Is Apple Losing Its Shine After Steve Jobs?

A few more disappointing quarters -- or slowing iPhone sales-growth -- and doubt could build about Apple's post-Steve Jobs future.

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David Paul Morris / Bloomberg / Getty Images

Steve Jobs unveils the iCloud storage system at the Apple Worldwide Developers Conference in San Francisco, June 6, 2011.

If last week’s technology earnings bloodbath gave you pause, consider this: What happens if Apple, the world’s most valuable technology company, falters? It’s a chilling thought. As the one-year anniversary approaches of the death of Steve Jobs, the visionary and revered executive behind Apple’s most beloved products, tough questions could bubble up about Apple’s future, especially if we see a few more quarters of disappointing earnings results — or weakening iPhone sales growth.

Last week, Apple delivered a rare earnings disappointment. The report was notable for weak iPhone sales growth, which Apple tried to explain by citing “rumors and speculation” about a new iPhone that could be leading consumers to hold out for the new model. Apple reported sales of $35 billion, below Wall Street expectations of $37 billion, and said it sold 26 million iPhones, down from 35.1 million in the previous quarter but 28% higher than last year. That result was underwhelming for a company that normally blows away Wall Street expectations. “It’s disappointing on the iPhone number,” Piper Jaffray analyst Gene Munster observed mildly.

Apple has a winning product with the iPad tablet, but that device faces increased competition, most notably from newly introduced Google and Microsoft devices. Also: don’t forget that iPhone sales account for nearly half of Apple’s overall revenue, though sales of the newer — and more expensive iPad — are rising more quickly. To continue its astonishing ascent for the next 5 years — venture capital titan Marc Andreessen’s baseline time-horizon for Silicon Valley tech innovation — Apple is going to need a new breakthrough hit product.

Apple’s competition isn’t going to remain in chaos forever, and there are signs that the company’s rivals are, in fact, getting their respective acts together. Apple shares fell over 5% after the report, though they’ve since rebounded, in part because the company’s stock is still seen as safe in an especially turbulent market.

(MORE: How Low Can Facebook Go?)

What if Steve Jobs already introduced the overwhelming balance of Apple’s breakthrough products? After all, during his too-brief, once-in-a-century career, he radically disrupted at least seven industries: personal computing, desktop software, music, mobile phones, publishing, tablet computers, and Hollywood animation, as Jobs biographer Walter Isaacson recently observed on 60 Minutes.

This week, the Associated Press published a story with a truly eye-opening headline: “IPhone appeal dims as Samsung shines.” IPhone appeal dims? That’s not exactly the impression given by the company’s report nor its executives. To the extent that consumers are waiting for the new iPhone, it means they really want one. Sure, a weakening economy doesn’t help, but as Apple CEO Tim Cook said: “I’m glad that people want the next thing. I’m super-happy about that.” So what did the AP report offer to back up that headline?

The once-sexy iPhone is starting to look small and chubby…For a dose of smartphone envy, iPhone owners need to look no further than Samsung Electronics Co., the number-one maker of smartphones in the world. Its newest flagship phone, the Galaxy S III, is sleek and wafer-thin. It can run on the fastest networks and act as a ‘smart wallet,’ too — two things that Apple’s iconic phone can’t do….Says Ramon Llamas, an analyst with research firm IDC: The iPhone ‘is getting a bit long in the tooth.’

It’s true that Apple’s strategy of releasing one new iPhone per year leaves the field of battle open to the company’s competition for the rest of the year, as the report pointed out. It’s also true that the iPhone’s screen size — 3.5 inches diagonally — has stayed the same since the first model was released five years ago, as the report also pointed out. And it’s true that Apple’s competitors — most notably Samsung — are forging ahead with new models that pose an increasing challenge to the iPhone’s remarkable run.

It’s too early to declare that the iPhone’s appeal is “dimming.” We won’t know whether consumers are really souring on the device until the company reports earnings results following the release of the new model. I also think there’s a subtext to some of the negative Apple chatter, and it’s a little more profound than questions about whether consumers are cooling on the company’s signature product: Nearly one year after the death of Apple’s iconic co-founder and spiritual leader Steve Jobs, how long Apple can continue its unbelievable run of business performance without him?

Remember: Last time Jobs left the company, it nearly collapsed. Is that going to happen again? No. Apple has over $100 billion cash. Also: Jobs made sure to stock the company’s product pipeline with cool devices. (New Apple TV anyone?) Most importantly, he instilled a culture of innovation and execution within Apple’s DNA that will serve it well going forward. And CEO Tim Cook, the company’s chief operating officer for the last decade, was instrumental in Apple’s best-in-class production and supply-chain operation.

