remade entire industries.

It is creative destruction writ large.

Starting with the iPod, consider the companies and franchises that the Apple juggernaut has demolished in its wake. Yes, we know the original Mac was hugely influential, ripped off by Microsoft. AAPL was marginalized as a PC player, only kept alive by a $150m MSFT investment in the a 1990s so as to retain a weakened competitor in the OS space.

Today, the triple threat of iPod/iPhone/iPad has left behind a wake of confounded business models, overwhelmed managements, and bereft shareholders. Let’s look at who has been hurt — and helped — by the elegant interface monster from Cupertino:

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Destroyed

• HP: The printer business may still have some ink left, but the iPad has gutted HP’s PC operations. It has reached the point the company is considering selling the $40 billion revenue division and leaving the PC industry. HP’s tablet entry, the $499 Touchpad, was a disaster — Best Buy was sitting on over 200,000 unsold units. None were selling until the priced was slashed 80% to $99. (Sure, they may lose $200 on each one, but HP makes it up in volume!)

• Dell: About Apple, founder Michael Dell once famously stated “What would I do? I’d shut it down and give the money back to the shareholders.” When Apple’s market cap passed Dell’s back in 2006, Steve Jobs reminded employees of that barb via email. Today, Apple’s profits ($29B) alone are actually larger than Dell’s entire market capitalization.

• Motorola: See Google, below

• Research in Motion/Blackberry: For a very long time, RIMM “owned” the enterprise market for mobile email and text messaging via their “Crackberry.” They are an instructive example of how a leader can get toppled by an innovative competitor. Topping out at $144 per share in 2008, the RIMM now trades in the $20s, with no solid answer to the iPhone. The NYT’s David Pogue just called their latest entry, the BlackBerry Bold 9900, too little, too late.

• Nokia: Not too long ago, Nokia had better than a 50% market share in the mobile phone market. Today? Just 15%, and forced to abandon their own OS in favor of Microsoft’s also ran Mobile OS.

• Ericsson: I’m sorry, but the name doesn’t ring a bell.

Damaged

• Microsoft: Once a vicious and hated monopolist, Mister Softee is currently run by a Steve Ballmer.  Bill Gates’ old pal is in so far over his head it would be funny if it wasn’t so pathetic.

Under Ballmer’s reign, Microsoft has become vulnerable. They have missed just about every major trend in technology over the past decade. Ballmer famously said he wouldn’t let his kids use an iPod or Google, missing (amongst many other tech trends) a entire computing shift. As recently as 2 years ago, he claimed Linux was a bigger competitor to Microsoft than Apple. Perhaps a different CEO might have had a strategic counter to Jobs, but Ballmer was not that guy. They still are a cash cow, but that is likely to dissipate over the next decade.

• Sony: Once owned the portable music space, but their Walkman was replaced by the iPod, and their well regarded Vaio laptops are getting suplanted by iPads. They have a huge consumer electronics, film, and television business, but are being slapped by the Koreans below and Apple above.

Intel: A mixed bag to say the last. Intel is powering Macs and has some chipsets in other Apple products, but their PC business appears to be suffering.

Challenged

Google: A juggernaut in its own right, GOOG acquired Android and turned it into a legitimate competitor to the iPhone. But they don’t sell the OS — they give it away for free, and retain the search rights (their bread & butter).

It was smart to expand into mobile so as to not get eclipsed in that space, but it also created another set of headaches: Patent exposure. Apple not only dominates the space, but they also acquired a huge trove of Nortel patents so as to insulate themselves, and challenge all comers. This forced Google to pay up for a comparable portfolio, grabbing (former Apple partner) Motorola for $12.5B. The jury is still out as to whether this will insulate some of the obvious Apple inspired tech on the Android . . .

AT&T: Was desperate enough to let Apple dictate terms for the iPhone, thereby changing the entire industry. When iPhone calls got dropped in large numbers Apple may have saved them from an ignominious demise.

Benefitted

Sharp:  Apple invested a billion in Sharp to insure a steady supply of laptop LCDs.

Corning (GLW) – ‘Gorilla’ Touchscreen Glass is the supplier to not only iPod touch/iPhones/iPads, but the entire industry. the i-line and its inspirations has been a boon to Corning.

Sprint: WSJ reporting they will get iPhone 5 in October)

Foxconn: Manufacturer of many Apple products (but still has not resolved its worker suicide issues).

STMicroelectronics Makes the Accelerometer, Gyroscope in iPods

Qualcomm (QCOM) – Wireless baseband chips in iPhone4 and to be in iPhone 5

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Hat tip Josh Brown,  John Melloy,