Entering the 2nd half of 2013, I have targeted five different themes to investigate, research and evaluate in a search for emerging economic trends and investing ideas. The first theme in this series focused on margin debt. Today, I will delve into one company’s colossal achievements that could eventually have major implications (both positive and negative) during the next economic slump. That company is none other than Apple, Inc. (AAPL), led by the Apple Ecosystem.
Who knows when a recession arrives, but we will most definitely have one at some point regardless how hard the Federal Reserve attempts to hijack the economic cycle. The next downturn though, will be unlike all others, as it will be the very first Apple-era recession. Apple was obviously successful going into 2008-09, but its sheer dominance emerged just as we were leaving our last recession. Within just the past couple weeks, Apple fanatics celebrated the 6-year anniversary of the iPhone and the 5-year anniversary of the App store. Hecek, at 3 1/2 years old, the iPad is a mere toddler.
In addition to its own products, the technological ecosystem created by Apple is responsible for the ensuing development of the Kindle, Google Play, and Samsung products among many others. Life without Apple and Steve Jobs would undoubtedly look nothing like it does today.
How long ago was it that the media was obsessing about $1000/share Apple price targets? Suddenly, Apple and its management are now chided as they hang on dearly to a share price in the low $400’s while the market obsesses about how they are going to turn things around. The lost discussion, in my opinion, is what the economy, other industries, and individual businesses will evolve to when the Apple Ecosystem enters its first recession.
The Apple Ecosystem has already throttled many industries, but when a downturn hits, how devastating might Apple’s effect be on movies and theater companies, video game manufacturers, sporting events, physical books, and camera manufacturers among many others? This ecosystem will likely have an effect, albeit unknown, on almost every single non-essential retail company there is. How could commercial real estate, telecommunication providers, and even utility companies be affected?
When it comes to disruptions caused by economic recessions we are comforted by tales of how people flocked to movie theaters during the Great Depression for inexpensive entertainment. Those tall-tales are likely meant to isolate us from the hard, inconvenient truths tough times bring. From 1930 to 1932 the number of operating movie theaters crashed from 22,000 to 14,000 and attendance figures dropped precipitously from 90 million per week to 60 million during the same period. Source: dobywood.com
Now ask yourself – how much more content do your fingertips have access to at this very moment?
Despite how Americans are negatively typecast by popular culture, when they are backed up against a wall, Americans can prove to be an incredibly resourceful, innovative, and ingenious people. When the United States is next tested with economic distress, the imagination of what problems can be solved by utilizing already owned devices will take center-stage. The economy doesn’t care if Cornelius Vanderbilt or Steve Jobs created it, when recessions occur, the visions and advances of economic patriarchs will naturally lead to periods of calamity for some but also enormous opportunities for others.
When the Apple ecosystem meets a downturn, traditional recessionary decision-making could get flipped on its head. Immediately a broadband connection will rank up there with homeowners insurance as a necessity, benefiting companies responsible for delivering internet access. If you can’t afford broadband, those companies who provide Wi-Fi for the price of a small inexpensive luxury would likely benefit (think Starbucks). Somebody will also have to store all of this accumulating electronic data somewhere as well.
Who will sell the content to these already owned devices? There’s a reason Amazon is practically giving away the Kindle Fire. Imagine a world where the App stores replace the role our current-day dollar stores hold – I believe in lower-income households that affect is already underway.
There would likely be other environmental positives. It would likely lead to a further reduction in miles driven and frankly, a positive reversal in American’s accumulation of “stuff”. These positives though could result in budget-busting changes for municipalities who would struggle pocketing less gas and sales taxes. The potential ramifications for the economy when the Apple ecosystem enters a recession will know few bounds.
Recently, I wrote about Apple’s biggest threat, but interestingly it may actually be Apple and the Apple ecosystem that have a gigantic effect on others when the next recession arrives. As Apple’s business has matured, and as consumers have already slowed their upgrade cycles, I believe this affect is on the cusp of evolving into an economic tsunami with unparalleled consequences. Yes, many of these questions are unanswerable now. But the direct and in-direct implications for the economy, business, and investing will definitely be worth considering in your decision-making.
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