Apple’s revenues unlikely to surge

Opinion Tomorrow Apple is going to announce its results and it is starting to look like there will be few who will be cheering.

Ever since the shine came off Apple in September, the news from Cupertino has been becoming progressively worse. Not only has it lost far too much ground to rivals such as Samsung, it is also being accused of running out of ideas.

Shares which were expected to be $1,000 by the end of 2012 are now selling for $400, stripping $280 billion from the value of the company.

Apple’s fall has also given its suppliers a good kicking. Some, which used to get a rise in their stock price just for the rumour that they were taking part in some Apple product, have had enough of the company. Some told Reuters that they were looking for more reliable customers.

In Japan the industry often jokingly refer to the company as “Poison Apple” because of its hard-to-meet high standards and low price expectations, Reuters wrote.

So what went wrong?

While some corners of the press might tell you that it is all due to the death of Steve Jobs, this is based on the myth that it was the Apple co-founder who came up with ideas.

Memos from Apple suggest that the company has been following a glorious five year plan set up by Jobs before his death. The iPhone 5 and its successor were all effectively signed off by Jobs before he croaked.

New CEO Tim Cook has been stuck by the fact that he does not dare alter it, even if the plan is clearly going wrong. As far as Apple is concerned Jobs’ prediction is much like those made by mathematician Hari Seldon in Isaac Asimov’s Foundation series. People attribute religious accuracy to them until they are proven unable to cope with a random element.

In this case Apple’s random element should have been incredibly predictable and it was one that Jobs was well aware of before his death.

Apple’s iPhone and tablet model assumed that it would repeat the success of its iPods. There people paid to be locked into a Walled Garden of Delights and never leave it. iPods were also fashionable at the time, and Apple managed to knock aside competition with some slick marketing. Once customers were locked into the iPod it was jolly difficult for them to get out, and besides, there were few products which were up to the iPod’s standards.

But the phone market was a different animal. Although smartphones were not as extensively used, the technology Apple used on the iPhones was not unknown to the rest of the world. There was a highly competitive industry with the potential to roll them out if it needed to.

Apple rolled out its iPhone and it took off, thanks mostly to deals with the US telcos. It looked like Apple was about to repeat the success of its iPods and then something predictable happened. The telephone industry started to produce smartphones based around Apple’s ideas and the cheap Android operating system.

Suddenly Apple was on the back foot. Previously people believed that its phones were innovative and high tech because they looked that way. Actually, the technology was not new and was available to anyone in the telephone industry. The fact that others could produce such phones without being sued indicated that it was open season. To make matters worse, Google’s Android was getting better and produced a much more flexible model for the telcos.

At this point Jobs was sick, but still in the game. The company should have been going all out to come up with innovation. Apple was sitting on a cash mountain and that money should have been poured into the R&D so that the company would be ready for the day when it had some serious competition.

It needed new products that could keep customers locked in to its Wall Garden, much in the same way as it did with the iPod. However, it didn’t, it sat on its cash mountain and some of its innovations that it did create were disasters.

Jobs had reasoned that to win the market, you only needed to have one headline stopping technology for each machine. Under pressure, Apple failed to deliver.

Unlike Google, which had a huge range of tested products which it could stuff into Android, Apple had very little that it could get to work. Siri was a disaster and only worked in the US, and Apple Maps was simply a joke. Both these products were supposed to be reasons for new customers to buy the iPhone 4S and the iPhone 5. In fact, the only reason to buy an iPhone 4S was because the iPhone 4 was broken and dropped calls.

Meanwhile Samsung had all the advantages on its side. It had Google’s software expertise and its own access to cheaper technology. It was always going to beat Apple at its own game – it was just going to be a matter of time.

Meanwhile, the iPhone market had killed off the iPod cash-cow and Apple did have a crack at playing out its time and tested a business model with tablets.

Apple did score a win with tablets. For a while many in the industry made the mistake of trying to copy the Apple model, not realising that the way to win was to cheaper and smaller tablets. Once they twigged on, the tablet market took a similar course to the iPhone.

Tomorrow’s results are expected to be explained away on the basis that Apple will have a new phone out in June, which its legions of fanboys will buy automatically.

But there are rumours that the mass production of the next iPhone will slip beyond June, the sources said. The killer app is expected to be a fingerprint sensor to provide additional security. This technology is a bit of a yawn and might be the system’s Achilles’ heel. Sources in Asia say that Apple is trying to find a coating material that does not interfere with the fingerprint sensor. In other words the killer app might not work yet.

Apple is hoping that it can come up with a cheaper model, which can appeal to lower-income buyers in growth markets such as China and India. The risk here is that it is a market that Apple knows nothing about. The new cheap and cheerful version of the iPhone is expected not to have the fingerprint technology and sport a cheaper plastic casing.

Apple’s next iPhone will already be on the back foot when Samsung begins selling the Galaxy S4 smartphone with a sharper screen and plethora of software-enhanced features.

Tomorrow Apple is expected to report a mere eight percent increase in revenue in its fiscal second quarter, among the weakest showings in years. Net earnings are expected to inch up just two percent as the intensifying competition compresses its margins.

All this is karma for those on Wall Street who ignored warnings that Apple was a bubble waiting to burst. As late as last year it was impossible to find an analyst who would talk sensibly about Apple. With the share price at $700 there were those who were convinced it would be $1,000 by Christmas.

It is fairly unlikely that Cook can do much to turn the company around for a while. It is likely that Apple will go into the sort of slow decline it experienced before. This time Jobs can not come back and rescue the company either. But then again, this mess is all about Jobs, and it is unlikely, had he lived, that he would have come up with anything different.