Of course, that’s no consolation to Apple’s bottom line—a lost sale is a lost sale whether it’s due to limited demand or limited supply. But Apple’s inability to make phones, tablets, and computers fast enough to satisfy consumer demand does tell us that people around the world are still clamoring for its devices. Limited supply, unlike limited demand, is something Apple can fix. In the grand scheme of things, it’s not such a terrible problem.
What about Apple’s declining growth and profitability? The growth problem is easy: After doubling many of its metrics every year for several years in a row, Apple might just be confronting the law of large numbers, as the New York Times’ James B. Stewart argued last year. Apple is now so big that it’s impossible for it to mushroom the way it once did. In the last quarter of 2012, it sold 10 million more iPhones and 8 million more iPads than it did in the same period in 2011. Those are huge increases; any other company would have killed to see such sales spikes. But as a percentage of Apple’s monster overall sales, these additional sales look less than stellar.
Apple’s profitability decline, meanwhile, was mostly due to a single product—the new iPad Mini, which sells for $329, significantly less than the full-size iPad. Because more people were buying cheaper iPads, Apple didn’t earn as much profit as it once did in the tablet business. But this isn’t a reason to panic about Apple’s future. Remember that the iPad Mini is competing with devices that aren’t making any profit at all. If Apple can still make money—albeit less, as a percentage, than in it did in the past—in the otherwise profitless tablet business, we ought to regard that as amazing, not worrying. That’s especially true when you consider Apple’s larger opportunity in tablets. If the tablet business comes to surpass the worldwide market for PCs (as many expect will happen), and if Apple’s lower prices allow it to remain the largest player in that market, in the long run it will make up for its slightly smaller profits with vastly larger volumes.
Of course, most sophisticated analysts understand all this about the firm. And yet Apple’s stock is taking a beating anyway. That’s why I don’t think there’s any one thing that’s causing investors to flee. Instead, there’s a bigger, more nebulous worry: When people start talking about Apple “hitting a wall” or losing its “magic,” what they’re really saying is that they fear some deeper void at the firm, a lack of the passion and innovation that made it so extraordinary for so long. There’s no data to back up this claim; nothing in this quarterly report supports it. It’s just an inchoate sense of dread, one sparked by Steve Jobs’ death and confirmed by every slightly negative story one hears about Apple. The fact that Apple’s maps program was so buggy, say, or that it had to release a smaller iPad and a bigger iPhone to compete with rivals, or that it hasn’t put out a category-defining new product since the iPad—the Apple worriers see all these as signs of its diminishing clout.
I think that such fears are overblown. A year ago, I argued that considering its dominant market position, Apple’s stock was too cheap at $500 a share. Then, last fall, I argued that the only real difference between Cook’s Apple and Jobs’ Apple is in size and scope—under Cook, the firm is larger, more efficient, and more aggressive. I still believe all that about Apple, and I think its stunning quarterly earnings bolster my view. Apple, under Cook, is at the top of its game, and it’s still far from realizing its huge, long-term potential in the smartphone and tablet businesses.
We’re certain to keep seeing huge sales from the company. But I’m no longer convinced that Apple’s stock price will rise with its earnings. That’s because the market attitude toward Apple seems unmoored from its actual performance. Apple is still the most spectacularly well-performing firm in the tech industry. Now it just needs to find a way to prove it besides monster sales and monster profits.
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