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Is Apple Losing Its Creative Juice?

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The recent announcement of Apple's first drop in profits in ten years has led some to suggest that all is not well in the company.

That the drop has occurred even though sales have increased means that there is a belief that Apple's inexorable rise has come to an end. An immediate consequence was another drop in the share price to well below $400 which is a significant decline from the $700 they were valued at only last September when Apple became the most valuable company in the world.

It is important to focus on the fact that Apple is still an incredibly successful company. Its problem is that it is being judged against its past success during which growth has been 50% each have shown up to 50% growth each year. Apple has just announced profits of £9.5 billion compared to $11.6 billion a year ago.

Apple products are still being bough in phenomenal quantities though generating sales of $43.6 billion which is an increase on the $39.2 billion for last year. And the fact that Apple sits on a cash reserve of a whopping £145 billion clearly shows that this is not a company in danger of going 'down the pan'.

What is causing particular concern though is a belief that Apple's array of 'i' products no longer have the allure they once did. Though sales of iPad have increased from just under 12 million to 19.5 million it is in 'smartphone' market that Apple is experiencing most competition; especially from Samsung. Whilst an increase in sales of some 2.4 million on last year's total of 35 million for its iPhone is hardly 'small beer', there is a sense of disappointment and some suggest that Apple's phone is no longer the 'must have' product it was once seen to be.

Apple may have to recognise that it will no longer enjoy dominance. Indeed, Benedict Evans of Enders Analysis goes so far as speculating there may be concern among investors that profit announcement is an epoch-making moment and Apple may be facing a 'Blackberry-Nokia moment' from which it will not be able to recover.

For any company to lose over a third of its share valued in just over six months would be a matter of serious consideration. But in Apple's case this represents the big end of $300 million. Any further drop in share value and the loss will be a third of a trillion dollars.

For those looking for a reason there is the fact that Steve Jobs, one of Apple's founders, died in 2011 to be replaced by Tim Cook as is the current Chief Executive. As was acknowledged at the time of Jobs' death, he was always going to be a hard act to follow. However, like many organisations which have experienced incredible success under one leader, the successor should not be surprised if they are not so lucky; think Tesco after the departure of Sir Terry Leahy.

There was the issue of Apple Maps which, to be frank, were pretty rubbish as they contained fundamental errors. This resulted in the sacking of its software chief Scott Forstall. Many speculated that this would not have occurred under Jobs whose attention to detail was legendary.

And then there was the recruitment of John Browlett from Dixons to oversee its stores who was also sacked after only seven months for attempting to reduce staffing costs in their stores which caused widespread resentment. As anyone who has been in an Apple store will tell you, they are not simply shops but showrooms in which potential customers come to marvel at the products and be assisted by employees who have real passion.

Cook has also had to contend with the stories about its supplier Foxconn the Taiwanese company which makes many of Apple's products in China with labour working under appalling conditions. This is not the sort of media coverage the Apple was used to under Jobs; the ability to constantly innovate and make extremely elegant products which are capable of allowing users to do amazing things.

That Apple shares are now very close to the $376 price on 24 August 2011 when Cook took over means that many are questioning his continued leadership and there are rumours about him being replaced. Whether this will make sufficient difference to Apple is debatable. Think also Marks and Spencer which has gone through a succession of Chief Executive in the hope that one will have the ability to rediscover the winning formula.

Having revolutionised the world of electronic products through the development of tablet computers and smartphones, Apple has created a situation where there is an expectation that this will continue.

Many industry commentators are beginning to question whether Apple will be able to produce the next big thing and that its iWatch and intervention into television through the development of its own internet set (apparently it may be called an 'iPanel) will ever really happen.

Besides, whereas Apple used to be seen as being the industry leader and charge accordingly, others have emulated its ability to innovate. Undoubtedly whilst Apple products still have cachet, customers are increasingly attracted to the alternatives that are very similar in performance but, of course, cheaper.

Apple appears to have made the classic strategic mistake of becoming too complacent. A good comparison would be Sony which also used to charge a premium for its products.

So, Apple, similar to many other companies that have been incredibly successful, may discover that when you lose your creative edge it is extremely difficult it back; no matter how hard you try or how much money you spend.

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