This was published 5 years ago
Opinion
Can a flagging Apple really reinvent itself - and how?
By James Titcomb
Apple is famous for surprises. Under Steve Jobs, its mercurial founder and former chief, the company became known for theatrical product unveilings that astonished and delighted fans in equal measure.
Apple's Tim Cook sent a letter to shareholders that rattled the markets.Credit: NEW YORK TIMES
But last week, it had a different sort of surprise up its sleeve, and not one it had planned. In a letter to investors, Tim Cook admitted that the company had fallen short of revenue expectations by billions of dollars.
Blaming a weak Chinese economy, Cook said that iPhone sales had disappointed, sending shock waves through the rest of the tech industry.
The announcement sent shares in Apple plunging 10 per cent, the biggest one-day fall in more than five years, rattling already volatile global financial markets.
To many, the response seemed like an overreaction. Cook said that Apple had made around $US84 billion ($120 billion) in the final three months of 2018, against a prior prediction of between $US89 billion and $US91 billion. That is still an astonishing amount of money.
"No management team is perfect," says Brian Baker, of Baker Ellis, an Apple investor. "This time they were a little bit off. Everybody makes a mistake."
Maybe so. But in Apple's case, such mistakes are exceedingly rare, prompting questions over whether its stumble last week represents the end of the era of seemingly endless growth in smartphone sales that propelled Apple to a valuation of over $US1 trillion. If it is, can Apple really reinvent itself - and how?
Under Cook, Apple has shed much of its old bravado and swagger. Investors have still done exceedingly well, however, as it has produced something else: reliability, growth, and a capacity to generate astonishing amounts of money.
Now, the first two no longer seem true. Apple may still be making giant profits, but last week's unscheduled announcement was a big blow to Cook's reputation as a safe pair of hands.
A bad quarter is one thing, but the news also shook two of Cook's key strategic pillars. The first was his full-blooded bet on China, now its biggest smartphone market, but one that Silicon Valley has found difficult to crack. The second was Apple's strategy of consistently raising iPhone prices, and relying on consumers to keep on stumping up more.
Apple's AirPods are one of its few successful recent launches.Credit: AP
Cook established China as a priority almost immediately after taking charge of Apple. In 2012, he became the company's first chief executive to visit the country, as sales of smartphones boomed.
Cook's focus on China paid off and by 2015 it was selling more iPhones there than in the US. But since then, it has not grown as quickly as it would have liked.
According to data from IDC, Apple's market share in China has now contracted for six straight quarters.
This puts it in fifth place behind domestic manufacturers Huawei, Vivo, Oppo and Xiaomi, which have moved on to Apple's turf by introducing handsets with high-end specifications - often at a significant discount.
Smartphone users may be willing to pay more for an Apple device when times are good, but as the economic picture in China worsens, the price difference between an iPhone and a local rival starts to matter a lot more. And Apple has made that difference only more apparent in recent years, raising fears the brand may have reached a tipping point.
The best-case scenario for Apple investors would be a magical new product that replaces the iPhone. Apple has poured billions into research and development in recent years. But this seems unlikely.
Cook has said that Apple is working on driverless car systems, but progress is unclear, while other companies such as Alphabet's Waymo appear more advanced. The company is also investing in augmented reality (AR), a new form of computing that implants digital objects into the real world. So far, however, there appear to be few immediate uses beyond gaming.
Last week, Cook pointed to the progress it has made in some more realistic new areas. Sales of the Apple Watch and AirPod headphones, the two most successful products launched since Jobs' death in 2011, have risen by 50 per cent in the last year.
Sales of Mac computers and iPads are rising after a tough few years. And its services division, which includes apps and music streaming, reached a new record. But nothing comes close to the iPhone, which still makes up two-thirds of Apple's revenues and remains one of the most profitable products on earth. Navigating the end of its growth story will be Cook's biggest test yet.
Telegraph, London