Profits Don’t Mask Apple’s Need to Innovate

April 28, 2013 by  
Filed under Features & Editorials

Ignore the dollar signs, Apple needs to get back to doing what it does best.

That bookies exist should be enough to tell you gambling doesn’t pay. That no matter how many winners you back, ultimately somewhere along the line you’ll come crashing down to earth. The world’s biggest gambler Apple hasn’t crashed yet but, after quite possibly the longest winning streak in financial history, the stakes for its next big bet have never been higher.

Fighting Fit Finances

This all sounds like nonsense looking at Apple’s latest financial results. On Tuesday the company announced figures for its fiscal 2013 second quarter which ended on 30 March. The numbers were mind boggling. $43.6 billion (£28.6bn) in revenue, $9.5 billion (£6.23bn) in profits and sales of 37.4m iPhones, 19.5m iPads, 5.6m iPods and 3.95m Macs. It also reported a cash balance of $145 billion. $145 billion! Tim-Cook-to-be-declined-Double-Salary-Bonus-by-Apple (1)

Tim Cook sounded optimistic as well. He teased reporters saying “Our teams are hard at work on some amazing new hardware and software and services for this fall and throughout 2014.” He also crowed that “We have a lot more surprises in the works”, but naturally wouldn’t expand upon them. The financial markets seemed impressed. Stock increased by five per cent as Apple fractionally outperformed estimates and over $17bn was added to the company’s value overnight.

Out of ideas

So why all the drama? Because, quite simply, nothing much is going on. Doubters point to the fact that Apple’s year-on-year quarterly profits fell for the first time and that the share price has crashed from a high of $702 to a low of $390 last week, but the trouble is not about what has happened but what hasn’t. ipad_mini_pf_pb_ps_wht_ios6_print Right now Apple appears stagnant, dull, out of ideas. For a company that trades on ‘magic’, having this perception gain traction would be disastrous.

In reality, Apple doesn’t make magic or cast spells, it gambles. The company’s business model is very simple: enter a struggling or early adopter sector, revolutionise its ease of use, wrap it in a slick design to create demand and facilitate high margins. When the sector popularises jump to a new one. The jump is the gamble and, given Apple’s disinterest in small profit margins and the mass market, the crucial part in securing its business model and pioneering reputation for the next three to four years. To date Apple has a near flawless record leaping from PCs to MP3 players to smartphones to tablets.

Consequently Apple doesn’t care what competitors do in its existing markets so long as it gets the jump right into the next one and hence jump the competition. The problem this time is the competition is leaping first and that brings the whole model crashing down. This is a sample. To read about the problems Apple faces in its mooted new markets and why it is time for the company to gamble once more click here for the full editorial @ TrustedReviews

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