Apple Inc. (NASDAQ:AAPL)’s remarkable growth over the past ten years or so has been one of the biggest success stories in the tech world and overall. Year over year, Apple Inc. (NASDAQ:AAPL) came up with some new innovative products helping to grow even bigger ahead of well established rivals.
Apple’s unmatched success
Apple Inc. (NASDAQ:AAPL)’s revenue has grown every quarter and that too at an enviable growth rate of 25 percent and even 50 percent sometimes. Within a decade, the iPhone maker has grown its quarterly sales from less than $2 billion to more than $50 billion. In 2011, when iPad and iPhone demand were at their peak, Apple Inc. (NASDAQ:AAPL) reported growth rate of over 80 percent for two straight quarters, which is truly remarkable in every sense.
Declining growth rates
However, the most recent quarterly results do reflect that the dream run may have slowed, with Apple Inc. (NASDAQ:AAPL) reporting a mere 1 percent growth over the last year. Since last year or so, the growth trend for Apple has been declining. After the remarkable run in 2011-12, when the sales jumped 73 percent and 59 percent, the numbers have been sliding at 23 percent, 27 percent, 18 percent, 11 percent and the latest 1 percent. For the current quarter, Apple expects a 3-5 percent growth rate.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
Problems facing Apple
Many factors can be blamed for this sharp decline in fortunes for Apple Inc. (NASDAQ:AAPL), like untimely product launches; early one year then late the next. Inventory adjustments can also be held responsible, in fact in the last quarter iPad sales suffered due to this. These are mostly short term problems; however, a big problem facing Apple Inc. (NASDAQ:AAPL) is maturing of developed markets where the company is strongest and collects hefty margins.
Another problem facing Apple is the exit of important executives. Some of the recent reports suggested that many Apple Inc. (NASDAQ:AAPL) engineers and developers are looking for a job in other tech companies like Google Inc (NASDAQ:GOOG), LinkedIn, Facebook Inc (NASDAQ:FB), and even Hewlett-Packard Company (NYSE:HPQ).
Also, Apple’s stock has been losing the confidence of investors. Shares that were trading at $700, 10 months before are now hovering in the range of $420-$440, which is a decline around 35 percent.
Overcoming this will require a lot of planning and strategy from the Cupertino based company, as if the company lowers the quality (which it swears never to) then it will lose the premium status that it commands. Apple Inc. (NASDAQ:AAPL) may come up with a low cost iPhone, which has been rumored for long now, but even in that case it will have to balance design, quality and price.
Other moves can be to diversify into new segments, which have also been talked about a lot recently; like making television sets, wearable computers, iWatch etc.
What answer do Apple Inc. (NASDAQ:AAPL) have for all these problems, will it be able to come up with some products that will command the same level of demand, favorable pricing, and high margins. A similar question was addressed to CEO Tim Cook during the earnings call, when Apple analyst Gene Munster asked “Are there product categories out there that are big enough to move the needle for Apple?”
CEO Tim Cook’s response: “We’ll see, Gene. We’re working up some stuff that we’re really proud of, and we’ll see how it does.”