Apple hardly appears bruised
Competitors have so far failed to burst ‘bubble’
When Apple launched the iphone 4S in October, there were some analysts who called it a disappointment.
It wasn’t fast enough or thin enough or magical enough, they argued. In fact, many complaints seemed to be based on the fact it wasn’t called iphone 5. A few days later the phone went on sale and Apple sold four million in three days.
That didn’t stop many of the same experts queuing up to express their disappointment in Apple’s third-generation ipad last month. Once again, it was considered to be insufficient as an upgrade on the previous model, and yet the new gadget again flew off the shelves. Apple sold three million in the first three days.
Despite those two enormously successful launches in six months, investors were concerned as Apple’s second-quarter results approached this week. The company’s share price reached a record high on April 9 but fell by 10 per cent over the two weeks that followed. Though shares were still up 40 per cent this year, investors were said to be worried about whether Apple’s phenomenal growth could continue.
By Tuesday evening, Tim Cook, Apple’s chief executive, had in typical fashion confounded the skeptics, announcing a 94 per cent increase in profits on the same quarter last year, once more powered by iphone and ipad sales.
The company sold more than 35 million iphones in the second quarter — an 88 per cent increase, year on year. It also shifted almost 12 million ipads — an increase of 151 per cent.
“Just two years after we shipped the initial ipad, we sold 67 million. It took us 24 years to sell that many Macs, and five years for that many ipods, and over three years for that many iphones,” Cook said.
Colin Cieszynski, an analyst with CMC Markets Canada, said there were indications Apple is “probably in a bubble and vulnerable,” but that many investors clearly believe the company can continue for a while.
“The company’s ability to enter new markets and continue to successfully launch new products may determine whether or not the shares are able to maintain investor support over the longer term,” he said.
According to one insider, Apple’s share price is the dominant topic at the company headquarters in Cupertino, Calif. Employee stock options will make plenty of staff very rich indeed, especially if shares — currently trading at over $600 — hit $1,000 next year, as some Wall Street analysts have predicted.
Apple plans to initiate a quarterly dividend of $2.65 per share this year — its first since 1995. The move is one of several changes made to the way the company operates since Cook became chief executive last year.
In his first months in charge, Cook instituted a charitable giving program for employees and visited the Foxconn factories in China, where Apple’s products are made.
Foxconn, which also makes products for Sony, Microsoft and Dell, among others, has been criticized for its labour conditions.
In response, Cook raised the profile of Apple’s supplier responsibility program and commissioned the Fair Labour Association to audit the company’s suppliers.
Apple, like much of the technology industry, has been embroiled in patent lawsuits as manufacturers and developers sue and counter-sue one another.
Steve Jobs, Apple’s co-founder and former chief executive, who died last year, had declared “thermonuclear war” on Google’s mobile operating system, Android. He told his biographer, Walter Isaacson, that Android was “a stolen product” and he would go to any lengths to destroy it.
Cook took a more conciliatory tone this week, saying Apple would rather settle its patent lawsuits with rivals such as Motorola, Samsung and HTC. “I’ve always hated litigation. We just want people to invent their own stuff,” he told analysts.
Those who believe Apple’s success is temporary, argue that its rivals will inevitably catch up. The company has taken a lead in smartphones and in tablet computers, the skeptics say, but rivals have seen the opportunity and will produce better — or simply cheaper — versions and erode Apple’s lead.
If that is true, it’s taking a long time to come about. Though the growth of Android has been rapid, the question of who is in the lead depends very much on what you measure. In terms of handset profitability, for example, Apple is very much ahead. When it comes to the tablet market, there is simply no sign of a significant competitor for the all-conquering ipad, two years on from its launch.
Cook echoed comments he made at the launch of the new ipad last month. “Across the year, you’re going to see a lot more of the kind of innovation that only Apple can deliver.”
Whether that is bravado or a hint of big things to come remains to be seen, but on past form it should make Apple’s rivals very nervous indeed.