Just this week the price of a share in Apple surpassed, for some while, the extraordinary boundary level of $500. At the same time it faced problems in the manufacturing chain with Proview International Holdings (Taiwan and Hong Kong) continuing their legal push for the rights to the iPad name in China, and the apparently welcome inspection by the Fair Labor Association (FLA) of the FoxConn factories in the Peoples’ Republic.
The Proview dispute is one that Apple should have ended a long time ago but their seeming arrogance – or disbelief that the iPad would sell in China – led them to settle over use of the name everywhere else. Now things have escalated to the point that shipments of the iPad 3 (rumored for early in March 2012) are being threatened with customs actions. You would think that the cost of legal arguments and the potential harm to supply would have already forced Apple to settle for what is a trivial sum to them.
The FoxConn investigation is a big ball of wax. We should remember that Apple is hardly alone among brands that use the FoxConn factories; alphabetically we know there are also Acer, Amazon, Cisco, Dell, Gateway, HP, Intel, Microsoft, Motorola, Nintendo, Nokia, Samsung, Sony, and Toshiba. And while we think of Foxconn as a Chinese operation with over 900,000 employees (in 2010), they are the largest exporter from the Czech Republic and also have manufacturing operations in Brazil, Malaysia, Mexico, and India. The company, with over $60 billion in revenue in 2010 (more than the GDP of many nations on the globe) started as an electrical connector manufacturer for Atari and is legally known as the Hon Hai Precision Industry Company. As the company says, it prides itself on “continual education, investing in its people long term and localization globally (sic).
We have already expressed some concerns about the long-term innovation problems that Apple is going to face under its new CEO, Tim Cook, and I certainly would not voluntarily spend $500 on a share of the company.
Facebook, of course, is another thing entirely. Here we have a company that was founded by what appears to have been an immature Yale undergraduate who wanted to embarrass an ex-girlfriend with pictures on the web. Now it has 845 million members who seemingly love to share their lives with the world. Despite all the assurances of data security that repeatedly change status with the company few users seem to realize that the company itself has access to everything you post. I liken it to those screen-sharing services that allow you to talk with someone else about files on your desktop and to permit them to see them at the same time as you. What of the company providing the service? Is it OK to share all your intellectual and commercial secrets with them?
Now Facebook is going for its IPO. It is expected that it will raise about $5 billion from the stock offering, making it the largest ever Internet IPO, with a listing as FB. Don’t expect to be able to get a stake in that IPO: all the stock will go to the very rich Wall Street firms and individuals who will then sell the stock on at a premium – expected to be 1500 to 2000% – to actually raise $75 to $100 billion. And for that money what will you get? Last year Facebook had revenues of $3.8 billion, about $4.50 per member. Wow!
What makes Facebook’s potential market valuation worth a quarter of Exxon? Bricks and mortar, underground reserves, patents, what? In 2011 Facebook’s revenues were 85% advertising and 12% from Zynga (social games vendor) and its cost per thousand impressions (CPM) was 22 cents, less than 50% of the 50 cents web average, and absolutely tiny compared to revenues at Google, a site that is all about selling.
With Google additionally breathing down Facebook’s neck and the strong probability of integrating Chrome, Android, and all its search capability into the Google+ social networking site, Facebook looks like a prime target for the next web debacle. The Wall street investors and the founders will not lose out, but your stock portfolio undoubtedly will. You might think instead to put your money into FoxConn…