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No more ‘Apple’ of your Eye

Apple is still profitable and its revenues increased by 11% to billion. But analysts are seeing red over the drop in Apple’s price-earnings (p/e) ration which has slipped to below ten for the first time. So has Apple turned from a low-hanging fruit to a low-growing fruit? April 24, 2013: Wall Street was grappling with a temptation to mix ‘Apple’ with ‘oranges’ all because the...

Apple is still profitable and its revenues increased by 11% to billion. But analysts are seeing red over the drop in Apple’s price-earnings (p/e) ration which has slipped to below ten for the first time.

So has Apple turned from a low-hanging fruit to a low-growing fruit?

April 24, 2013: Wall Street was grappling with a temptation to mix ‘Apple’ with ‘oranges’ all because the technology behemoth’s fourth quarter profits headed south in a decade. The shareholders are angry that Apple’s growth has slowed down and there is now a ring of unpredictability to its hitherto spectacularly steady growth.

Note: It is still profitable and its revenues increased by 11% to billion. But analysts are seeing red over the drop in Apple’s price-earnings (p/e) ration which has slipped to below ten for the first time. Profits-to-earnings ratio indicates how the markets see future profits compared with current income and any slipup in this metric is where the penny drops.

So it is now official: Apple has lost is mojo. It is no more the master of the universe hovering over the rest of us and is now like any other low-growth, albeit, steady company.

Tim Cook is not Steve Jobs. This is of course indisputable. Tim may have “cooked” up and sold 60 million smart phones and tablets in the three months to March, but Jobs made money for us just by strutting his stuff.

A lot of people believe that if Jobs were around, Apple may have ridden the stock crash from in September to recently with say, an iWatch or an iTV. But Cook decided to placate investors with the biggest share buyback in US corporate history: A payout of some billion by end of 2015 in the form of increased dividends and buybacks.

Of course, Apple under Cook has its own takers (if not tans) notwithstanding the current logjam in its growth and the overwhelming legacy of Steve Jobs. There is no unanimity among economic gurus about Apple’s demise either and one is encouraged to say that reports of Apple’s demise are greatly exaggerated.

Apple still boasts of juicy margins on most of its products. It still accounts for 45% of the profits of the PC. Its operating profit is still more than that of the top five PC vendors combined. Apple’s smart phones still account for more than 70% of its total profits.

Now what has happened that Apple can no more be on auto and spew out cash like an ATM? Blame it on the markets which respect not history or pedigree. Blame it on cheesy and cheeky rivals like Samsung. Blame it on consumers who are as trustworthy as Paul Madoff. And blame it on friends like Wall Street who are prone to pull the trigger at the first sight of an alarm. If Apple’s gross margin drops by a single percentage point, the earnings per share dips by And the panic spreads.

Samsung is now setting a scorching pace and taking the battle to Apple’s camp, with its battery of “phablets” (a combination of a phone and a tablet).

When things go wrong, nothing goes right. Apple got into another mess with its warranty policies in China and had to issue a public apology.

Apple’s USP has always been neither invention nor innovation but an uncanny ability to launch products that end up virtually obliterating the competition. Jobs had this ability to such an extent that the world stopped to take pause when he came up with an i-whatever. People queued up the night before the launch to be the first to own it. The idea was when you buy an iPad or a iPhone you were buying a slice of social status.

The problem for Apple in reality is not its competitors, not the market, not China, but its own image, its own hype. It became its own victim. It is simply unreal to be able to sustain this kind of an image which is itself the creation of a marketing genius. It is far too unreal to expect the paying consumer to continue to buy into your products ad nauseam and in continuum.

An innovator’s nightmare is to keep innovating like a robot. It’s like expecting creativity from a cubicle 9-5. If Apple’s noisy and fanatic fans tone down the music, they will hear that the i-Pod was bought from another company and tablets have been around since the Nineties.

And competition isn’t exactly sleeping to let Apple ride over them. Samsung has updated its phone line twice as fast as Apple. Think S3 and S4, think of the split-screen innovation in the Galaxy Note, and think Google’s Glasses.

Ironically, Apple’s competitors are beating Apple by playing its own game. Steve Jobs perfected the “run” strategy – introducing a new product that consumers want before competition attempts to take on its existing products. Now, Samsung’s S-series is giving Apple a similar “run” for its money.

Apple betted big on Steve Jobs who was a game-changer. It is now betting on Cook’s financial re-engineering. Don’t look for the ending, for the story is only headed toward a new twist…

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