by Brad Moon | June 19, 2012 7:00 am
The common understanding of the “Apple Halo Effect” is that consumers buy an Apple (NASDAQ:AAPL) mobile device such as an iPhone or iPad, get hooked on it and then decide to buy a Mac. The halo covers Apple as the big beneficiary of this sequence.
With the iPhone celebrating its fifth birthday this month, it’s a good time to look at another Apple Halo effect. A long list of other companies also see a direct economic benefit from working with Apple or by aiming their products at those millions of Apple users. Foxconn is (in)famous as the company whose factories assemble much of Apple’s gear, but the Apple ecosphere is much bigger than that. It includes every imaginable line of business from the developers of casual gaming apps to the companies that manufacture components of iPhones and iMacs, accessory makers and telecom providers.
Here are just a few of the companies that benefit from the Apple Halo Effect.
I’ve written before about the messed up relationships in the tech industry, and nowhere is this better illustrated than looking at Samsung and Apple. Bitter rivals in the smartphone and tablet market, they’ve kept an army of lawyers busy as they repeatedly sue each other. They compete in the notebook market, and if Apple ever releases its rumored iTV, guess who it will be going up against? That’s right, Samsung.
Yet despite the fiercely combative relationship, Samsung is one of the biggest — if not the biggest — benefactors from the Apple Halo Effect.
Samsung manufactures the A5 chip that powers the iPhone 4S, AppleTV, iPad 2 and the new iPad. Samsung also supplies much of the flash memory used by Apple devices, and the spanking-new MacBook Pro uses Samsung solid-state drives for storage. Last year, The Economist analyzed the iPhone 4S and discovered that Samsung supplies over one-quarter of the components (by cost) that go into making the device. According to Bloomberg, Apple contributes over $7 billion annually to Samsung’s coffers. Imagine if they were friends!
Apple’s iPods had already taken over the portable music player market when ZAGG’s (NASDAQ:ZAGG) invisibleSHIELD screen protector was released. The product became an instant success. ZAGG expanded into a full-line accessory maker producing everything from earbuds to skins, cases and keyboard alternatives for tablets. Although it offers these goods for devices from multiple electronics makers, Apple products still dominate its catalog.
ZAGG is an excellent example of how accessory makers can profit by being early on the scene. As a Trinity university report on the company points out, ZAGG follows the adage: “When there is a gold rush, be the one supplying the shovels.”
Of course, ZAGG’s challenge is that the Apple gold rush has attracted many competing shovel manufacturers, ranging from big players like Logitech (NASDAQ:LOGI) to individuals selling custom accessories on Etsy.
While Intel (NASDAQ:INTC) is heavily pushing the Ultrabook initiative for lightweight notebooks that are aimed squarely at Apple’s highly successful MacBook Air, it also makes money from every PC — desktop or notebook — that Apple sells. Apple began transitioning its computers from PowerPC chips to Intel versions in 2005. That year, its U.S. PC market share was 4%. Today, Apple’s U.S. market share is more than double that, and every Mac and MacBook is powered by an Intel processor.
Some Windows PC manufacturers have switched to rival AMD (NYSE:AMD) processors, and the overall PC market has declined in the past year. As the third-largest PC maker in the U.S. (and one whose sales actually increased last year), Apple has helped soften those blows for Intel.
The video-game development industry can be brutal. It’s cyclical, deeply affected by the release of new game consoles and holiday seasons. The cost to produce a quality console title is going through the roof. Microsoft (NASDAQ:MSFT) spent $55 million to produce Halo 3 for the Xbox, and reportedly sunk between two and four times that amount into marketing the game.
Electronic Arts (NASDAQ:EA) was one of the companies to recognize the gaming potential in Apple’s iOS mobile devices. By bringing titles like Madden NFL, Mass Effect, and The Sims to Apple’s App Store, Electronic Arts has established the ability to successfully charge $5 or even $10 for a mobile game. For Apple’s installed base of over 300 million iOS devices (compared to 68 million for the best-selling Xbox 360 console), those lower prices become impulse buys rather than once-a-year purchases for a $60 console game.
Plus, EA’s app titles have significantly lower production costs than console versions, lower distribution costs (with no physical discs to ship) and are largely immune to the cycles that plague the console market. As one of the most successful iOS app game producers, EA is undoubtedly grabbing a fair-size chunk of the $5 billion+ Apple says its paid out to App Store developers.
You can find literally hundreds of other examples. In many cases (ZAGG being a perfect example), these companies didn’t exist until the opportunity arose to hitch themselves to the Apple bandwagon. In other cases, Apple provides a new — and rapidly growing — opportunity for an existing company. Either way, the Apple Halo Effect is having a positive effect on their bottom line.
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