Golden delicious future beckons for Apple
Aside from blowout earnings, the company is at its most exciting right now as its own silicon chip receives rave reviews
ý This year marks the 10th anniversary of the death of Steve Jobs, who died on October 5 2011 from complications related to neuroendocrine cancer. Yet the company he cofounded with Steve Wozniak and Ronald Wayne is stronger today than at any time in its history.
The company’s market capitalisation tells the story: from nearbankruptcy 25 years ago — the company was bailed out in 1997 by Jobs’s long-time rival, Bill Gates, when Microsoft invested $150m — Apple is today the most valuable company in the world, worth a staggering $2.2-trillion (or $300bn more than second-placed Microsoft). To put that into perspective, $2.2-trillion is more than 10% of US economic output — though, of course, the numbers aren’t directly comparable.
What’s even more staggering is that Apple is not yet an ex-growth stock, despite its share price climbing almost every year since 2004 as it rode the iPod and iMac sales waves, and then the iPhone tsunami — its shares have risen nearly 28,000% since May 2004. And recent developments, including the company’s decision to develop its own silicon chip, coupled with the current so-called smartphone super-cycle, could buoy Apple’s sales and profits — and its shares — for some time to come.
Despite being the biggest company among the Big Tech players that dominate Silicon Valley (and, more recently, Wall Street), Apple recorded revenue in the first three months of 2021 that comfortably beat Microsoft, Facebook and Google parent Alphabet, The Financial Times’s Lex column noted last week. Quarterly revenue jumped 54% year on year to almost $90bn, while operating profit more than doubled. The company generated a mountainous $22bn of free cash flow in just three months and promised to spend $90bn buying back its own shares. For good measure, it also committed to spending $80bn in the US in the next five years.
While analysts say Apple and many other tech giants have benefited disproportionately from the pandemic as consumers snap up smartphones and laptops to work from home, years of boxing clever have put the company in arguably the strongest position it’s ever been. Stronger, even, than during the height of its success under Jobs’s second tenure as CEO.
Much of the credit for Apple’s performance must go to Tim Cook, the man handpicked by Jobs to lead the company. Cook is not a technologist (neither was Jobs, to be fair), but he led the development of the company’s super-efficient supply chain that has networks throughout the world, and especially in Southeast Asia where third-party contract manufacturers such as Taiwan’s TSMC and Foxconn Technology Group and South Korea’s Samsung Electronics make its processors, screens and devices.
Apple’s incredible success is premised, to a large degree, on managing this complex global supply chain and ensuring the company has access to the very latest technologies, including semiconductors. It’s widely believed this is the main reason Apple is suffering less than other hardware companies as the world struggles with a chronic undersupply of microprocessors and displays for everything from computers to TVs, smartphones, microwave ovens, refrigerators and cars.
Even being a company of Apple’s size and resources doesn’t guarantee a steady supply of components, however. The new iPad Pro with its own-designed M1 “system on a chip”, for example, isn’t expected to be in consumers’ hands much before July, despite being unveiled in April. That may have more to do with display shortages than chips, though, with the new M1-based iPad sporting a new-fangled mini-LED screen that has more local dimming zones than previous models.
But it’s undoubtedly the inhouse silicon that is most exciting right now. Though Apple hasn't said much about what’s coming after the M1 chip, which debuted in 2020, this initial piece of computer silicon has received rave reviews for how powerful it is and how little energy it uses. Announcements are expected at its worldwide developer conference in early June.
Apple silicon is a serious problem for the US’s biggest chip-maker, Intel. Not only was Apple one of its biggest customers, but if the company is successful in taking the Mac away from Intel, PC makers, including Microsoft with its Surface line-up, could develop their own silicon too.
For decades, there has been a symbiotic relationship between PC makers and Intel — it’s almost
impossible to buy a Windows PC that doesn’t have an “Intel Inside” sticker on it. But that relationship is fraying. Already, Apple is turning to chip-makers in Asia — TSMC, mainly — to build processors based on designs created by British semiconductor giant ARM Holdings.
And if Apple is successful, there is nothing stopping the likes of HP, Dell and Lenovo from doing the same. The very thought must be one of the reasons newly appointed Intel CEO Pat Gelsinger announced recently that the company will soon get into contract chip-making itself. The very suggestion of Intel making chips based on ARM designs for other companies was heretical (to Intel) until very recently.
But back to Apple. For now, the company has created an important edge for itself in the personal computer market — powerful laptops (and an iPad, too) with battery life that is the envy of the Windows world. In mobile, the iPhone’s inhouse A-series chips, on which the M-class silicon is based, are tightly interwoven with the iOS operating system in a “walled garden” of software and services. Not everyone likes the model, but it has created trillions of dollars for investors and for Apple bosses and employees.
What is perhaps most remarkable about the Apple growth story is that it probably has a long way to go yet. Some Wall Street analysts are predicting it will be the first company in the world to top the $3-trillion market cap, and some say it might even get there this year.
Cook, who turned 60 in November, recently told The New York Times that he doesn’t expect he will still be at the company in 10 years’ time, perhaps using the interview as a way of reminding investors that he won’t be there forever. He had big shoes to fill when Jobs died, and he took charge at one of Silicon Valley’s most storied (and at times troubled) companies. He not only filled those shoes, but he also helped craft Apple’s most successful decade to date, one underpinned by the runaway success of the iPhone.