The new kings of the hill
Investors are closely watching the big competition between two technology champions - Apple and Google. Many bets are placed on Alphabet, the new holding company of the Internet search and mobile services behemoth, whose market value of $524 billion trails just behind Apple’s $540 billion as of Friday’s closing. A year ago, Apple was bigger than Google and Microsoft combined and twice as large as Google alone. But over the last 13 months, Apple’s stock price fell 15 percent while Alphabet’s soared 43 percent. Market watchers believe Alphabet will soon dethrone Apple to become the world’s most valuable company.
Apple’s stock took a beating from fading prospects for the 9-year-old iPhone amid a standstill in smartphone technology. Two-thirds of Apple’s sales hinge on the iconic mobile device. Despite advance confidence in the iPhone 6 series released in 2014 and 2015, Apple shipped 74.8 million iPhones in the final quarter of 2015, its poorest record since the launch of the smartphone in 2007. Prospects for this year are worse. Its January-March figure is expected to drop 10 percent year on year. The strong dollar raised the price of the smartphone, and Apple is losing battles in the biggest smartphone market - China - to local rivals who offer much more reasonably priced products. The heyday of Apple, when it enjoyed annual growth of 30 percent, may be over.
The decline of Apple may also be the prelude to the end of the smartphone boom. The operating profit of the mobile division of Samsung Electronics dwindled to 10.13 trillion won ($8.5 billion) last year from 14.56 trillion won in 2014 and 25 trillion won in 2013. The smartphone market has reached a saturation point, turning into a vast but mundane ocean in which many fishermen are trying to net the same fish. Chinese latecomers are the challenge, but in that, they are struggling as well. Xiaomi, the leader in the lower-end category, sold 77 million smartphones, missing its estimate of 100 million units by a mile. Its ambition to go global is facing headwind due to patent issues.
Google’s ascent through aggressive growth has been spectacular and complicated. Its acquisitions and partnership list number over 180 and include big names like YouTube, Android, Motorola, robotics company SCHAFT and Titan Aerospace, with a business profile ranging from services like e-commerce software, Internet security and payment to hardware areas such as robotics and even automobiles. Social networking leader Facebook has also joined the race to expand by acquiring photo-sharing service Instagram, mobile instant messenger WhatsApp and drone maker Ascenta. Many brick-and-mortar companies have failed due to reckless expansions. But online companies have better ensured themselves future growth by making fast and clever bets.
Google’s revenue is expected to surge more than 20 percent this year on the back of last year’s 30 percent. While Apple is stalling in its development of new smartphone technologies, Goggle has advanced Internet search and is profiting from a versatile lineup of new businesses in digital ads, video, mobile, web browsing, email and mapping services. Apple’s price-to-earnings (PE) ratio is currently at 10.6, below the Nasdaq 100 average of 19.9. Google and Facebook’s PE ratios are at 23 and 97, respectively. Investors see more value in Google’s slogan of “Imagine the unimaginable” than Apple’s “Think different.”
The U.S. market value rank is likely to undergo a major change. Google will soon replace Apple at the top, followed by Microsoft, Facebook, Exxon Mobile, Berkshire Hathaway, Amazon, General Electric, and Walmart. The future top 10 list suggests we live in an age where people are more absorbed with virtual space - with Internet browsing, updating and texting on social networking platforms - than eating, buying clothes or generally existing in the real world. As we do more of our living online, companies will make more of their profits there, too.
Compared to transformations on Wall Street, Korea’s large companies are almost all committed to bygone or “sunset” industries. The only manufacturers that remain promising on the Seoul bourse are Hanmi Pharmaceutical, cosmetics company AmorePacific and biopharmaceutical company Celltrion. The local stock market desperately needs a breath of fresh air. Manufacturers must turn out blockbuster products in bio and automobile technology. Technology companies must also be able to come up with impressive innovations or partnerships like Google and Facebook.
Investors and asset management companies are now treating Apple as a value rather than a growth stock. They are turning to the so-called FANG companies: Facebook, Amazon, Netflix and Google. The stats say it all. Their revenues grew from 23 percent to 40 percent in the last quarter while Apple’s rose just 1.7 percent. We must be more aware of a changing reality.
JoongAng Ilbo, Feb. 1, Page 30
*The author is a senior editorial writer of the JoongAng Ilbo.
by Lee Chul-ho