Fernando Fischmann

Apple May No Longer Be Innovative But That’s Okay

11 May, 2017 / Articles

Apple has obviously been good to its stockholders, especially recently, with shares up 24% during the first quarter. More good news came Tuesday, when the company revealed that profit grew 4.9% from the previous quarter, with revenues edging towards $53 billion, reassuring Wall Street after those figures slumped for much of last year.

The other eye-opening headliner was that the company currently has $256.8 billion in cash, which as the Wall Street Journal pointed out is more the combined currency reserves of Canada and the U.K. Even so, Apple has plenty of critics.

Some detractors are quick to point out that beyond the iPhone, which accounts for about two-thirds of its revenue, the recent performance of its products and services has been uneven. And while it’s hard to find fault with a company that has a quarter of a trillion dollars lying around, such critiques are not wholly without merit.

Indeed, neither the Apple Watch nor Apple Pay have been the disruptive forces that many predicted they would become. Apple Music isn’t profitable, used primarily as a sticky service to keep consumers within the Apple ecosystem of products. Further, while MacBook sales are respectable relative the broader PC market, iPad orders continue to tumble.

Providing Apple doubters with further fuel is the perception that the company hasn’t been as aggressive in some critical areas where many of its competitors either already enjoy an established presence or are reportedly on the brink of significant breakthroughs. It doesn’t, for example, own content like Google (YouTube) or Amazon (Amazon Video). Nor does it seem as active in other potentially high-growth spaces such as virtual reality, internet of things, drone technology or driverless cars.

The combination of these concerns drive the argument that Apple must stop dragging its feet and finally put its enormous cash war chest to work. In recent months, prominent investors and other observers have suggested a batch of potential acquisition targets, including Twitter (to beef up ad revenue and perhaps content delivery capabilities), Disney (to gain rights to valuable original content) and Tesla (to accelerate its entry into driverless cars).

Apple could go on a buying binge and purchase one of or all of those companies in an attempt to hyper-charge growth opportunities. At the very least, it would satiate some of its detractors who worry about its ability to maintain its edge, but Apple shouldn’t give into to its critics. The fact of the matter is that the company doesn’t need to buy anything. Has it become overly reliant on iPhone upgrade cycles to generate profit? Perhaps, but who’s to say this business model can’t endure for years? Based on the number of devices Apple sells each time it issues a new iPhone, it certainly could.

In many ways, Apple is becoming what General Electric was a few decades ago: a steady, reliable and dividend-paying company with an extraordinary balance sheet that produces goods that nearly every American wants to own. Like Apple, GE once sat on an enormous cash haul. It was aggressive, getting into industries as diverse as television and banking. Over time, that strategy came back to haunt the company.

Hypothetically, let’s say Apple were to pursue one of the acquisition-led growth options mentioned above. Tesla and Twitter have never turned a profit, and Disney’s most profitable business unit (ESPN) is experiencing serious growing pains. Put simply, Apple could easily experience GE’s fate were it to become overly aggressive just for the sake of being aggressive.

Sure, the company that redefined the world by introducing a product that eventually led to billions having a computer in their pocket is no longer on the cutting edge of innovation, and arguably, it hasn’t been a leading innovator for some time now, but that’s fine, because even if Apple is largely a one-trick pony, it’s a pretty tremendous trick.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.



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