Apple (AAPL) investors have long been waiting for the tech giant to start innovating again and create a new product line.
The Apple technology, called CarPlay, will be rolled out by automakers Ferrari, Mercedes-Benz and Volvo at the Geneva Auto Show this week.
The so called “iCar” technology has been awaited for some time. Microsoft (MSFT) was already out in the marketplace with its Sync technology that had been exclusive to Ford (F) vehicles … before Ford dumped MSFT for similar technology carried by BlackBerry (BBRY) called QNX. Point being, with other big tech companies already out there, it’s about time AAPL entered the fray.
Also, increasing discussions about cars as Internet hotspots or vehicles communicating with each other to prevent accidents has upped the ante for technology companies in cars. High-tech vehicle technology is all the rage right now, and the market could become a lucrative one long-term.
But just because CarPlay is built doesn’t mean it’s a guaranteed success — either in the marketplace or for AAPL stock holders.
So what’s the outlook for Apple as it enters this new market?
AAPL Stock Won’t Budge, But Heads Will Turn
It’s undeniable that AAPL stock has gotten a bit of swagger back. Shares are up 22% or so in the past year, in lock-step with the S&P 500.
While that might not sound thrilling, it’s better than what we saw for AAPL at the end of 2012 and beginning of 2013 by a long shot.
Part of the Apple snapback has been thanks to Carl Icahn using his bully pulpit to tout the stock, but a lot has been strong profits.
So will CarPlay help that profit momentum? Unfortunately, not.
Here’s the bottom line: Apple shares aren’t going anywhere anytime soon based on any material profits from this venture.
AAPL stock still gets half of its revenue from the iPhone — roughly $90 billion annually — that will dwarf anything that CarPlay can do out of the gate.
Furthermore, margins aren’t likely to be anything to sneeze at. Unlike the first iPhone and iPod, which allowed for hefty profit margins because there wasn’t anything truly like them, CarPlay has a host of competitors already and AAPL is actually playing catch-up to Microsoft and BlackBerry in some respects. That will force CarPlay to be competitively priced, even if Apple might have a leg up considering its brand appeal with American consumers.
Lastly, there’s no guarantee that CarPlay or anything like it will ever live up to the hype. I mean, plenty of people are content driving cars with “terrestrial” radio (that is AM/FM), plenty of road trips are taken in cars without built-in video screens for the kids and plenty of people still use a suction-cup mounted GPS instead of in-dash technology.
A smartphone itself was liberating and revolutionary… but CarPlay and other technology like it might simply be a distraction or a luxury that isn’t worth it to many consumers.
AAPL Needs Something New
AAPL stock holders have been looking for the next big thing for some time — and having Ferrari and Mercedes on board is great for public relations. Apple might get some positive buzz from this news simply because there hasn’t been much in the way of innovation at the company lately.
However, I’m not convinced this product will ever move the bottom line. And that’s not because I think CarPlay will be inferior, but simply because I think the category won’t do much for any tech stock, including BBRY and MSFT.
Consider that auto sales are predicted to top 16 million in 2014, meaning if one tech application gets in half those new cars (8 million) and commands royalties of $500 a pop, that still only adds up to $4 billion annually — about 2% of total revenue for Apple and about 4% for Microsoft.
And for the record, there are only 7 million cars total on the road with MSFT Sync capabilities … and that partnership began way back in 2007.
You could argue that Microsoft didn’t execute as well as Apple will, or that the technology was too ahead of its time.
But I’d prefer to argue that this is a niche product with plenty of practical alternatives right now.
CarPlay, therefore, is a dark-horse long shot … not the much-anticipated product that Apple investors have been waiting for.
It might provide a short-term sentiment pop and some good headlines, but nothing more.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.