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Why a maturing Apple freaks us out, and why it shouldn’t

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Change — rapid, visceral change — is one of the most exciting things about the technology industry; when hard work and incredible foresight combine in a product or service that changes the world in just a few years and makes a lot of people rich in the process. Maybe that’s why when we see a company responsible for such profound change start to mature, we get a little uneasy.

It has been a little over six years — an eternity in tech — since the late Steve Jobs stood onstage at San Francisco’s Moscone West convention center to announce that “today, Apple is going to reinvent the phone.” Already in good shape thanks to the success of the iPod, the iPhone (and later iPad) turned Apple(s AAPL) into something Silicon Valley and Wall Street had never really seen: a big, profitable consumer tech company growing at a surreal pace.

That party isn’t exactly over, but those who just stopped in for some quick fun are looking for their coats; at least based on Apple’s quarterly results this past week and the reaction from investors and supporters to a steep drop in Apple’s stock price over the last several weeks and months.

Apple is maturing, and that’s starting to sink in among those looking to play the market for a quick buck, those with genuine respect and admiration for what Apple has accomplished, and those in the media who have built audiences around the intense interest in Apple during that period. Apple’s surge in profits, market share and market capitalization over the last 10 years was unlike anything most of us have seen, and the prospect that such an incredible growth story might be coming to an end is disappointing; not to mention a little scary for those whose job it is to find those growth stories.

We won. Now what?

The mobile revolution ushered in by the 2007 introduction of the iPhone is old news, in a way. Worldwide smartphone sales are still growing at a healthy 36 percent clip, according to IDC, but that growth has slowed as more and more people embrace smartphones over basic mobile phones. There’s still a ton of growth ahead for tablets, which are clearly having an effect on the PC market, but it doesn’t look like tablets will be as profitable for manufacturers (including Apple) because of how smartphone prices are distorted by carrier subsidies.

AAPL Chart

AAPL data by YCharts

As with many things involving Apple, these trends tend to be used for partisan purposes.

Investors who only care about growth — and not necessarily technology — seem to have decided to go find the next big growth stock somewhere else. As they sell off their holdings, the slumping stock (which still closed Friday 228 percent higher than it was in January 2008) triggers a bunch of Wall Street-oriented stories wondering, “What’s wrong with Apple?” That in turn leads to a very predictable and usually heated backlash from Apple’s army of supporters who mock Wall Street types for assuming Apple is doomed despite record revenue, profits and mobile sales. And then those who have been desperately trying to write the “Apple has peaked and is headed down” story in order to look prescient are licking their chops. Page views for everybody.

Nothing is wrong with Apple. And no one is suggesting (with a straight face, anyway) that Apple is doomed. Instead, we’re seeing a different type of Apple emerge, one that is still growing very strongly but that is no longer attached to a rocket ship.

Settling down

This realization is hard to accept for both financial and tech types alike. Investors who hunger for exponential growth now have to figure out what to do next, and it’s no surprise that some of those pushing Apple to release a mind-blowing television are financial types hungry for the same type of growth that was provided by the iPhone. (Should that actually come to pass, maybe Apple still has some rocket fuel left.)

Apple’s supporters (and detractors) must come to terms with the fact that we’re now well into a different era in Apple’s history. The iPhone caught the mobile industry flat-footed in 2007. Six years later, major competitors have righted themselves and beautiful hardware and software is battling for prominence with compelling services delivered onto those handsets and tablets.

The queue outside Philadelphia's Walnute Street Apple Store for the iPhone 5 launch.
The queue outside Philadelphia’s Walnut Street Apple Store for the iPhone 5 launch.

I feel like the mobile world in early 2013 is a little like the PC market of the mid 1990s, say the period around when Windows 95 had arrived. PCs were not a novelty then, but nor were they in every house in the land. And there was still a ton of growth and innovation ahead as desktops grew more powerful, laptops grew more capable, and the browser connected it all. That mature-but-still-growing market continued for about a decade before the mobile computer became the new darling of the industry.

Today, even though the iPhone is a household name, smartphones in general still make up less than half of all the mobile phones sold worldwide. And the tablet market has huge potential. The days of 70 percent growth in these markets are probably over, but there are still a lot of years of strong growth ahead.

By 2018, who knows how this crazy industry will have changed again. But Apple will either lead the pack or be a strong contender for those mobile customers over the next several years. And at some point, Apple’s stock will come into balance with its new identity.

21 Responses to “Why a maturing Apple freaks us out, and why it shouldn’t”

  1. michael kanellos

    Apple sells status symbols to people who pretend to disdain status symbols. It is a consumer/advertiser innovator. Times change. The only question is whether their cultural moment has passed. it has nothing to do with technology,

  2. Lisa Cunningham

    Apple is still cool. How I wish I’d bought Apple stock 10 years ago. The stock market is a long-term game. You hold on to them for 20 or 30 years and don’t panic at the first blip.

    Apple will be just fine. But a new TV? Eh, that’s so 1950s.

  3. Apple’s stock is a clear example of the fact that Wall Street is a bunch of jokers wwho don’t add value to most people’s life, and Wall Street needs serious disruption.

    For such a highly profitable compaany, the stock falling like this is ridiculous (assuming that the initial proce before the fall was correct, by whatever definition). Stock markets react to ‘sentiments’. How unscientific is that.

