No one loves Apple more than stockbrokers. Of the 55 analysts surveyed by Reuters, 49 rate Apple a buy or outperform, which means there are six people on the planet still listening to Walkmans. Even by the standards of stockbroking, a world where everything is about to go up all the time, this is an almost conspiratorial consensus.
And yet the brokers may well be right. Apple’s latest results are mind-bending. In three years, Apple has almost tripled revenues and quadrupled profits, establishing a war chest of $65.8 billion, in cash. On a price-to-earnings ratio of 17 and years of growth all but assured, Apple looks cheap.
But after that a Microsoft-like future awaits; cash-rich but slow, defensive and struggling to innovate.
What investors most worry about — Steve Jobs’ departure — isn’t a huge deal. As Stilgherrian notes, it was Jobs’ control freakery that helped Apple lose its lead in desktop computers to the evil Microsoft in the early ’90s. That same do-as-I-say attitude is all over the new devices. If Jobs has done half as good a job on managerial succession as he has on product development, Apple should be fine. The company faces bigger risks than his departure.
Apple relies on a few key products, all of which require upgrading every 12 months. That’s a horribly short product lifecycle that demands constant innovation. Few companies manage it for more than a decade or so.
In technology, innovation is usually disruptive; CDs replaced tapes, email replaced letters, cloud services are replacing localised storage. But within a company, innovation tends to be linear. It’s easier to build on what a company already does than chuck it out and replace it with something totally different (although Apple is better at this than most), which is why Microsoft bought, rather than invented, Hotmail.
That makes technology a business unlike almost any other. Tech companies rise quickly and fade fast. Google, which replaced Alta Vista, is being attacked by Facebook. Twitter, which didn’t exist six years ago, is challenging both. No one knows what might come next but something almost certainly will. Somewhere, a precocious college dropout is working on it right now.
Unlike banking, retail and almost any other large industry, in technology teenagers can have a crack at a global brand. Barriers to entry are low and there aren’t regulatory regimes that end up serving the interests of incumbents. Even monopoly profits, which is what Apple is making right now, are less easily converted into political power than in banking or manufacturing. Goldman Sachs and General Motors are evidence of that.
Karl Marx would hardly believe it. Technology is one of the few sectors where capitalism actually works as it should, which is why Apple will eventually stumble. The industry all but guarantees it. It’s simply a question of when.
Add this to Hungry Beast’s report last week about Apple’s sweatshop labour http://hungrybeast.abc.net.au/stories/beastfile-apple and the future’s just one big, rosy, apple. Disgraceful.
Might I suggest Apple’s longevity in the future will come not from innovation from within but from the thousands of precocious college dropouts working away on Apps. The genius of what Apple have done is to create a platform flexible enough to be used by anyone for anything which is information related. There is no rigidity in their program, they simply keep the platform developing as a result of user feedback but always include something in their design to ensure they take a cut of what anyone makes out of any deal. Apple’s downfall may be more likely to come from their propensity to be too greedy and take too big slice of the cake.
Just a note: Steve Jobs left Apple in 1985, and didn’t return until Apple bought NeXT in 1996. I also can’t see any suggestion in Stilgherrian’s article that Jobs was responsible for Apple’s actions in the early 90’s, but perhaps I missed that.
I certainly wont be heading to John for investment advice! This is entirely vacuous story. By this analysis IBM should have died long ago!
Apple has done quite a remarkable job of creating a suite of interconnected products each of which delivers strong revenues, but most of which stand on their own.
The MAC line is not dependant on the iPhone, however MANY iPhone users move on to be MAC users. To be an iPod touch user doesn’t require you to be a user of iPads, or iPhones, however once you are an iPod Touch user you are MUCH more likely to become an iPhone AND iPad user. The iPhone, iPad, iPods all encourage you to buy or rent music, video, applications and more.
Apple has built an extraordinary engine. You would need an awfully long investment horizon if you expect them to “fail” (whatever that actually means – last time I looked Microsoft is still one of the most successful companies going)!
Tgilesau has it. Apple’s future success will be as a middle man with iTunes and the App store in a similar way that Google has been with advertising.
This story seems contradictory, or perhaps doesn’t follow some ideas to their conclusions. Innovation is the key. But most companies do not have a linear approach to innovation. Most technology companies cannot package a product and shove it out the door fast enough to gain some kind of market share. The result are some radical and revolutionary products, but also some disastrous, confusing nightmares of usability or bugginess. A business fails in this game when they run out of ideas or they deploy a product that is half-baked or not marketed correctly.
Apple’s approach is measured. Innovation fuels their engines, but does not drive them. They pull their punches and do not introduce new technology unless it fits their business model. If an innovation is desirable enough to disrupt their model, they tend to prepare the way a few releases ahead by changing direction and adapting. A great example of this is how they have managed media streaming and bluetooth technologies culminating in AirPlay. I am sure this was not the direction they intended to take back when they release AirTunes with Airport Express 7 or 8 years ago, but they took on board the push and pull of various technologies and made them fit into the Apple model.. and they took ages to do this!!! and its still evolving.