Photo: REUTERS/Kimberly White
Apple!A year ago analysts were tripping over themselves to raise their price targets.
This year, they’re tripping over themselves to lower their price targets.
A year ago, the stock was flying to the moon.
This year the stock has taken a serious tumble back to earth.
A year ago, it was the brand that could do no wrong.
What happened to Apple that it’s been so thoroughly tarnished?
We’ll do our best to explain it here.
We believe there are three fundamental reasons for the shifting perceptions of Apple.
- The stock fell 40% from its high. Companies can talk all they want about not caring about stock prices, but the truth is it’s bad for a brand to have a stock crater. It suggests something is wrong with the company.
- Apple’s growth rate has tanked. This is a big reason the stock price fell. For years Apple had high double digit growth as it sold iPhones to people that never owned iPhones. The population available to buy an iPhone is thought to be limited now, thus sending Apple’s growth rate tumbling.
- Apple no longer has a marketing and product genius running the company. Steve Jobs was known for his ability to create a “reality distortion field” around Apple and its products. Tim Cook is not.
We’re going to focus on the last point, because we think it helps to explain why the first two points are hurting Apple more than they probably should be. We also think it helps explain why the hype for Samsung, and even Google’s projects, has gotten so out of control lately. And that hype has contributed to the growing notion that Apple is a has-been.
Let’s start with some simple facts about Apple.
Last quarter, Apple sold 48 million iPhones, which was a record for the company. Apple’s revenue was $54.5 billion. Net profit was $13.1 billion. All three of those numbers were staggeringly huge and records for Apple.
For some context, Google’s revenue was $14.42 billion during the same period. That’s only $1.3 billion more than Apple’s profit. In other words, the cash Apple is keeping is almost as much as the cash Google generates overall.
However, Apple’s numbers, as good as they were, were well short of Wall Street’s expectations. Worse, Apple’s guidance, or what it says it will do this quarter, was considerably below what analysts and investors were expecting.
Apple even sort of hid the fact that its earnings per share (EPS) would fall on a year over year basis this quarter.
According to Apple’s guidance, EPS will fall a startling 17 per cent to 25 per cent this quarter. Compare that to Apple’s 2011 March quarter when EPS was up 92 per cent.
Last year Apple released the iPhone 4S in China during the March quarter, which sent its EPS to the moon. This year, Apple released the iPhone 5 in China at the end of the December quarter. As a result, this year’s March quarter won’t be as lucrative as last year, and thus we’ll see negative EPS growth.
A product timing transition is normal. And rather easily explained.
But there’s more to it than the timing of an iPhone rollout.
This is where we will blur the line between fact and image.
And this is where Apple most misses Jobs.
Apple has been getting hammered on numerous reports that it’s cutting back orders for iPhones based on supply chain chatter. The company is also reportedly cutting down its overall iPad orders.
Tim Cook did his best to kill these rumours on Apple’s earnings call, saying Apple has a lot of suppliers, so don’t pay too much attention to the reports.
But everyone pretty much ignored Cook.
As a steady stream of reports about Apple cutting iPhone orders leaked out, the conversation shifted to ‘what’s wrong with Apple?’
And the answer to that question quickly became: It makes small-screened phones that have been equaled and, in some cases, leap-frogged by the competition.
The tech press, for example, has argued that Samsung is killing Apple.
It’s not like that’s a crazy theory. Samsung is now the world’s biggest smartphone seller.
But Samsung actually doesn’t have a single model of phone that outsells the iPhone. The iPhone 5, Apple’s newest phone, was the best selling phone in the world last quarter.
Photo: Strategy Analytics
The iPhone 4S, which is a year old, was the second best seller. It outsold Samsung’s top of the line Galaxy S III by two million units.If Samsung phones are so superior to Apple’s, then why would people choose a one-year old phone with a tiny screen over a cutting-edge big-screened phone?
This is where Apple is missing Steve Jobs dearly. Perhaps better than anyone in history, Jobs understood how to craft and deliver a message. He understood how to control the conversation and change the topic.
Either on the record, or behind closed doors, Jobs would have told a marvellous story about how Apple’s products are transcendent and the competition’s blow. And people would have believed him.
In the early eighties, one of Apple’s early engineers, Bud Tribble, told a new employee, “Steve has a reality distortion field.” Tribble got the term from Star Trek, said Walter Isaacson in his biography of Jobs.
“In his presence, reality is malleable,” said Tribble. “He can convince anyone of practically anything. It wears off when he’s not around, but it makes it hard to have realistic schedules.”
Tribble was talking about a product release schedule. But the term stuck. Inside and out of Apple Jobs’ powerful charisma got people to believe in just about everything he said.
Without Jobs, there is no one at Apple with the charisma to beat back the stories about Samsung’s rise and Apple’s fall. There is no one to explain what’s happening with the iPhone business. There is no one to artfully drop hints about future products and massacre the products of rivals.
One of the many great moments of Jobs’ three-decade reality distortion field around Apple happened when he jumped on an earnings call in 2010.
At the time the iPad was still new and rivals were releasing smaller tablets. Investors and Apple fans were worried that these new tablets would hurt the iPad.
Jobs didn’t resort to the anodyne demurrals or corporate-speak that CEOs normally defer to when discussing competitors’ products. He straight up destroyed all the tablets that were coming into the market. After ticking off six reasons why these new tablets would fail against the iPad, Jobs closed with, “These are among the reasons we think the current crop of seven-inch tablets are going to be DOA, Dead on Arrival. Their manufacturers will learn the painful lesson that their tablets are too small and increase the size next year, thereby abandoning both customers and developers who jumped on the seven-inch bandwagon with an orphan product. Sounds like lots of fun ahead.”
Apple, of course, later released its own smaller tablet, the iPad Mini. And the iPad Mini is now the best-selling tablet in the world.
But at the time, Jobs speech was so perfectly constructed it was difficult to argue with what he said. Even more importantly, the perception Jobs created became reality. The first wave of tablets totally failed to topple the iPad.
Now that Jobs is dead, his reality distortion field is gone. There’s no one at Apple who can artfully spin what’s happening in the smartphone market. There is no one to scoff at concerns that Apple hasn’t released a new product category since the iPad, or explain why that doesn’t matter. There’s no one at Apple forcefully pointing out that there hasn’t been a single major technological innovation that Apple missed that came from a rival in the last 10 years. Tim Cook tries. But it comes out flat.
In a cruel irony, Apple now appears to be the victim of a reality distortion field, with the world perceiving the company and its products in a worse light than they actually are.
Ben Bajarin wrote in Time Magazine that, “Apple is the most profitable company, can’t make enough products to meet demand and is the most admired by its peers. Yet Wall Street and media fanatics are claiming Apple is doomed. The reality distortion field is in full effect.”
Imagine if Steve Jobs were alive now and running Apple.
Do you think he’d have something interesting to say about Google Glass? Do you think he’d have a surgical, devastating critique of Samsung?
Of course he would.
And what he would say would alter the broader conversation about Apple and its brand.
So, yes, Apple’s growth has slowed and its stock has tumbled.
But those are just facts.
What has really gone wrong at Apple is the loss of Jobs’ reality distortion field.
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