These Industry Powers Have Never Been More Scared

Keith Fitz-Gerald

Many investors are holding their breath even as they hold out plenty of hope looking at the recently announced deal between Apple and IBM.

The upside, many say, is unlimited because it's such a brilliant move.

Hardly.

In fact, the deal reeks of desperation and unprecedented weakness.

We've seen this playbook before…

We've Seen These Mergers Before

Today's computer market has some similarities to yesterday's airline industry. With relentless competition and enormous downward price pressures, the only way to survive was to team up with rivals to improve economies of scale and broaden product outlets (In the case of airlines, acquiring flight routes and gates).

Over the past 12 years, we've seen a series of bankruptcies and mergers that have taken the airline industry down from 10 major U.S. carriers to only four. At the same time, complaints have more than doubled about everything from reservation systems to baggage and on-time performance. One cost of consolidation has clearly been customer service, and despite expanded economies of scale, less competition has only driven prices higher.

Another "merger to safety" is in the auto supplier market.

Since 2006, we've seen a flurry of activity as formerly competitive companies have teamed up to combat more cost-effective foreign suppliers. According to PWC, there have been 1,944 deals since '06, with 27 of the world's largest suppliers seeking consolidation here in the United States. They are, in effect, closing ranks against foreign competition.

IBM Is Apple's Backup Plan

If you think about this for a minute, what I'm saying makes a lot of sense: the Apple and IBM teaming strategy is a move towards mutual safety, not growth.

Take smartphones, for example.

According to International Data Corporation, last year the industry shipped more than one billion units for the first time. That's up 38.4% from 2012 and represents a doubling of smartphone volume in just two years.

Much of the hope driving this deal is that Apple and IBM will be able to tap new "synergies" that allow Apple access to IBM's business markets, and give IBM access to Apple's devices and cloud services.

Unfortunately, "synergy" is corporate buzz speak used when someone is trying to explain why a particular plan or undertaking will work when the data suggests it won't, or that there's a snowball's chance in hell of success.

When you break down the composition and growth of the smartphone devices shipped by operating system, you can see very clearly that the battle is all but over.

Like it or not, Google's Android operating system holds a commanding lead and now accounts for a staggering 80% of all worldwide smartphone operating systems shipped. The majority of gains have come directly at Apple's expense.

The way I see it, Apple could sell 100% of IBM's clientele a full suite of its latest smartphones, tablets, and computers and still not move the needle.

Keith Fitz-Gerald

About the Author

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Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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