Profits don’t mask Apple’s need to innovate

meThat 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!
cook
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.

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.

Even the rumours are dull
Let’s look at the current popular Apple rumours:

  • An iWatch? Apple remains silent while Google, Microsoft, Sony and Samsung have already declared their intentions and Pebble continues to ride the wave it arguably started.
  • A 5in iPhone?

    Cook shot down these rumours yesterday citing, but not expanding upon,

    ‘trade-offs’ and the competition is already there in any case. 

  • A cheaper iPhone?

    Maybe, but it compromises profit margins, is purely reactionary to

    existing products and does nothing for the premium of the brand.  

  • iGlasses?

    Now you’re talking… or rather Google was 12 months ago and is already

    shipping Google Glass to developers and limited numbers of consumers.

Yes

Apple can still enter these sectors, and it probably will, but not with

the same revelry that greeted the iPod, iPhone or iPad. Which leaves

the company with an iTV,

the holy grail of Apple rumours, though it breaks the mould by entering

an already highly developed and hugely price-sensitive market.

Furthermore

Cook’s tease of “amazing new hardware and software and services for

this fall” simply confirms there are no new Apple products coming in the

summer. This would mean nearly 12 months since Apple’s last ‘new’

product which was the iPad Mini – itself a catch up product – back in

October. With the competition pushing towards

bi-annual product cycles, Apple’s scrapping of its once famous January

events at MacWorld leaves a gaping hole. There is also the little matter

of Google I/O 2013 in May.

So

ignore headlines about finance. Apple has long preached it is so

successful only because it is focused on making great products driven by

innovation. Well it is time once more for the company to innovate, to

jump, to gamble. To try and beat the bookies yet again…

Read about the new iPad Air and iPad mini 2

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