A decade ago Apple was in the doldrums. Thanks to Steve Jobs the company is now back among the best, writes Karlin Lillington
MANY IN the business and technology world held their breath as Apple reported fourth-quarter earnings this week. Not necessarily because they may have had any interest in all things Apple, but because – against what seemed ridiculous odds a decade ago – the computer and gadgets maker remains poised to become the world’s largest and most valuable company.
How times have changed. Many Apple onlookers predicted the pending demise of the company back in the 1990s, when it had gone from robust market leader to a withered wraith with a tiny market share and a confusing line of computers. Business and technology industry journalists often referred to Apple coverage as “the Apple death watch”. The question in many people’s minds was not if Apple would fail, but when.
But then, company co-founder Steve Jobs, the visionary ousted by Apple’s board in the 1980s, returned. Under his watch has come a series of innovative new products, many of them forging entirely new market segments: the iPod transformed digital music players, the iPhone created a new category of smartphone, and the iPad redid tablet computers.
Share prices have skyrocketed, as have corporate profits. Apple posted over $20 billion (€14.2 billion) in revenue in the last quarter alone. Unusually, Jobs joined Apple’s press conference call on Monday, quipping “I just couldn’t help dropping by for our first $20 billion quarter”. Profit was up 70 per cent from the same quarter last year, while revenue was up 67 per cent.
With figures like those, it’s no surprise that on Standard Poor’s list of the leading 500 global companies, Apple now trails only petroleum giant Exxon in size. Earlier this year, Apple overtook Wal-Mart. Then it did what once would have seemed unthinkable: it bypassed Microsoft.
Many expected its earnings report on Monday to boost the company into first place. But shares slid several percentage points as investors absorbed the news that fewer iPads had been shipped than expected (Jobs suggested there were some supply issues), and more critically, that Apple’s gross margins on its products had narrowed as well, dropping to 36.9 per cent from 41.8 per cent a year ago, below Wall Street’s expectations of 38.2 per cent. Gross margins are based on revenue from customers for a product after the costs of creating and providing it are subtracted.
On the other hand, Apple sold 14.1 million iPhones last quarter, a 91 per cent increase from the same period last year, and the devices made up a 43 per cent lion’s share of Apple’s revenue.
Apple also sold 4.19 million iPads and 3.89 million Mac computers, mostly to people new to Macs and a 27 per cent increase over the year-ago quarter. Apple booked $4.31 billion in profit, or $4.64 a share.
However, investors didn’t like to hear about slimmer margins – even though most PC and electronics manufacturers would kill for anything in that range – and shares slid. So, at least for now, Exxon’s yellow jersey position is preserved. Jobs, perhaps fending off expectations, said in the conference call: “Our goal is to make the best devices in the world, not to be the biggest.”
But he offered plenty more to chew over. Jobs took several potshots at handset rivals RIM (which makes the BlackBerry) and Google’s Android operating system, causing both companies to fire ripostes back the following day. Jobs also noted that some 74.5 million people visited its 317 global Apple Stores in the past quarter. To put that figure in context, the Atlantic magazine website noted that about 18 million people visited Disney World in all of 2009.
“Only a small percentage of them actually bought anything, but that’s the point. Apple has managed to transform ‘hanging out in their stores’ into entertainment,” senior editor Alexis Madrigal wrote.
Jobs also raised eyebrows and fuelled the always-hyperactive Apple rumour mill by noting he might have plans for some of Apple’s phenomenally large $51 billion cash warchest. Asked why he didn’t return some of that cash in dividends to shareholders, he indicated it was because he might wish to go shopping.
“We strongly believe that one or more very strategic opportunities may come along, that we are in a unique position to take advantage of because of our strong cash position,” he said. “We’d like to continue to keep our powder dry.”
Such a direct indication of intentions is rare from Jobs. Within hours, analysts and commentators were guessing Apple might buy anything from Netflix to chip company ARM to – yes – Facebook. Many noted that the Los Angeles Times had said Jobs hosted Facebook founder Mark Zuckerberg for dinner two weeks ago. And buying Facebook would position Apple handily against former friend Google. And if it were to consider such an extraordinary purchase, Apple has the cash, with plenty still left over.
Jobs also indicated the iPad had lots of potential and further market growth ahead. “The more time that passes, the more I am convinced that we’ve got a tiger by the tail here,” he said. “This is a new model of computing which, you know, we’ve already got tens of millions of people already trained on with the iPhone.”
The company followed up its earnings call with an event centred on its Mac computer products. And the company followed up on Wednesday with announcements about its Mac computer products – two new lightweight Air computers, and updates to Mac software including a preview of the next iteration of the Mac operating system, called Lion.
Lest anyone still think of the Mac as the tiny market share computer option, Apple chief operating officer Tim Cook emphasised at the event that Macs accounted for a third of Apple’s revenue last year – $22 billion – and have just over 20 per cent of the US consumer market.
And then there are the prospective new markets for these machines – like China, where the iPhone is doing well. “This success is playing an important role in bolstering the broader Apple brand internationally, thereby opening the door for the Mac and the iPad, whose geographical footprint has room to expand materially,” analyst Oppenheimer said in a client note.
With Apple – always conservative in its quarterly estimates – predicting an even better quarter to come, investors may enjoy the Christmas cheer of finally seeing Apple whizz pass Exxon.
THROUGH THE YEARS: MILESTONES IN APPLE'S RECOVERY
1980: Apple's initial public offering is bigger than any since Ford Motor Company and creates about 300 millionaires
1984: Apple launches the Macintosh computer, with a revolutionary "graphical user interface" rather than using typed commands
1985: Steve Jobs is kicked out of Apple by new chief executive John Sculley and the rest of the Apple board
Early 1990s: Market share slides drastically; "Apple death watch"
1997: Jobs returns when Apple purchases Job's hardware company NeXT
1998: Launch of the see-through, multi-coloured iMac, a consumer success
2001: Release of new operating system Mac OS X, based in part on the NeXT OS. The first iPod goes on sale; the audio player will become and remain the market leader
2003: iTunes Music Store debuts in US
2007: The iPhone is released
2010: The iPad tablet device is launched. Apple is now the world's second most valuable company
