Today Apple released its Q2 2014 financials (the webcast quality was awful on apple.com. I could hear only every fourth word on my super high-speed Internet connection). Predictably, all the doomsayers are out in full swing. For weeks, why even months, we have analysts coming out with dire predictions on Apple’s declining iPad, iPhone sales and profitability. When the iPhone 5 was launched, critics said it marked the end of Apple’s innovation. Today’s results show that things are not as bad with Apple posting a quarterly revenue of $45.6 billion ($43.6 billion in Q2 2013) and quarterly net profit of $10.2 billion ($9.5 billion). iPhone sales were at 43.7 million, beating market estimates of 37.7 million for the quarter.
The guidance for Q3 does not seem so positive though. I do believe that Apple got away with no new product innovations this quarter and the analyst claims are not entirely unsubstantiated. However, exactly when we would see a visible decline in growth if Apple maintains the same pace of innovation is debatable.
Keeping revenues and profitability aside, the real question here is, can a company continue to sustain being an innovator? Apple was no ordinary innovator, but was very disruptive in each of its new markets, whether it was the phone, the tablet, music player or digital music distribution. The rules of play for each of these industries changed after Apple’s entry. The closest comparison I could think of is what Google did to search, email and to some extent the mobile OS market.
Apple’s Shifting Customer Base
I want to cite an example from a workshop that I attended a long time back, on what kind of customers that innovative companies typically want to go after:according to Bloomberg. Apple’s answer to Samsung’s commoditization of the market was the 5C, which did not resonate well with people like me who believe that Apple is sacrificing its uniqueness and brand value for market share at the lower end of the value chain. What Next for Apple? Where would the company go from here? Is it going to be the thinner, larger-screen iPhones that will bring new growth? Would product extensions be enough to avoid the imminent plateauing of growth in sales and profitability? I don’t think so. Will it be the elusive iWatch? The company needs to come out with something that is disruptively innovative and neither of these two impress me as even innovative. There have been few speculations on what else it could be, Apple entering the health & fitness market and the world of television. I am still skeptical. If people like us could second-guess it, it wouldn’t really be ground-breaking and disruptive, would it? These are the moments when I, and I bet Apple too, miss Jobs the most.