Has Apple lost its magic?

By Raz Koroh

On April 26, 2016, when Apple reported its first year-over-year quarterly revenue drop in 13 years, shares in the California-based tech giant on Wall Street fell more than six per cent to $97.82, erasing the equivalent of $40 billion in market capitalization (or equivalent to the total market capitalization of American Express).  The immediate question raised was, is this just a simple pause in growth in a tough global economy or has Apple lost its ability to conjure new gadgets for the market?

Many influential critics blame CEO Tim Cook for failing to deliver ‘transformative products’; they say that while sales of the iPhone have been the primary engine for Apple earnings for a while, the fact that Apple Watch relies on the iPhone means it is just an accessory and not a stand-alone product.  The same goes to Apple Pay, a service that lets iPhones act as digital wallets.  Apple venturing into self-driving cars and virtual reality are also doubtful considering Tesla having a hard time producing their Model 3.  The pace of innovation has completely slowed down at Apple, just a lot of talk but little action, critics say.  A new Steve Jobs is needed.  Former Apple manager Guy Kawasaki for instance, who helped launched the Macintosh computer in the 1980s, said that the company needs to get back to making products that people ‘lust’ for, that ‘leaps to the next curve’, and not simply making the iPhone smaller or the iPad bigger.  On the other hand, others call for more patience, citing that iPhone 6 and upcoming iPhone 7 will be ‘game changers’.

So, are the critics correct?

Here is a simple truth about companies like Apple.

Mature industry.  The root of Apple’s problem lies in the fact that the computer business has become a mature industry.  Personal computers as we know them were first introduced in the early 1980s, and since then the industry has not experienced the same technological revolutions that have characterized such fields as the internet, electronic commerce, web-based applications, and so on.  In short, computers and smart phones have become replicable commodities.  As a result, most hardware-based manufacturers tended to be cautious about investing in new facilities, and placed greater emphasis on short-term profits than on long-term strategies.  Meanwhile, production capabilities were becoming obsolete and productivity improvements more difficult to implement.  These factors have been the major reason for the decline in the competitive power of traditional tech companies.  Apple in particular, which for decades had relied on churning out ever more and newer hardware models, be it desktops, laptops or smart phones, could not adapt quickly enough to an increasing worldwide demand for more web-based applications, which was especially strong after globalization of the internet in the past decade.  By the time the likes of Apple began retooling to be like Google, Amazon or Facebook, it was already too late.

The current plight of Apple stems not from the poor quality of management, as is often thought, but rather from a failure on the part of whole company culture to appreciate and institute long-range strategies and to reprioritize production resources.

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