    Time to disrupt Wall Street.

    • Lisa Cunningham

      Why people obsess about what the Dow does is beyond me. It has absolutely no impact on how many new jobs are being created. It’s simply the 1 percent getting richer and richer. The average Joe couldn’t care less. Most of us already lost our shirts and pants in ’08. Been there, done that, lost the T-shirt. Ain’t doing that again!

  4. Peter Pottinger

    Didn’t read the whole article, but did notice the #1 reason why investors are panicking.

    You haven’t won.

    There is no way of “winning” the game of global communications and robotics. In 15 years time the landscape will have changed so much you won’t recognize it much like a man from the 50s would be clueless in our society today.

    Apple needs to change its rhetoric. This is the true legacy Tim Cooks can leave.

    Instead of believe in the mantra “we have won, now what” he needs to change the tune. The same tune Samsung and Google are singing now. Evolution is the only true master.

    They are playing the long game. Tech giants come and fall. Business giants come and fall. Governments come and fall. Apple is becoming complacent and that is their #1 enemy. The enemy within.

    – signed apple fanboy with his eyes wide open

  5. @Nicholas. Are you refrerring to AAPL or 005930? :-)

    The problem for AAPL is that they seem to be ignoring the fact that the premium phone market is now saturated. They aren’t making an affordable phone. They plan to ride off into the sunset and end up in 5% marketshare land again with iOS, just like they did years ago with Mac OS.

    Classic Apple folly. By the time they make a Performa for iOS, it will be too late, again. Then maybe in their desperation, they’ll permit iClones, again. Repeating history, over and over. Jobs is gone. Who will save them this time?

    Investors aren’t stupid. They’re the elephants that haven’t forgotten the lessons our tech writers have.

    • The premium phone market is saturated?

      Looks like Mercedes, BMW and all the high end car makers are in trouble too because their market is more competitive.

      Dude, some of the poor will get rich and when they do they buy a premium phone so the market is not saturated. It is only saturated in realm of trolls and analysts.

      Marketshare among the many android makers is great but the competition among themselves is killing them except Samsung and Samsung is also whining about falling profits in the future.

      Btw the android route is the race to the bottom which very few wins.

    • Tom Krazit

      @peter I don’t really like to give long-term investment advice, that’s not exactly what we do here. But I believe Apple is a very healthy company; while the pace of its growth has slowed a bit, it’s still growing quite strongly and it’s well-positioned in a market that is growing strongly.

      • There is little doubt that Apple will continue to do more than last year. But for the stock to hold up it has to grow profits, not just units sold. A P/E ratio of 11 is not bad, unless profits fall. What we saw this month was just from a slightly lower than expected growth rate in the profits. The latest reports showed that they keep spending on R&D but the new products aren’t as profitable as they were before. That can turn into a money pit fast. They could even lose money on future product launches.

        Apple had a few good years creating markets that everyone ignored. Now that others are catching up, will hundreds of millions or billions of people keep paying a premium for Apple products? I’m guessing they would prefer something that’s close enough at half the cost. That kind of competition kills profit margins, and eventually the innovator returns to just being an ordinary company that makes decent profits in a limited market. They did great at taking what was there but they can’t repeal gravity.

        The only exception is if Apple can create a massive monopoly. Standard Oil and Microsoft played that game pretty well and both created the richest man in the country at the time (it took a lot of vertical integration to pull it off too which Apple doesn’t really have to the same degree). 100 years passed between those two monopolies (and until last year a fragment of the older monopoly was worth more than Apple). Apple is cool but I doubt it’s early enough to play the same game as them. Well it was but MS won that time.

        Btw Nicholas, RIM had subscriber income too… and had and still has a lot of cash…

        I’m not licensed to give specific investment advice other than to exercise due caution and think about why you believe a stock will do well before you buy it. Buy the iPhone just because everyone else is doing it, but not AAPL.

  6. mobile world in early 2013 is a little like the PC market of the mid 1990s, say the period around when Windows 95 had arrived – and the Mac vs Windows war turned out horribly for Apple.

    Steve Job’s thermonuclear war vs Android isn’t turning out well for Apple. Jobs isn’t around anymore to save Apple this time.

  7. The weirdest phenomenum apple created is the “macfags”. never seen such a coletive histeria like this. the company is sinking. why can’t you treat apple like rim? or palm? they suck, they sink and that is it.
    The stocks fell because they are NOT making money as it should. the end. and obviously you don’t understand of market indicators. that is ok. but stop just saying nonsense.

    be proud of your iphone. ok. but move forward. life goes on. apple had its golden era with jobs and that is it. move forward.

  8. Apples innovation was not just due to one phone that they made in 2007, but the entire ecosystem they created with iPhone/iTunes along with the app market that made the market mature enough to embrace a tablet too later on. That hard work is based on a strong foundation and they are not slipping. Nothing to worry about.

  9. No one is freaking out but stock holders not in on the game. The Apple is ripe for the picking in every which way Wall St. can screw it. But the company can afford to ignore the Wall St. game. They are not a RIM who’s very existence depends on analysts saying nice things about them to keep it afloat. They have real actual money, they don’t need the Wall St. echo-chamber to whisper in their ear to know they are pretty. The only way Apple can mess up is if they succumb to the game.