Business: The future of Apple Shake it off
The world’s most valuable company needs another mega hit.
“Our product pipeline has amazing innovations in store,” Tim Cook, the boss of Apple, declared on April 26th.He hoped to sound reassuring after the company reported its first year-on-year quarterly revenue decline since 2003.But he was not convincing enough.Shares of Apple fell by around 8% in the hours after its results emerged, erasing more than $46 billion in market value.
Investors’ immediate concern is the popularity of the iPhone.It accounts for the bulk of Apple’s revenues and profits; sales were 18% lower than a year ago.The broader smartphone market is sluggish, says Mr Cook.Apple hopes that the flashy new features of the iPhone 7, which it is expected to introduce in September, will convince customers to abandon older models.
Until then, the company will probably face a further fall in revenue.The bigger question that Mr Cook must answer is whether Apple will ever have another product as successful as the iPhone, the most lucrative in the technology business to date.Enthusiasm has waned for some of its other older products, such as iPads, and its newer ones remain niche offerings.The Apple Watch celebrated its first full year on the market on April 24th.It sold more in its first year than the iPhone did in 2007.
But today’s consumers are better primed to buy gadgets now than they were then; watch sales should be far higher.The cost of the Apple Watch—which starts at $300—puts people off.So does its dependence on a smartphone for most activities, such as providing directions.The firm will sell a mere 8m watches in 2016, generating $4 billion in sales, thinks Toni Sacconaghi of Sanford C.Bernstein, a research firm.
One bright spot is Apple’s services business, which is expected to grow steadily.As it sells more gadgets—over 1 billion devices are in use—it can also sell content and services, and gain revenue from music, its app store and more.In the second quarter Apple had $6 billion in services revenues, more than for Macs or iPads.
What else could the firm come up with?That Apple has been working on an electric car is one of the worst-kept secrets in the technology business.Reported disagreements with German carmakers over control of users’ data may have halted a potential alliance.Many also expected Apple to disrupt television.
But Apple TV, the firm’s alternative to a set-top box and subscription, sells most shows and films à la carte, which becomes expensive very quickly. Its appeal is limited.The problem, says James McQuivey of Forrester, another research firm, is that it will be difficult for Apple to come up with another single product as central to daily routines as the iPhone.Collections of devices in connected homes will matter more instead.The exception may be augmented reality, but Apple’s rivals already appear to be ahead.
Apple’s biggest problem is its past success.It is the most valuable company in the world by market capitalisation because investors believe the firm can make new technologies popular.Mr Cook, who took over as chief executive in 2011, soon before the death of the firm’s co-founder, Steve Jobs, has led Apple competently.But there are lingering doubts about whether he can produce the sort of smash for which Jobs was so feted.