iWatch to Save Apple?
May 2, 2013 - Much has been written about the demise of the technology sector. Today, technology stocks trade at a nearly 10 percent discount to the S&P 500, whereas before the financial crisis they traded at a 10 percent premium. Year-to-date returns of the S&P 500 technology sector lag the broader S&P 500 by nearly 7 percent.
There has been no bigger poster child for the collapse in technology than Apple. Following Apple’s more than 40 percent drop from its September highs, many analysts wrote the company off as a has-been -- a former market leader that has lost its brand appeal and first-mover advantage. Several analysts have even drawn parallels to Sony, the former technology darling that has since fallen into the abyss. But Apple, and the tech sector broadly, may simply be taking a pause, and be poised for a rebound.
Sony was once regarded as an industry pioneer, commanding a premium for being the first to market with new and innovative products. Then came the era when being “first mover” failed to trump loss of brand image and deficiencies in functionality and product execution.
Apple, however, is not Sony, and the rumored development of an iWatch is a prime example of why. Sony was one of the first companies to release a digital smart watch back in 2010, but it failed to catch on with customers as the brand lacked cachet. Apple is now rumored to be developing its own smart watch, several years after Sony’s original watch came to market. The difference between Apple and Sony is that Apple maintains a strong brand image and understands the importance of best execution and proper marketing.
Investors who are hungry for a new hit Apple product could be saved by the successful launch of an Apple smart watch, which some analysts estimate could be a $6 billion opportunity. If successful, this could open up an entirely new business model for Apple. Apple may no longer need to be first to market but may simply be able to win the market by being the best.
A successful launch of the iWatch would prove that Apple is able to learn from the mistakes of first movers such as Sony and dominate a market through best execution and leveraging their strong brand. This would bode well for Apple and the broader technology sector alike.
Lee Herzog is an investment strategist at BloombergBlack, a personal wealth management service.