Apple Juggernaut Powers On, Despite Doubters

Investors and consumers are waiting for Apple's next breakthrough innovation

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Robert Galbraith / REUTERS

It’s been nearly two years since Steve Jobs died.

Since then, Apple has been challenged by Congress over controversial labor practices at its sprawling contract factories in China and dubious tax maneuvers designed to stash cash overseas. At home, Apple has waged an all-out proxy-war against arch-rival Google, which has developed the world’s leading smart phone operating system, called Android. Since the iPad was released in 2010, there have been few new major consumer product breakthroughs from Apple.

Meanwhile, South Korean tech giant Samsung has started to chip away at Apple’s dominance in the high-end smartphone market, thanks to its reliance on Google’s Android mobile operating system. Since last summer, Apple’s share price has declined by 30% as investors and consumers alike have waited for the company to introduce another breakthrough product. Consumers are wondering if the company’s ability to radically innovate died along with its longtime leader, the late, revered Steve Jobs.

One year ago, I asked if Apple was starting to lose its shine. I was beset by Apple fanboys who thought I was nuts. One later, Apple shares have fallen by 30%, wiping out billions in shareholder value. And we’re still waiting for Apple’s next breakthrough product. What if Apple, the greatest U.S. business success story of the past decade, has finally lost its mojo?

(MORE: Apple: What’s Eating America’s Favorite Tech Company?)

If Apple is a company in decline, well, we should all be so virile in our dotage. On Tuesday, the Cupertino, Calif.–based tech juggernaut reported that it sold a mind-boggling 31 million iPhones last quarter, handily beating Wall Street expectations. The strong iPhone results sent Apple shares up 5% in after-hours trading — and provided a strong demonstration of the company’s ongoing tech market mastery.

“Apple had a very solid quarter,” said Scott Kessler, head of technology research at S&P Capital IQ. That’s an understatement. The sheer volume of Apple’s business is staggering. “We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services,” said Tim Cook, Apple’s CEO. The company also sold 14.6 million iPads, but that figure fell short of Wall Street expectations, in part because consumers are waiting for a new Apple tablet device to be announced.

“The iPhone number should provide some comfort to investors who were worried about smartphone demand. That’s one of the reasons the stock is up,” Shannon Cross of Cross Research told Reuters. Over the past three months, Apple earned profit of $6.9 billion on revenue of $35.3 billion. For the next quarter, Apple predicted revenue of $34 billion to $37 billion, somewhat below Wall Street’s average estimate of $37 billion, but generally within range.

On the post-earnings conference call with analysts, Apple executives didn’t provide many details about new products, in keeping with their custom. The tech world has been rife with speculation that Apple will release a new TV-connected device, or possibly a wearable computing gadget to compete with Google Glass, supposedly by the holiday season. Apple shareholders and consumers alike have been waiting to see what the Silicon Valley icon does next. “We are on track to have a very busy fall,” Apple CFO Peter Oppenheimer told Wall Street analysts.

(MOREShould Americans Care About Apple’s iPhone-Factory Conditions?)

In the meantime, Apple’s cheerleaders are playing a waiting game. “It’s not been a particularly pleasant couple of months,” says Kessler, whose firm has been bullish on Apple stock over the past year. Apple’s stock swoon has wiped out tens of billions of dollars in shareholder value. Kessler says Apple is changing from a high-growth company to a more mature “steady-Eddie” type firm. In one of the more reliable parts of the business, Apple generated $4 billion from its iTunes music and media system in the past quarter.

But high-growth or steady-Eddie, the undeniable fact remains that Apple is a monster of American business. The company sold approximately 40 million high-priced gadgets over the past three months. Think about that. Apple’s CEO Tim Cook, a cool operational wizard, has been streamlining the company’s business to ensure that iPhones and iPads don’t sit in warehouses waiting to be sold. Apple is sitting on nearly $150 billion in cash and short-term securities.

Earlier this year, Apple lost the title of world’s largest firm by market capitalization, a distinction that once again belongs to energy giant ExxonMobil. Pundits will probably continue to say Apple has lost its mojo because the company hasn’t released a new breakthrough device since Jobs died. But by Apple’s standards, losing your mojo means making $7 billion in profit on $35 billion in sales. In three months. Not bad.

8 comments
mobileyoga
mobileyoga

Sam:

apple exceed wall street's expectation due to amazing growth in developing countries like India. In India they recorded 400% growth. 

However the price they are paying for same is very high.  In India apple has launch scheme where they are giving away a iphone (iPhone 4) on EMI with USD 120 off; if you bring your old phone. 

This bring down the cost of iPhone at USD 270. It is not like that there are no other better phone available in this range (specially if you compare with iPhone 4), but it is the brand which is selling. Unfortunately in this case it is the brand capital which is getting eroded. 

They are entering the commodity business model which will bring a faster end to apple story. 



rutnerh
rutnerh

Jobs learned from the success of Wall Street: mega greed is profitable and in the case of Apple achieved by exorbitant pricing of superbly marketed glitzy less so innovative products, some infringing competitors' patents. But major competitors lacking archaic capitalistic competitivenes simply went along on the profit binge rather than sell at reasonable markups.

mtngoatjoe
mtngoatjoe

@rutnerh This is capitalism. If you don't like the price, then buy another product. Personally, I think my iPhone has been well worth the cost. Would I prefer to have paid less? Sure, but nobody forced me to buy an iPhone.

spo7s
spo7s

I think Apple is a company in decline. Of course, it's not going away and will continue to be a significant player for many years to come  - it's just turning the corner on growth and overall popularity. What do you think? Are Apple's best days behind it? Vote at http://fina.gl/1bh79En

harveylubin
harveylubin

@spo7s: "I think Apple is a company in decline."

If increasing revenues and sales of iPhones is a "decline", then you are probably writing your comment from Bizarro World, where "Everything good am bad".

You seem to be like many people who claim Apple's (the company) decline due to the decline in price of AAPL (the stock). But the two are unrelated. Apple's revenues and sales figures have continually climbed over the past year, while at the same time AAPL has lost 40%.

The stock market is a betting game, and for most investors it's rigged. On the other hand Apple Inc. is a well-managed and successful company that is larger and doing much better financially than any of its competitors!

In fact, Tim Cook not too long ago stated that they were not concerned about the stock price... and why should they be with almost $200 Billion in reserve!

feifonwong
feifonwong

@spo7s No They are not. This has been a dead-horse topic for years.

seizeabe
seizeabe

Only yesterday (23rd), did CNN business say that Apple lost 20% value in the last year. And, now this. Crabs, someone climbing, others pulling down! Who's gaining ?

SteffenJobbs
SteffenJobbs like.author.displayName 1 Like

Some people are waiting so badly for a profitable American company like Apple to roll over and die.  How sad.  I'm sure they'd be much happier if Apple employees were to start losing their jobs and the have our national debt grow that much larger in size.  The way most people talk about Apple is as though they went to a ballgame and the pitcher pitches a no-hitter and then they complain that they were hoping to see the pitcher pitch a perfect game.  There are so many companies the analysts and tech pundits can jump on saying they're not living up to expectations, but when a company has been performing for years and the economy slips and less money comes in, they're yapping about the death of the company.  How stupid.