Despite the fact that Apple Inc. (NASDAQ:AAPL)’s earnings exceeded expectations on Tuesday, shares of the Cupertino tech giant slid early Wednesday.
Barring the introduction of a revolutionary new product, Apple Inc. (NASDAQ:AAPL)’s best days seem behind it: profitability is falling, margins are declining, and growth is slowing. On a year-over-year basis, earnings per share dropped 18%.
Despite pledging to return $100 billion of capital to shareholders, Apple Inc. (NASDAQ:AAPL)’s stock is still down over 40% from its all-time high. But why? I’ve pulled three quotes that I believe illustrate the fundamental problems Apple Inc. (NASDAQ:AAPL) is facing.
Steve Jobs, 1985
“Japan’s very interesting. Some people think it copies things. I don’t think that anymore. I think what they do is reinvent things. They will get something that’s already been invented and study it until they thoroughly understand it. In some cases, they understand it better than the original inventor. Out of that understanding, they will reinvent it in a more refined second-generation version. That strategy works only when what they’re working with isn’t changing very much—the stereo industry and the automobile industry are two examples. When the target is moving quickly, they find it very difficult, because that reinvention cycle takes a few years. As long as the definition of what a personal computer is keeps changing at the rate that it is, they will have a very hard time.” (Playboy)
Back in 1985, few people owned cell phones, let alone an iPhone. Yet, Jobs’ take on innovation back then is equally applicable to today.
In the mid 80s, American companies were struggling against imported, mostly Japanese, rivals. Although Americans had invented everything from the mass-produced car to the stereo, the Japanese had been able to offer better products at more attractive prices.
Likewise, Apple Inc. (NASDAQ:AAPL) is facing competition from imported rivals, though now, these companies are generally located in Korea — not Japan. Korean tech giants like LG, HTC and most notably Samsung, have produced a wide array of Android-powered smartphones that are arguably better than Apple Inc. (NASDAQ:AAPL)’s iPhone.
Of course, as Jobs noted, this is only possible when the tech being copied isn’t changing, and unfortunately for Apple, that’s largely been the case. With the exception of slight hardware changes — a higher resolution screen, 4G connectivity — the iPhone has not significantly changed in the last four years.
Meanwhile, Google Inc (NASDAQ:GOOG) has done much to improve Android in recent years. Early incarnations were notoriously buggy and slow; recent versions are significantly more stable and every bit as good as Apple’s iOS. In fact, some recent Android additions are better than Apple’s comparative features. Google Inc (NASDAQ:GOOG) Now, for example, has been seen by many as a superior alternative to Apple’s Siri.
Although Google makes no money directly from Android — it gives the open source operating system away for free — it has long been in Google’s interest to support an alternative mobile operating system. Google uses Android to push its web services, like YouTube, gmail, Google Docs and maps. Apple has been working to eliminate Google’s services from its iPhone.