Why Apple is Winning: Innovation, Opportunity and Execution

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LiSong / Imaginechina / AP

Apple CEO Tim Cook

Apple is building one of the most stunning financial runs in the history of corporate America, as Tuesday’s blowout showing affirmed. The company says it’s sold over 365 million digital devices over the last five years — 50 million last quarter alone — and is currently averaging nearly $4 billion in monthly profit. It has amassed $110 billion in cash. Most insanely, this could just be the beginning: Apple is exceedingly well-positioned to take advantage of several major trends in the new digital economy.

Thanks to a combination of anticipation and luck, Apple — which nearly went bankrupt before the last tech boom — is poised for even greater heights if it can continue to out-think, out-innovate and out-execute its competitors. Here are three major forces buoying Apple’s growth and pushing the company forward.

Innovation: One of Apple co-founder Steve Jobs’ key lessons was to skate to where the puck will be, a figure of speech borrowed from hockey that boils down to anticipating the key action, and avoiding the late hit. Instead of relying on what the customer says they want — on a market research survey, for example — Jobs insisted on defining needs that consumers didn’t know they had. Millions of Americans might have been satisfied with — or at least sanguine about — their Sony Walkman mobile analog tape decks, but that was before the iPod and iTunes, which dramatically changed the music business and the way we interact with our music players.

Motorola Razr flip-phones were all the rage until the iPhone demonstrated the potential of the smartphone beyond businesses to everyday users, who gained easy access to email and mobile browsing. For the first time, consumers felt like their computer was mobile. Now, the iPad has introduced an entirely new PC product line to the popular market — one that’s reshaping centuries-old traditions of paper-based reading. One need only observe New York City’s subway lines on a morning commute to understand how quickly the change from print to digital is happening.

Opportunity: Three ongoing trends have created the environment for Apple to continue its ascent: Smartphones, tablets, and Asia. In March, for the first time, smartphones outnumbered basic mobile phones. Fifty percent of Americans now own a smartphone, and this secular shift has fueled an entirely new, re-enforcing industry — the “app economy.” Meanwhile, tablet sales, which were slow to catch on over the last decade, are soaring. Apple sold 11.8 million iPads, a 151% increase over last year. Now, millions of consumers are lining up to buy tablets, and with little lower-priced competition — other than the nice but comparatively limited Amazon Kindle — Apple has smartly positioned itself at the high end of this market.

On the other side of the world, Asian and new developing markets are just beginning to boom — and the potential is truly staggering: hundreds of millions of possible new consumers. Apple’s Chinese sales have tripled over the last year — and that’s without the new iPad, which Apple has held back because it simply can’t produce enough of them. Some 55% of the company’s sales came from foreign countries. If Apple can keep up its innovative product pipeline, it’s easy to be very bullish about sales growth internationally.

Execution: Yes, Apple CEO Cook, who took over the company after Steve Jobs died last year, inherited a good thing. But as COO over the last decade Cook played a key role in honing Apple’s razor-sharp production and supply-chain success. A low-key but extremely focused and driven operational thinker with an Alabama drawl, Cook was the obvious choice to replace the visionary Jobs. Over the course of nearly three decades, Jobs defined what success meant on Apple’s terms — and the strategy to achieve it. Cook’s responsibility has been to execute Jobs’ vision, and he’s been so successful that the company finds itself in an unusual and enviable position for a global corporate giant: Apple literally cannot produce enough of its products to meet consumer demand.

Perhaps more importantly, Cook has displayed a pragmatic levelheadedness that has served Apple well following the brilliant and mercurial Jobs. Cook has moved aggressively to deal with questions about Apple’s supply-chain working conditions, particularly at Chinese industrial giant Foxconn. He’s loosened Jobs-era limits on matching corporate philanthropy. And he’s initiated a new plan to issue a dividend and buy back stock from Apple shareholders. Cook knows that he’s at the tiller of a juggernaut, and his thoughtful and poised manner has won him fans from the Apple commentariat — and the stock market. Apple shares topped $600 after-hours Tuesday and most Wall Street analysts are pointing to levels of $700 and higher over the next two years.

Investors have good, fundamental reasons to be bullish about Apple — Wall Street naysayers (such as they are) notwithstanding. The company has helped define the hottest tech category — the smartphone; it’s opened the door to widespread adoption of the tablet market — with the iPad. And it’s done this, all while buoyed — and perfectly set up — for the most important economic and financial secular change of the new millennium: the emergence of the nascent, middle-class Asian consumer, fueled by rising economic growth and standards of living.

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