Apple is still a force to be reckoned with, but analysts are a still disappointed. Here are five takeaways from that situation.
Earlier this week, global tech firm, Apple Inc., released its first quarter results for the 2013/14 financial year, which were a significant improvement from the same period last year:
The Company posted record quarterly revenue of $57.6 billion and quarterly net profit of $13.1 billion, or $14.50 per diluted share. These results compare to revenue of $54.5 billion and net profit of $13.1 billion, or $13.81 per diluted share, in the year-ago quarter. Gross margin was 37.9 percent compared to 38.6 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue.
(Source: Apple)
However, investors and industry analysts have been expressing grave concern as its performance was below their own projections. Hence although Apple sold 51 million iPhones in the quarter, as opposed to 47.8 million for the same period last year, Wall Street had expected firm to sell 57 million phones (Source: CNN)
Experts are worried that Apple’s dominance of the market is on the decline, and there is much discussion about strategies that could be employed to rectify the situation (Sources: TIME and CNN). If the analysts are to be believed, Apple is in dire straits and must act quickly to improve its currently “precarious position”. However, with Apple’s evolution over the years, its most recent performance, and the resulting concern that is being expressed are all considered, a number of learnings emerge that are not only applicable to Apple, but to businesses in general. Five are outlined below.
1. It is easy to be a victim of your own success
Apple and its products are generally the most coveted brands in the computing and mobility markets. The company is renowned for being visionary, innovative and revolutionary, having changed the music, computing, smartphone and tablet markets, to name a few. However, over the past two to three years, there has been disappointment in some circles that the firm is not being innovative enough: the ‘wow factor’ is no longer there when it announces new releases, and its latest products, arguably, seem to be more of the same.
Indeed, we all rode a euphoric wave with Apple when new and revolutionary products were being launched every few years, but it also seems that we have become desensitised and want to have that feeling at every occasion. For Apple, it means that although it has been consistently improving its current stable of devices, for all intents and purposes, these are being overlooked, as industry experts want it consistently to ‘knock their sock off”, on every occasion.
2. Deviating from one’s niche can have consequences
Based on its history and evolution, Apple is a premium brand, especially in terms of price, aesthetic, and traditionally, its clientele. In comparison to other brands on the market, Apple devices are considerably more expensive, and for the most part, their customer base used to be diehard techies, and professionals for whom processing power and stability were critical.
However, as Apple becomes more open to catering for the mass consumer market and its demands, things have been changing. For example, its product release cycles have become considerably shorter, and the designs and features from other manufacturers (such as Samsung) appear to be influencing its own creative and innovative direction. As a result, there is a sense that Apple is losing its lustre by diluting its strengths.
3. Everyone will not be able to afford a premium brand
Similar to Louis Vuitton, Hermes, Ferrari and Tesla, in the world of computing Apple devices are generally what everyone aspires to own. Over the past few years, in order to broaden its customer base, Apple has released products at lower price points, which also cater to different needs. Perhaps the best example of this might be the iPod line, which consists of the iPod shuffle, iPod nano, iPod touch and iPod classic. For each there are pros and cons, of specific features, that may make one (or more of them) more suitable for certain situations than the others.
However, this was not the case, per se, when the iPhone 5S and iPhone 5C were released last year. Although the 5C was cheaper than 5S (well over 50% less), it also appeared to be a watered down version that came in a range of colours that might make it more appealing to younger customers. However, sales for the 5C have been extremely disappointing, whilst those for the 5S have been exceptional (Source: USA Today).
The moral of this story: everyone wants the best, but the truth is that many cannot afford it. Releasing a cheaper product may not automatically result in those persons becoming customers. They may still try to buy the more expensive one, or in the meantime, settle for a more budget-friendly but top-of-the-line option from your competitor.
4. The shifting goalpost can be the treadmill of death
Over the past several years, Apple’s revenue, sales, profits, etc., have exceeded its performance in previous years, to the point where it is one of the most valuable firms on the planet. However, every year targets for the firm are being increased, with the expectation that they will, at the very least, be met, but preferably exceeded.
Although it can be constructive to set goals against which effort and performance are assessed, it can also be counterproductive if they are the sole focus, which ultimately undermine longer terms strategies. Further, businesses do not operate in a vacuum: the effects of competition, the local economy, customer buying power, among other things, are also at play, which can (and do) affect a company’s performance.
5. All markets have a cap
Finally, although Wall Street analysts’ expected Apple to sell 57 million iPhones, it might be prudent to ask whether that target was realistic in the first place. The basis for the projection was that the new iPhones, 5C and 5S, had also been released simultaneously China, the United States and other key markets for Apple.
It is suggested that sales for China might be delayed, and may be more evident during this quarter, in which the Chinese New Year occurs. However, with Apple continually still exceeding previous years’ performance, but not exceeding those of analysts, it may be necessary to consider that its achievements might be beginning to taper. Hence though the firm might still realise incremental growth well into the future, the scale might not be huge as it has been in the past.
Image credits: wicker_man (flickr); Apps Are Free
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It may be mentioned that just as there is a silver lining, so is there a dark cloud. Apple has seen shades of these over the years. However, I thought of adding the following to the views already expressed:
1. Since the sad loss of their inspirational founder and CEO, Steve Jobs, clearly the direction has not been the same; and probably may never be the same. The path they took of pulling out series of game-changers all the time was/is difficult to sustain under these circumstances.
2. Having everything under their ambit: Hardware, firmware, operating system and various applications gives them greater control of not only what can and cannot be offered to what market niche but also greater flexibility in influencing any such niche.
3. Just as it has had adverse consequences, I am of the view that deviating from their niche, has had a lot of positive results. Most significant of them being that new diehard disciples have been added to the niche. Many of these may never have contemplated joining the niche had the “deviation” not been undertaken.
4. What remains to be seen is: the new “diehard” customers do they belong to the fluid and capricious ones of the Blackberry of yesteryear or are they those of the “Mac” of 35-40 long years?
Excellent points, Kamutula. Glad you were able to add some additional insights and takeaways.
however, I have to wonder whether the analysts’ concerns might become a self-fulfilling prophesy. Although the company is still performing exceedingly well, but below analysts’ expectations, it will cause everyone to panic, including Apple itself, leading to poor/reactive choices and the beginning of the end..
Any thoughts?