A focused and brilliant operational thinker, Cook had one job: execute Jobs’ vision, and Cook did so magnificently. Cook has also moved aggressively to address critics about Apple’s working conditions at Chinese industrial giant Foxconn. He’s loosened Jobs-era limits on corporate philanthropy. He’s initiated a new plan to issue a long-clamored-for dividend to Apple shareholders — one that should soon land the company in the mighty Dow Jones Industrial Average.

(MORE: Apple Earnings Miss Wall Street Target as Buyers Wait for New iPhone)

But as much as I respect him, Tim Cook is not Steve Jobs. Whereas Jobs was iconoclastic and mercurial, Cook is low-key. Cook burns with an understated intensity, but not the phone-slamming, screaming-match-having passion that Jobs was famous for. In other words, it was perhaps inevitable that questions would be raised about Apple’s fate in the post-Jobs era. In fact, those questions began almost as soon as Jobs passed away 10 months ago — even if the company’s stellar performance over the last year quieted most of those concerns.

By asking about Apple’s post-Jobs future, I’m not trying to troll a company I respect deeply. But a few more quarters of below-expectations results could spook Wall Street. Further weak iPhone sales-growth could obviate the “consumers are waiting for the new model” explanation, and will only cause speculation to increase about Apple’s future. We’re not there yet — Apple’s stock price is still up nearly 60% over the last year. But with a company as important and admired as Apple, it’s not too early to begin raising questions.

MORE: Why Apple Is Winning: Innovation, Opportunity and Execution

115 comments
Kathleen Newton
Kathleen Newton

Eventually  really  great   'new kids on the block'  will  become  the  IBMs .

Once  the  bulk of  the  population  has  the  product ,   then  the  rapid  growth  rate  settles  into  the  mature  'replace as needed'  mode .

At  some  point ,   Apple  will  just  be  another  IBM .

RichardSRussell
RichardSRussell

Disappointing quarter? Yeah, I can see why people are disappointed. It's because Apple only made as much money in those three months as 125 ENTIRE COUNTRIES did during ALL OF LAST YEAR:

   http://en.wikipedia.org/wiki/L...

Shocking incompetence fersher.

heaveho
heaveho

Phil Alvarez,  You're clueless.  Apple doesn't copy others, it's the other way around.  I suppose next you're going to try and sell me that MSFT is an innovator.  GET REAL!

goldenice51
goldenice51

Very strange  coincidence that the article is written by Sam Gustin >>Samgustin>>Samgusn>>Samsung:)

smooth edward
smooth edward

Apple has one quarter where it didn’t completely blow away Wall St. expectations and stories like this one emerge by writers who need something to submit to their Editors. I don’t know what’s worse, the insatiable greed of Wall Street, or the computer geeks still aruging the the Windows-Mac contest? You’re like a bunch of kids arguing over who has the better bicycle.

joe blow
joe blow

Even if Jobs was still around, he couldn't have changed the inevitable that competition would catch up and undercut Apple's overpriced gadgets.  Just like to PC, open systems will overtake closed ones.

Serhiy Kareta
Serhiy Kareta

The thing about Apple is if they try to live by Job's book much longer they will inevitably fail. Steve is gone. The company needs to rearrange a lot of stuff. You can't live on someone's fame for too long.  Also, the profit can't grow in geometrical proportions indefinitely long. They have just about reached the ceiling of the market with their current arrangement. Besides, most companies would die for the kind of "slow growth" Apple is having.

Ross
Ross

Sure it is losing because the man who have created apple is no more and there is nobody equal to his caliber who can take the company to new heights.

Joel A. Edge
Joel A. Edge

Apple missed Wall Streets target, boo-hoo. It was closer to Apple's prediction. Go ask the people doing the predicting how they missed. It's amazing that people have been writing articles foreshadowing Apple's decline for the last twenty tears. If I manage to live another twenty, I explain to see even more.

Wes Bound
Wes Bound

I don't think the products will lose their shine. But the company already has. Steve equalled the brand. No Steve, less of a significance of the brand. His hyperbole being surely helped to create attention. People simply love out-of-bounds beings, because they do and go, where none of us regular Joes can go. There is an air of rebellion associated with that. Or s.th. like that.

kcwookie
kcwookie

I guess articles like this pass for journalism. Given Apple's product cycle predictability, the second quarter is going to be the weakest. It's the last full quarter before the refresh. Apple has used the same form factor for "gasp" two years and people are ready for a change. I've been watching these end of the world articles for years. 

