It’s hard to think that just 15 years ago, Apple was staring bankruptcy in the face. What followed, under the leadership of Steve Jobs, has become one of the most celebrated turnaround stories in modern business.
At more than US$550bn, Apple today is the biggest listed company on the planet by market value, despite trading at a relatively undemanding price to earnings multiple. Many analysts expect it to breach the $600bn mark for the second time this year in the coming months as it rolls out the sixth-generation of its iPhone smartphone, which it introduced to near-universal acclaim five years ago.
At the same time, though, Apple is facing fast-growing threats to both its iPhone and iPad franchises from another of the world’s technology success stories, Korea’s Samsung Electronics, which has hitched its fortunes to Google and the search giant’s Android operating system. Unlike in 2007, when Apple unveiled the first iPhone, the market for touch-screen smartphones has become intensely competitive. In fact, for the first time, Apple may be slipping behind.
That’s perhaps reflected in Apple’s spectacular third-quarter earnings miss last week, which sent the share price tumbling 5%. Sales of the current-generation iPhone 4S didn’t meet investors’ expectations and earnings fell well short of even the most pessimistic forecasts. Just six months after Apple unveiled the 4S, demand for the device had fallen back on expectations that a newer iPhone was on its way. In the past, sales have stayed stronger until much closer to the launch of a new iPhone.
There may be another reason, of course: consumers are increasingly eyeing Android devices from Samsung and, to a lesser extent, Taiwan’s HTC and China’s fast-growing Huawei. Samsung’s flagship Galaxy S3 device achieved 9m orders before it even went on sale. It is now the fastest-selling gadget in history.
Many Apple fans talk down the S3, saying its 4,8-inch screen is too big. Many S3 fans, in turn, argue that the iPhone has fallen behind the curve, maintaining the same, relatively small, 3,5-inch screen since 2007. Also, the iPhone is a relatively heavy device for its size — the S3 clocks in at 7g less than the 4S.
Apple will undoubtedly increase the size of the iPhone’s screen with the next release, expected in September. And it’s likely to do it in a thinner, lighter package with speedier hardware. But it may have to offer something very special — “one more thing”, if you like — if it’s to avoid losing more ground to Samsung, which, according to analysts, already sells twice as many smartphones.
This is why the stakes in this week’s jury trial in California, which is expected to last for four weeks, are so high. Apple wants Samsung to pay it $2,5bn in damages for allegedly stealing its patents and it wants the court to pull the Korean company’s products off store shelves.
Samsung, in turn, accuses Apple of using its wireless technology in the iPhone and says US company should therefore pay it royalties for each device it sells.
Everyone with an interest in the smartphone business — from Google to Microsoft and from Nokia to Research in Motion — will be watching the Apple-Samsung trial carefully. If the court’s interpretation of patent infringement is too broad there is a chance it could harm innovation and trigger more lawsuits.
There are dangers for Apple, too. If it continues to fight its rivals at every turn in the courts, especially if it’s perceived to be falling behind in innovation, it could come to be regarded in the court of public opinion as the industry’s new bully-boy. We all know what that did to Microsoft. — (c) 2012 NewsCentral Media
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail