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Profits Don’t Mask Apple’s Need to Innovate

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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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