I've owned Android phones and now an iPhone, I'm not going back to Android. I used to be a customer of T-Mobile (for over ten years), a failing network, poor customer service, and lack of an iPhone caused me to buy my way out and move to Sprint. Life is much better.

verdhello
verdhello

If their commercial future looks grim Apple can always rely on price gouging their Australian customers! 

arvay
arvay

A report from ground level: some of us trying to upgrade our Mac OS from Lion to mountain Lion are being thwarted by a mysterious bug that posts this message rather than starting a download from the Apple App Store:

"The product distribution file could not be verified. It may be damaged or was not signed."

Apple "help" people offer apologies but no solutions, refer people to a blog where similarly affected people guess what might work to solve the problem.

Of course, we are required to download this kind of update from the App Store, and since so few people have T3 lines -- it can take hours -- when it works at all. 

Apple has always been a bit arrogant, but this is arrogance backed up with incompetence. We're trying to send money to Apple, but this is apparently a low priority.

A sign that the ship has struck an iceberg?

Jacques Cousteau
Jacques Cousteau

And you forgot to mention those AWFUL commercials, the first ad campaign executed since Jobs' death. If this is how Cook sees Apple, it's going to become Microsoft in five years.

The3rdnumber
The3rdnumber

Apple products are real quality, and this is why they are more expensive. Did you see how, for example, the mac book air is tough? It survive at -60`C and at 190‘F. When they put it in water it automatically shut off to not let short circuits. Also he survived to shocks. I mean seriously, I own a MacbookAir and it is amazing how they did so everything is thinked. Also the software is not 300$ like windows and the hardware clearly deservervs the 1000$.

Karan
Karan

When you reach the top, there's nowhere else to go but down...

Nathan Zirk
Nathan Zirk

Its a bit tougher to adore Prada when everyone is wearing it.. if you catch my drift.  Quality must always be paired with some perception of exclusivity otherwise 'leaders' will always look for something different while the rest of the herd starts to follow, once quality catches up.

Scotty_A
Scotty_A

Apple continues to succeed. Jobs built a successful organization that has outlived him. Samsung is also highly successful. HTC is doing well. And Motorola remains successful. So even as Nokia and RIMM die off, the mobile marketplace remains quite strong. I don't think the Apple lawsuit against Samsung will succeed. For Apple, one issue is some of their competitors are becoming more competitive. For example, Dell has made some significant advances. Much of the competition is about features and ease of use rather than about lower prices. I would not be surprised if Apple does enter the TV market, gaming console market, or camcorder/slr camera market.

jnamaya
jnamaya

I'm not an Apple fanboy, I'm actually a tech professional, and I admire Steve jobs greatly. He was not an inventor nor an engineer, he was a visionery, that was his virtue. He had the ability to grab complex ideas and make them simple so the general public could use them. That's what he did with starting with the computer itself and then later on with the iPod, iPhone and tablet.....all these things existed before but they were not as simple and aesthetically pleasant to use.

Michael Schmitt
Michael Schmitt

Apple's dying and they get what is coming to them!

VNederlander
VNederlander

Yeah! That $100 billion in the bank will never last them more than a few decades as they continue making massive profits!

Michael Schmitt
Michael Schmitt

Still can't innovate without suing someone for something. Now if they could get into cars, International Space Stations, Casino Machines and such like RIM can, they'll make it on that one hundred billion. Too bad they can't! See ya!

yappy00
yappy00

@joeledge:disqus -- Simple ... one of Apple's huge fortés has always been marketing. They're willing to throw huge amounts of cash behind making products look sexy and selling them as sexy.

They basically created the iPad's niche from nothing, just based on their marketing. They made people *want* that device, even though they had no *need* for it, and despite the fact that it literally had no more functionality than their iPhone.

So the other manufacturers are now smart enough to let Apple pave the way with their ridiculous marketing dollars, let them create the new markets, let them establish the approximate form factor and device parameters that consumers are willing to accept... and then follow suit without having to blow millions on market research and failed product branches themselves.

Apple's not doing anything else vaguely useful with their huge pile of cash in the bank, so consider it "involuntary philanthropy" for the tech community. ;)

Joel A. Edge
Joel A. Edge

You're right. I don't see a lot of innovation on Apple's part. I still can't explain why other companies seem to follow behind Apple.