Rotten Apple: Is this the beginning of the end?

The tech giant owes Ireland 13.5 billion in taxes and recently reported it’s first fall in revenue in 13 years.

Gareth Rees September 4, 2016

In April, Apple Inc., the company that has reigned supreme over the tech world for more than a decade, reported sales of US$50.6 billion for the previous fiscal quarter – a 13 per cent fall. 

The bad news didn’t stop there: Apple’s share price plummeted more than seven per cent and the company declared that the decline is likely to continue, with revenue for the next quarter predicted to be between US$41 billion and US$43 billion. Apple still registered a US$10.5 billion profit for the quarter, but for the Cupertino company, the result must be cause for concern.

The fall in revenue can largely be attributed to declining sales of the iconic iPhone; Apple sold 16 per cent fewer iPhones than it had in the same quarter in 2015. Sales of the iPhone in China – an important market for any large company, and the second largest for Apple after the US – dropped 26 per cent compared to the same quarter in 2015. 

Shortly after Apple announced the quarterly figures, influential American investor Carl Icahn revealed that he had sold all his Apple stock, expressing his concern that the Chinese government might make it difficult for Apple to operate in China in future. Apple was recently forced to shut down its iBooks and iTunes Movies stores in the country just seven months after they were launched.

Meanwhile, Chinese technology company Huawei Technologies Co. recorded 70 per cent growth in 2015, mainly off the back of smartphone sales. Huawei is now the third biggest smartphone vendor behind Samsung and Apple, and it issued a direct challenge to its two closest competitors with the launch of its high-end P9 smartphone in April.

“The jig is up for Apple,” Dan Nathan, founder of market analysis site Risk Reversal, told The Guardian following the announcement of the poor quarterly result. His was not a lone voice. But not everyone is so concerned. Apple CEO Tim Cook has attributed the fall in revenue to "short-term turbulence”. It is a view shared by Editor and Publisher of popular Apple news site Cult of Mac, Leander Kahney. “The ‘downturn’ was due to the incredible success of the iPhone 6 the year before,” he insists. “It was such a blockbuster, any comparison to it isn’t really fair. Apple are a victim of their own previous success. We’re seeing a blip. The long term trend is ever upwards. The iPhone 7 — due this year — is going to be another giant hit. In future years this last quarter will be a tiny dip on the chart. Plus there were factors like the faltering Chinese economy and high dollar, which makes US goods expensive.”

Whatever the reasons, the fall in profits will have come as a shock to Apple's legion of devotees, to whom the company owes its prolonged primacy. These Apple “fans”, many of whom work in the technology press, often inspire hostility – and no doubt many of those heralding imminent doom for Apple will currently be indulging in schadenfreude. 

Kahney says he understands why Apple fans get up some people’s noses, even admitting that he himself gets annoyed, but nevertheless, he believes their loyalty is justified. “The cult-like following is because the products are great,” he says. “People become fans after using them for a while, and because the products are better than the competition. They are beautifully designed and made, and relatively affordable. They do magical things. The company operates on a different level.”

The two men credited with creating the majority of those products – from the original iMac G3 to the iPod, iPhone and iPad – are Apple’s Chief Design Officer Sir Jonathan Ive and, of course, the company’s co-founder and former CEO Steve Jobs. Some have expressed concern that Apple’s famous “culture of innovation” has suffered since Jobs’ death in 2011 and the start of the Tim Cook era. History does suggest that Apple doesn’t do well sans Steve; when the company was without him between 1985 and 1997 it famously suffered an almost fatal decline.

“The company Cook inherited was broken up into specialised groups devoted to hardware, software, design, marketing, and finance, all working separately and sharing little information with each other; they didn't need to because the overarching vision resided in Jobs's head,” wrote Brad Stone and Adam Satariano in a September 2014 profile of Cook for Bloomberg Business Week.

The company doesn’t release sales figures for the product, but according to a recent report in The Wall Street Journal, first year sales of the Apple Watch, released on April 24, 2015, are believed to have been between 12 million and 13 million units – more than double the number of iPhones sold in its first year on the market – and to account for 61 per cent of global smartwatch sales. Not bad at all.

“Steve Jobs obviously had the most profound effect on the company,” says Kahney.  “He rescued it from imminent bankruptcy and grew it into the most valuable company on earth. But I think it’s clear that it functions brilliantly without him. Jobs deserves a lot of credit, but he is also given too much credit. A lot of the success is due to the brilliant team he built and the company culture, which largely survives without him. It’s to be seen how long that lasts, but it’s way, way too early to say the company is faltering without him.”

But Kahney does admit that Cook’s more “hands-off” approach in comparison to Jobs, who he says, “was always intimately involved in the creation of new hardware and software”, might be an issue. “There’s some evidence that the Apple Watch suffered because of that,” he says. “It’s more complex than it needs to be. But then again, none of Apple’s first-generation products were instant hits. Let’s give it a couple of years.” 

Tim Cook himself came out fighting in response to the prophecies of doom for Apple. “We have great innovation in the pipeline, like new iPhones that will incent you and other people that have iPhones today to upgrade to new iPhones,” he told Jim Cramer on CNBC’s Mad Money. “We are going to give you things that you can’t live without, that you just don’t even know you need today. You will look back and wonder: ‘How did I live without this?’”

Kahney says, “The likelihood that the next product will be game changing is 99 per cent. The Apple Car — if the self-driving electric vehicle [is] as predicted — will have the most profound impact on our lives since the [Ford] Model T. It will utterly reshape the way we get around, how goods are moved, how business is conducted. They’re readying it for production. It’s gone beyond the prototype stage. The company is looking to industrialise it with billions of dollars in real estate and R&D investments — that’s happening now.”

The apparent success of the Apple Watch suggests that Apple is still able to innovate and produce products that people want to buy, even without Jobs. But could the company do without Ive? Following Ive’s promotion to Chief Design Officer in May, a role he will begin in July and which will see him move away from management to focus purely on design, there was speculation that the move could represent the first stage of the designer’s exit strategy from the company. He told New Yorker magazine earlier this year that he was “exhausted” and suffered pneumonia prior to the release of the Apple Watch.

But Ive, who has more than 5,000 designe patents to his name, hasn’t intimated that he is thinking of leaving, and Kahney sees no reason why he would want to. “Jony Ive is totally happy at Apple,” he says. “He has the best job of any designer in the world. He has more resources at his disposal than any other designer in the history of industry. He has no managerial responsibilities. The design studio is now run by [Apple’s Vice President of Industrial Design] Richard Howarth and Ive can design anything he wants, like cars, which is what he always wanted to do. No other company would offer such freedom.”

Asked to comment on the future of Apple, former Apple employee and Silicon Valley marketing guru Guy Kawasaki, says, “I just don’t know the answers. I doubt that anyone does.”

Kahney is unerringly positive about the future of Apple. “I know that’s counter to the popular narrative, but the company’s firing on all cylinders. I don’t think there’s any evidence that Apple has lost its mojo.”