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Is Apple about to enter a period of decline?

  • Legal battles, patent trolling
  • Latest iPhone nearly a year old
  • Samsung pulling in close, HTC might follow
Written by Adam Wajnberg
11/07/2012

Apple is the world’s largest electronics firm, and jostles for position with ExxonMobil as the world’s most profitable company by market capitalization. In the last year alone, the firm has earned well over $100bn, sold over 150 million iPhones, iPads, Macs and iPods. Until they decided to offer their very first dividend in nearly 30 years of operations, they had $100bn in cash, which is something that can’t necessarily be said for some governments.

They’re the world’s most successful retailer, doubling the amount of revenue per square foot of retail space of its nearest rival, Tiffany’s. The only other companies breathing their rarefied air are finance and oil giants, both industries that seek ‘rents’ in economic jargon, by trading in assets that are essential to the economy. Apple on the other hand sells gadgets and services, and don’t even underpin the business world like Microsoft once did. Apple makes the money they do from selling widgets to kids and old people. In a worldwide economic meltdown. They’ve all but eliminated extraordinarily powerful rivals – Nokia, RIM, HTC, LG, Sony…To say Apple have earned their stripes is an understatement; other firms should hang their heads in shame. So how could one possibly suggest that this behemoth could be facing any sort of decline?

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                                                   apple

The same incredulity would have met suggestions of a Nokia or Sony demise in their heyday, and now they’re gasping for air. The problem with Apple right now, that may become a bigger problem, is that their famously aggressive legal position is starting to look stale and bothersome without a charismatic frontman like Steve Jobs. Jobs, with his enigmatic leadership and hate-hate relationship with the competition, at least had the sheen of a madman at work in the lab, making things to better mankind. Without him, all their recent court battles just look like regular corporate shortsightedness.

                                Lessons from Sony

Sony experienced a similar decline 15 years ago, when they started their own legal shenanigans. Sony’s dramas were more stark – they wanted to generate something like Vertical Integration in the electronics business, by setting the standards for both media (Blu Ray, microSD cards) and the devices that play that media. Apart from tarnishing their reputation, it also distracted Sony from concentrating on what users want.

Apple is now starting to do something similar. Their recent court battles with Samsung seem to suggest that Apple’s idea of Vertical Integration is to make innovative products, and to own the very concept of innovation itself! People are getting a little tired of patent lawsuits where Apple, with their enormous war chest, are blocking other rectangular devices with rounded edges. It also raises the possibility that victims of Apple’s litigious attitude might take revenge; if it’s to be believed that Apple will be releasing smaller iPads and larger iPhones, we might see a gimlet-eyed Samsung dragging Apple into court for infringing on their own unique design patents (of, um, different sizes). That would get tedious.

And then there’s the argument that Apple is diverting its attentions. Their latest phone is a year old; their most recent tablet offers only slight changes from the model that came before. Their Macbook line has undergone a recent impressive overhaul; but Macbooks are merely excellent laptops amongst a sea of competition. iDevices are where Apple dominates markets.

                        Making Money Everywhere

iPhones are the top selling single handset in the world; capturing an estimated 30% of market share across the US, UK and Australia (in Australia it’s nearer to 50%). Android, Google’s open operating system, is on more handsets; but no single other model comes close to the iPhone’s dominance. But Samsung and HTC are releasing handsets that are quickly catching up to the iPhone in pure name recognition. If the Android ecosystem starts narrowing down to a few notable, easily identified handsets, then we’re going to see some parity in that regard.

Of course, Apple makes money from both hardware and software sales, placing them at arm’s length from Samsung, who only make money on the former, and Google, who make money on the latter. Unless Motorola, who are owned by Google, start bringing out best-in-class handsets, that dominance won’t change.

    apple vs android attr flickr incredibleguy

 

Likewise, Microsoft might buy up a struggling firm like Nokia or RIM to release identifiable handsets running Windows Phone, to further dilute Apple’s market dominance.

So a lot hinges on the next iPhone, due for release in September or October this year. All rumours hint that apart from a slightly bigger display, the next iPhone will merely bring Apple up to date with its competitors; NFC, Quad Core processors, 4G Connectivity. Sure, Apple will probably do things more pleasantly and smoothly on the screen, but its competition is catching up there too.

                                    Glacial Pacing

Apple is free to upgrade as glacially as they like, but the last 12 months will put to the test Apple’s habit of keeping fans waiting. Samsung and HTC have been rapidly churning out innovative handsets, highlighting Apple’s relative snails pace. Google have been previewing new technologies, like Google Glasses, which provides a Heads Up Display (HUD) experience that may or may not work – but they’re churning stuff around. Microsoft has become the surprisingly cool underdog with their previews of Microsoft Surface tablets and Windows Phone 8. Everyone else is working, and Apple appear to be standing still and pouring over legal plans.

Assuming that at some point soon, Samsung and HTC start to significantly dip into Apple’s market share, what would the effects be? Apple is a shipper of goods – a significant amount of their revenues come from putting devices in the hand in exchange for cash. So unlike diversified companies that use hedging to offset downturns, Apple won’t be able to hide a significant drop-off in adoption of their devices. We might see some less stellar quarters coming up, losing in year-on-year comparisons (though it’s safe to say Apple has a lot of momentum – they shouldn’t LOSE money for the next several years).
But that in turn could trigger a drop in share price. That could trigger Apple to even more aggressively pursue its legal strategy. The mumbles of disquiet could turn into loud boos from fans of the firm.

                         

                           You Used To Be Cool

Most dangerously, Apple is starting to lose its cool. HTC and Samsung have been developing excellent products, and they’re priced aggressively to appeal to a younger crowd. Once that crowd gets in with Samsung, they might be less willing to overlook Apple’s flaws than its current fanbase is wont to do. Apple’s locked down hardware and the awful pressure placed on manufacturers in Apple’s supply chain might turn people off, especially when the alternative is otherwise just dandy to use. Apple has also recently refused to comply with recycling standards allowing the easy disassembly of electronics to separate dangerous things like batteries; instead, in a bid for thinness and design integrity, they’re soldering batteries right into case. Going less green is no recipe for making friends these days.

Apple could never release another product again, and they’d still make money hand over fist for the next year or so. But if we were to look at a failing Apple in 2020 and ask where everything went wrong, we might look to 2011 – 2012 as when Jobs’ empire started to wind down.

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