As a former investor in Apple and a huge fan of the company, I’ve been mulling over this question for some time – has Apple peaked?
Here’s Tim Cook’s take on how the year has been for Apple:
We generated record total company revenue of $171 billion, earnings of $37 billion and operating cash flow of $54 billion. We paid over $8 billion in capital expenditures to both to our supply chain, expand our infrastructure and increased our retail footprint. We also completed 15 strategic acquisitions. That’s an average of one acquisition every three to four weeks.
The smartphone category is expected to grow significantly in the next few years from about 1 billion units per year this year to over 1.7 billion in 2017. And the tablet market is growing at an even faster way from about 225 billion units this year to over 400 million in 2017.
Apple’s iPhone was the biggest driver behind Apple’s record revenue year, with 52 percent. However, the momentum in iPhone sale has decreased in the last year and is clearly not increasing with the market in the manner Tim Cook explained above. It appears people are buying cheaper smartphones, a market in which Apple refuses to be a part of.
“Likewise, radically improved products like the iPhone 3G (2008), the iPhone 4S (2011) and the iPhone 5 (2012) supercharged company sales,” Sam Gustin writes for Times. “To put this in perspective, Apple went from selling 11.6 million iPhones in 2008 to selling 72.3 million iPhones in 2011. In 2012, Apple sold a mind-boggling 125 million iPhones. So far this year, Apple has sold approximately 116 million iPhones. (Apple’s fiscal year concludes at the end of September.) Wall Street analysts expect the company to say it sold about 31 million iPhones last quarter, which would bring the full 2013 total to about 147 million units. Looking at the yearly trajectory, one can see how the rate of iPhone sales growth is slowing down.”
However, the most alarming aspect is the slide in operating margin and subsequent profit. This indicates the company is struggling to remain price competitive in the face of strong competition. More importantly, Apple’s CFO Peter Oppenheimer said the company’s operational margins will to be between 36.5% and 37.5% in the coming quarter.
Nevertheless, it might not be all bad news for Apple fans and investors. Tim Cook reiterates that the company will be launching new product categories in 2014 when asked by analyst Antonio Sacconaghi of Sanford C. Bernstein.
Tony, I didn’t say in April that you would see them in this year and the first half of next year just to be clear on that. But what I have said is – I have said that you would see some exciting new products from us in the fall of this year and across 2014. And I obviously stand by that and you’ve seen a lot of things over the last couple of months. In terms of new product categories, specifically if you look at the skills that Apple has from hardware, software and services and at incredible app ecosystems, these set of things are very, very unique. I think no one has a set of skills like us and we obviously believe that we can use our skills in building other great products that are in categories that represent areas where we do not participate today. So we’re pretty confident about that.
But here’s the thing. Whatever new product category Apple chooses to enter, it is not likely to move the company’s profit margin in the same way as the iPhone and iPad business.