No Need to Fret, Apple Is Doing Fine

By Farhad Manjoo, The New York Times | Updated: 28 January 2016 18:51 IST

Let's get this out of the way first: Despite what you may have heard, the iPhone is not dying. Neither, by extension, is Apple.

It's true that in an earnings report Tuesday, after weeks of speculation by Wall Street that iPhone sales would finally hit a peak, Apple confirmed the news: iPhone sales grew at their lowest-ever rate in the last quarter. And the company projected total sales of as much as $53 billion (roughly Rs. 3,61,532 crores) in the current quarter that ends in March, which would be a decline of 8.6 percent from last year and Apple's first revenue drop in more than a decade.

But if Apple is now hitting a plateau, it's important to remember that it's one of the loftiest plateaus in the history of business. The $18.4 billion (roughly Rs. 1,25,518 crores) profit that Apple reported Tuesday is the most ever earned by any company in a single quarter.

(Also see: This Is the Biggest Threat to Apple's Business Around the World)

It's necessary to start with these caveats because people have a tendency to react strongly, almost apoplectically, to any suggestion of weakness on Apple's part. Like pickles, cilantro and Ted Cruz, Apple inspires extreme opinion. The doubters are now ascendant. Apple's share price has fallen more than 11 percent over the last year, in stark contrast to gains by the other four American tech giants.

So this column will try to do something tricky: explore what's ailing Apple without going off the deep end. And after talking to several observers who watch the company closely, here's my ice-cold take: Apple is doing quite OK.

Could it be doing some things better? Sure. Are any of its problems urgent? Not particularly, and from what one can tell, it's working to address many of its shortcomings. Does it face existential threats? Yes, but no more than any other tech giant. Will it remain an outsize presence in the tech industry for years to come, generating profits on a scale that no other corporation can match? Almost certainly.

(Also see: Apple's iPhone Success May Be Reaching Its Peak)

"I'm not worrying about Apple in 2015 or Apple in 2016," said Ben Thompson, an analyst who runs the site Stratechery, and who questioned Apple's far-off future in a recent piece. "I'm thinking about the arc of Apple from 1976 to Apple in 2046. The iPhone era has been the pinnacle of everything that Apple does best. Anyone fretting about Apple right now is totally overstating it. But if I look out 10 years, 20 years, each of Apple's advantages starts to fade."

I'll get to those long-run worries in a bit, but let's start with the present. At the moment, Apple's biggest problem is its own success. The iPhone turns nine this year. The iPad turns six. These devices have made Apple the world's most valuable company (until Google's parent company, Alphabet, overtakes it, which might happen soon).

Apple's iPhone business is now so huge it sounds almost fantastical - Apple books more revenue from the iPhone (about $154 billion or roughly Rs. 10,50,534 crores in its last fiscal year) than Amazon, Facebook, Google, Microsoft, Hewlett-Packard or IBM generate from all of their operations. Two-thirds of the world's countries have gross domestic products smaller than annual sales of the iPhone.

Yet the very dominance of Apple's aging mobile empire inspires doubts about its future. The bigger the iPhone gets, the harder Apple has to work to beat its previous milestones, and the more vulnerable it appears to some fatal technological surprise.

The primary criticism of Apple's recent performance is that it's doing too much, and as a result, the general quality of its products has slipped. Related to that is the notion that Apple has lost some of its innovative and design magic. It has put out a larger-than-usual number of features and products that have failed to thrill reviewers. As Gizmodo put it in a headline summing up 2015, "Everything Apple Introduced This Year Kinda Sucked."

Apple still does noteworthy new things, but I can understand Gizmodo's frustration. The Apple Watch is a work in progress. Apple Music and Apple News feel awkward, far less pleasant than dedicated music-streaming and news apps that have long been available in the app store (like Spotify and Flipboard). The Apple TV offers little I couldn't get on other devices, and its remote is heroically unfriendly. And 3D Touch and Live Photos, the new features in the latest iPhone, are nice but not groundbreaking.

But there's something worth keeping in mind about each of these criticisms. They're the gripes of a technophile, and they don't necessarily reflect mainstream consumer perceptions about Apple's products.

"Most of these critics are those who spend most of their time in this world of Apple analysis, so of course they're hypersensitive to their devices," said Horace Dediu, a fellow at the Clayton Christensen Institute, a think tank, and an analyst who follows Apple at his site, Asymco.

Dediu said customer satisfaction data showed continuing love for everything Apple sold. Almost everyone who has purchased an Apple Watch loves it. The same is true for iPhones and iPads. Apple's crash logs show that its software isn't getting buggier, contrary to what heavy users might think. "And people have short memories - they forget that the first iPhone was also full of bugs, that things in the past weren't perfect," he said.

Dediu is one of a chorus of analysts who argue the iPhone is far from its peak. With incremental improvements to the device's interface and capabilities, Apple can add more than enough to keep people hooked to its devices. He calls the current peak in sales a "localized peak" - a blip from which Apple will soon emerge. In a piece last fall, I echoed this theory that the iPhone can't lose; so has Thompson.

But if continued growth sounds like wishful thinking, there's another path for Apple to prosper even if iPhone sales do hit a wall: Suck more money out of each phone. In a note to clients last fall, analysts at Goldman Sachs suggested that through a widening number of subscription services baked into the iPhone, Apple could begin to reap a huge monthly fee from its users, which it said constituted "the most lucrative installed base in the world."

It's an argument Apple executives are starting to vocalize loudly. On Tuesday's earnings call, Tim Cook, Apple's chief executive, said the popularity of the iPhone provided the company a "long-lasting foundation."

Apple's ecosystem is so sticky that people tend to flock to its services even if there are better products out there. Even if I'm not a fan, 10 million people have subscribed to Apple Music in its first six months.

Given all these options for minting bullion from the iPhone, the most alarming worries for Apple aren't about the present. They are about the future beyond the horizon, and they are necessarily speculative.

The basic question is this: In the future, will physical devices matter less than they do now? If computers are more like the machines in the movie "Her" - ethereal, ambient computers that exist in the cloud, that respond to our voices and our bodies, anticipating our desires - what will happen to Apple then? This is a company whose entire existence hinges on the cultural appreciation of physical things. Can it prosper in an age of ambient computing?

These are interesting questions to pose. I had a long conversation with Thompson about these ideas, and Apple's apparent weaknesses - how it's not as good at artificial intelligence and voice recognition as Google, how it lacks the cloud infrastructure that Amazon has built, and how, most important, its entire corporate culture is geared toward making actual stuff, which could limit its capacity to create fantastic online services.

But ultimately the discussion felt academic. It seems obvious that as the tech world changes around it, Apple, over the next decade, will need to reinvent itself. But so will everyone else. That is just what you do in this industry.

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