Apple prefers surprises. Speculation – often
informed – is always rife before the company makes its latest announcements,
but the computer giant itself never comments. On Wednesday, Apple boss Tim Cook
may have another surprise in store, although many have predicted it – the tech
firm's first decline in profits for nine years.
Things have been difficult for Apple
recently. Its shares have lost 20% in the last three months and they closed on
Friday at $500, down from an all-time high of $705.07 when the iPhone
5 launched last September.
Shares in Apple have been largely on the
slide since that launch, marred by an unpopular decision to drop Google Maps
for the company's own botched version that left navigators three times more
likely to get lost, according to one survey. Executive heads rolled.
There was speculation last week that the
company had cut back on suppliers – suggesting that iPhone sales had slipped.
Apple changes suppliers often and may, according to other rumors, be planning
to use new glass technology on its devices. With no comment from the company,
Apple's shares slid again.
And yet, for all these issues, Apple is
widely expected to have sold close to 50m iPhones last quarter – another record
– and fans can't get enough of its iPad
and iPad Mini. The company remains the most valuable on the
planet.
This is a tale of two Apples. One, fans
argue, is set to continue to redefine business in the way companies like
General Motors and IBM did in their heyday. The other, for critics, is an over-hyped
phone manufacturer, which is about to be caught up by reality.
Walter Piecyk, analyst at BTIG, is firmly in
the latter camp. He downgraded Apple's stock to neutral from buy last April – a
move that looks like smart timing now. Piecyk predicts Apple will have another
record setting quarter in sales for the company and close to an 80% increase in
iPhone sales from the September period, when sales were hit by customers held
off in anticipation of the new phone.
But it's not this quarter's sales that worry
him. What worries Piecyk is Apple's "compressed product cycle". The
company could once rely on growing sales for its hit products even after their
hype-fueled launches. The Apple fever is still there – huge lines formed at
Apple stores around the world for the iPhone 5 and the iPad Mini. But there are
now worrying signs that Apple has lost the ability to build on the momentum of
those launches.
Apple launched its iPhone 3Gs in June 2009.
In the June quarter it sold 5.2m iPhones, in the September quarter it sold
7.4m, in December 8.7m and another 8.7m in the quarter after that. The pattern
repeated itself with the iPhone 4, launched in June 2010. In the September
quarter Apple sold 14m iPhones, in December they sold 16.2m and in March 18.6m.
Apple is selling far more iPhones these days
in more markets but sales are falling after launch. When the iPhone 4S was
launched in late 2011, sales hit 37m in the December quarter – up nearly 120%
from the preceding period. Sales then dropped over the next two quarters.
"It is selling in more markets than
before and sales fall off more quickly than before," Piecyk said, adding:
"Frankly they have no choice."
For a while Apple had the smartphone and the
tablet locked up. Now Samsung, HTC and others have products that generate as
much buzz. "They can't wait now. If you wait you are selling an old
phone," Piecyk said.
Early sales tend to be less profitable for
the company as returns are higher due to teething issues. But Apple can no
longer rely on mounting sales to set off those costs. The speed of launches and
level of competition is only increasing and for Piecyk, Apple is the likely
loser.
Horace Dediu, an Asymco analyst, has roughly
the same numbers as BTIG but he couldn't disagree more. There are technical
reasons that the quarter may underwhelm – this quarter is a week shorter than
last year's comparable quarter and the company had two launches to contend with
– but fundamentally, he says, Apple remains a stellar performer with room to
grow.
"The global appetite for devices is
measure in billions of units," he said. "The numbers of units Apple
is shipping remain relatively small."
He expects that Apple will launch a new
series of iPhones aimed a more cost-conscious buyers. It's a model Apple has
pursued before, with the iPod, and one that it looks to be following with the
iPad. "Samsung has 37 smartphones,"
he said. A new family of cut-price Apple phones could bring a Apple a massive
new market.
Apple's problem, he believes, is one of
perception. "What Apple does – make hit, blockbuster products – is seen as
unrepeatable," he said. "The iMac is not repeatable, the iPod is not
repeatable, the iPhone, the iPad. See the pattern?" He predicts that Apple
will come up with other "unrepeatable" products. TV is the most often
touted target.
The company has not launched an entirely new product
since the death of its founder, Steve Jobs. For a company whose share price has
been driven by anticipation of a new blockbuster, that is an issue. Cook is in
need of some new surprises, ones that prove Apple hasn't lost its spark. [TheGuardian]
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