No new royal baby at Apple, but at least results were better than expected

Posted: July 24, 2013 in Corporations, Innovation, Technology
Tags: , , , , , , ,

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What have Apple and the Duchess of Cambridge not got in common? Answer: Apple still needs a new baby. It’s the point that the markets don’t seem to get about the company. Its shares have been falling faster than a guillotine on the head of the last King of France, but the markets have been way too quick to write the company off. Yesterday saw good news from Apple as profits beat expectations and shares rose; but still the real story is being forgotten.

The company’s latest set of results were out yesterday. Profits fell to $7 billion in the latest quarter, from $9 billion in the same quarter last year. To put the numbers in perspective, profits from the equivalent quarter in 2011 were pretty much the same, but in for 2010 were only $3 billion, and just $1billion in 2009. In other words, they have risen sevenfold in four years, which some might say is impressive.

It was a similar story with sales, but if anything a tad better. Sales rose 1 per cent on the same quarter in 2012, and have risen by more than 400 per cent over the last four years.

But the markets don’t care about all that. What they care about is whether the company did better than expected, and on this occasion it did. It was down to the iPhone. It sold no less than 31.2 million units of the old girl in the quarter (compared with 26 million this time last year), a record for that particular three month period, in fact.

Sales of the iPad were down, and so were sales of the Mac, although in the case of the latter, the fall was not as great as that seen by the overall PC market.

Apple’s problem is that it is now operating in mature, or at least mature(ish), markets. When smart phones or tablets become commodities, margins will fall – it’s simple economics.

The company’s boss Tim Cook said: “I don’t subscribe to the common view that the higher-end smartphone market has hit its peak.” He added: “We saw very strong sales in many of the emerging markets.” And indeed sales into India, Turkey and the Philippines rose substantially. (As an aside, note that bit about sales to the Philippines rising. It is a different story altogether but worth mentioning at this point that at the moment the Philippines is one of the hottest markets in the world, from an investor’s point of view.)

But the real point is that Apple has proven itself to be the master of disruptive technology. It did it with the iPod, iPhone and iPad. When it comes to established markets it is just another player. Okay, it’s one with very pretty products, and maybe an important player, but Apple has no inalienable reason to outsell, say, Samsung in its key markets.

Apple’s big test lies ahead. The key for the company lies not with tweaking existing products, but disrupting markets with new products, such as smart watches or TV players.

Mr Cook also said: “Our focus is always on new products and services,” and “We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”

So how about that? – laser focused, no less. Let’s hope that the new products are not laser discs.

© Investment & Business News 2013

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