Just over 14 years ago, Steve Jobs unveiled a cigarette pack-sized product that didn’t impress many onlookers.
The iPod looked like just another music player – not a product that could transform Apple’s fortunes, then a computer maker struggling with generating profit.
On Tuesday Apple announced the largest-ever annual profit in corporate history – $53.3bn (£34.7bn) over the previous 12 months. In the July-September period, sales of iPhones grew almost a quarter compared to the same period in 2014, even as rivals such as Samsung and LG saw slower sales. The transformation looks complete.
But analysts still wonder: have we hit peak Apple? Is it all, finally, downhill from here, ending a ramp that began with the iPod in 2001, and turned stratospheric with the iPhone in 2007?
At least for now, the answer is no; the three months to December are always Apple’s best, and it is forecasting revenues of about $76.5bn, a slight rise on the year before, and profits could even outdo last year’s $18bn.
There are, however, signs of concern: slowing smartphone sales worldwide, a shift towards areas such as artificial intelligence where Apple lags behind rivals such as Google, and the prospect of a giant bet on a self-driving car in a few years’ time.
The key challenge for a company looking for the next big thing is that “the smartphone is the most important consumer product ever,” according to Andy Hargreaves, a financial analyst at Pacific Crest. It’s the most widely distributed consumer gadget in history, with about 2.4bn in use, viewed as essential by everyone from Wall Street bankers to refugees trying to navigate a foreign land. And about 400m of them are iPhones.
“Apple will continue to be the victim of its own success,” says Geoff Blaber, vice-president of US research at industry analysts CCS Insight. “The iPhone sells for vastly more than its competitors, but it’s unlikely there will be another product that can match that for price and volume.”
For now though the numbers around Apple are stunning. In the past 12 months, its sales grew by $51bn – more than the sales of nearly 90% of the Fortune 500. Some forecast that Jobs’s death in October 2011 would inevitably see it stumble and fall, and its profits in 2013 did drop compared to 2012.
Now it is growing again. Yet there are subtle signs of weakness. Apple can be viewed as two companies: one selling iPhones, and one selling everything else – iPads, iPods, Apple Watch, iTunes downloads, apps, accessories and so on. Daniel Tello, who follows Apple’s financials closely, points out that over the past 12 months the iPhone business grew by 52% – but everything else, rolled together, shrank by 3%. A large part of that contraction is iPad revenue, which has been dropping for nearly two years after three years of meteoric growth from 2010.
Tim Cook, Jobs’s replacement, and his team are trying to change that picture. Besides new iPhones, this year Apple has released the Apple Watch, and will have a larger iPad and Apple TV set-top box in shops by Christmas. Then, 6.5m customers are paying about $10 per month for its Apple Music subscription service, built out from its $3.2bn purchase of Beats last year.
But $65m per month subscriptions, or $780m annually, hardly makes a mark. “We don’t think that the firm’s new products and services [iPad Pro, new Apple TV, iPhone Upgrade Program] will move the needle very much,” said Brian Colello of Morningstar.
Nor has Apple released sales or revenue figures on the Apple Watch, its wrist-worn smartwatch for messaging, fitness and (yes) timekeeping. Despite being the industry’s top seller, analyst estimates put total sales so far at less than 10m – generating a few billion dollars. Unless that starts growing fast, it won’t compensate for any slowdown in iPhone sales, though Colello says: “We remain optimistic that the device will take off at some point, especially as customer satisfaction metrics …are encouraging.”
Influential technology companies often keep growing for a while after their influence peaks. Allowing for inflation, Microsoft was worth even more than Apple in 1999-2000; now its dominance of the PC industry counts for little because smartphones outnumber them. Similarly, the mobile business of Finland’s Nokia ruled before the arrival of the iPhone and Google’s Android; now it is a lossmaking rump inside Microsoft. BlackBerry soared, then sank. If iPhone sales stall like the iPad’s, Apple will shrink rapidly.
Now with the rise of Google and Facebook, the rules of the game are changing to a software-only focus, and new technologies such as “machine learning” process huge amounts of data from users. A gap is opening that the Cupertino-based company is struggling to bridge.
Perhaps the next big thing really is big: a car. Apple has for months been poaching employees from companies such as electric carmaker Tesla, motorbike maker Mission Motors, and battery maker 123 Systems. The Guardian has also unearthed documents showing that it is looking to test self-driving cars as part of “Project Titan”.
Sir Jony Ive, the design wizard who has put his imprint on the product’s hardware and software, implied as much in a New Yorker interview in February: “There are some shocking cars on the road,” he said. “One person’s car is another person’s scenery.”
The car business is commoditised. The key to making a difference now is the software controlling the system. Couldn’t Apple do that? “There would be a significant risk,” saidBlaber. “The auto space isn’t one that Apple knows.”
Blaber’s words ring true and echo those of Ed Colligan, then head of the smartphone maker Palm, in November 2006. Asked about the possibility of Apple, a PC maker, getting into the market, Colligan scoffed: “PC guys are not going to just figure this out. They’re not just going to walk in.” Two months later, Steve Jobs unveiled the iPhone.
Earlier this month, Tesla’s Elon Musk dismissed Apple’s plans.“Cars are very complex compared to phones of smartwatches,” he said. “You can’t just go to a supplier like Foxconn [which assembles the iPhone] and say: ‘Build me a car.’” Musk may have tempted history but for now, Apple will have to keep relying on the iPhone.
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