Exactly one year ago today, I wrote one of the most poorly timed things I’ve ever written.
It was the day before Apple reported earnings, and I said, “It’s time to consider whether Tim Cook has mismanaged Apple.”
Analysts were anticipating Apple’s revenue growth would only be 1% for the March quarter of 2014. They thought iPhone sales growth would only be 3% for the quarter.
Considering Apple was posting double-digit growth just a year prior, this would have been a miserable growth rate.
Well, it turns out (surprise!) the analysts were big-time wrong.
Apple posted better-than-expected numbers: Revenue was up 4%, and iPhone sales were up 17%.
Until that point, Apple’s stock had been trading sideways. Since that earnings report, Apple’s shares are up 67%.
That report kickstarted an impressive year for Apple. It went on to release the iPhone 6, iPhone 6 Plus, Apple Pay, the Apple Watch, and sleek, slim new MacBooks. It also did a 7-for-1 stock split.
Nobody would be stupid enough to wonder aloud whether Cook has mismanaged Apple today.
How did it happen?
It all comes down to the iPhone. Apple did two things right: It increased distribution for the iPhone, getting it on China Mobile, the biggest wireless carrier in the world. It also made the screen bigger on the iPhone.
The iPhone 6 has a 4.7-inch screen. The iPhone 6 Plus has a 5.5-inch screen. Prior to that, the iPhone 5S had a 4-inch screen. No other company had a screen that small. Consumers were either buying Android phones because they had bigger screens, or holding off on upgrading their iPhone, waiting for a bigger screen, which had been rumoured for months.
When Apple finally released a bigger iPhone, sales exploded. During the holiday quarter, Apple sold 74.5 million iPhones, up 46% compared to the year prior, its biggest-ever quarter by 23.4 million units. Analysts are expecting another whopper of a quarter from Apple for the January-March period. Analyst Gene Munster at Piper Jaffray says people are expecting Apple sold 57 million iPhones, which would be its second-best quarter for iPhone sales in history. If Apple hits expectations, it would represent 30% year-over-year growth. (Of course, as we know, analysts get it wrong, so treat these expectations lightly.)
Arguably, Apple shouldn’t have waited until sales growth slowed to 4% before it released a bigger iPhone. But, Apple would tell you that it isn’t guided by sales growth. It would say its “North Star” is releasing the best products possible. It didn’t think it could make a phone with a bigger screen that was up to its standards until last year.
Because the technology industry is inherently risky, it would be silly to declare “Mission Accomplished” for Tim Cook. The Apple Watch seems to be off to a strong start, but its reviews were mixed. It could be a flop. Apple is going to struggle to post growth numbers on the next iPhone model since the iPhone 6 was such a smash hit.
“The truth is, navigation is a big Watch weakness,” said Yahoo’s David Pogue in his review. “There aren’t any visual clues that more options are waiting if you force-press, or that anything will happen when you turn the knob. You eventually learn, but only by trial and error. And every time you force-press or turn the knob and nothing happens, you feel like a dolt.”
If the watch is too confusing for people, they could skip it. If the watch isn’t a hit, it wouldn’t kill Apple from a financial perspective, but on a psychological level, it would hurt. People would start questioning Apple’s ability to innovate post-Steve Jobs.
But Apple isn’t focused on just the watch. It seems poised to deliver a great run of products. Apple is reportedly preparing to finally break into the TV market. Apple is also reportedly developing an electric car. These are big, exciting markets loaded with potential for Apple.
TV in particular is something people have longer for Apple to attack. It is reportedly developing a new internet-based streaming service to deliver TV. It is also reportedly revamping the Apple TV box with plans to offer an Apple TV App Store like the iPad, iPhone, and Apple Watch have.
In addition to attacking those markets, Apple is a vocal force for good under Cook. Apple is loudly talking about its environmental responsibilities, as well as trying to improve working conditions for people making the iPhone. Is Apple perfect on this front? Of course not. But it’s a lot better than most companies.
This is all happening because of Cook. He has taken on the tough job of succeeding Jobs and he has flourished. He has created a more collaborative Apple, which has allowed Apple to push new products at a more rapid pace.
The reason Apple looked sleepy a year ago is that change takes time. From the outside looking in, Apple looked like it was going sideways.
But the truth is, it was preparing for its next epic run. We are now witnessing that run.
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