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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