Apple Is an Example to all Big Tech
(Bloomberg) -- I’ve long been a critic of Apple, but today I give up: It’s the perfect tech company for this day and age, an example to the rest of Silicon Valley.
After Apple’s latest results announcement, one could knock it yet again for its stable dependence on a single mature product — the iPhone. That product delivered 62.2 percent of the company’s sales; the average for the previous 10 quarters was 62.4 percent, so the growth in earbud, smartwatch and streaming subscription sales does nothing to reduce the iPhone’s dominance.
The 3 percent year-on-year iPhone unit shipment increase is good by Apple’s recent standards, but not great compared with a few years ago, when 40 percent increases weren’t out of reach. The pricey new iPhone X delivered a 14 percent year-on-year iPhone revenue increase but, because the unit uses more expensive components than its predecessors and because component prices are generally high now, not a gross margin increase: Gross profit in the quarter to March 31 reached 38.3 percent, compared with an average of 38.6 percent for the previous 10 quarters. There’s only so much one can do in a mature market, even with Apple’s clout and savvy.
One could also knock Apple for preferring to distribute its cash to shareholders rather than to spend it on innovation. It’s planning a $100 billion share buyback, while its research and development spending only reached $3.4 billion in the last quarter — 5.5 percent of revenue. For comparison’s sake, Amazon spent $6.7 billion on R&D in the same three months — 13.2 percent of revenue, and Google spent $5 billion, 16.1 percent of revenue.
Gone are the times when, on Apple earnings calls, analysts would ask excitedly about Apple’s product pipeline. Talk of industry-disrupting Apple products such as a car or even a smart TV has died down. On Tuesday’s call, there was just one question about innovative offerings, and it concerned health applications, an important driver of Apple Watch sales but not a potential world-beating sensation. Apple appears to be happy to think small and focus on its shareholders, not on pie-in-the-sky ideas, like other tech companies, including industry leaders.
But I’m no longer knocking Apple for any of this. In fact, I’m sorry I ever did.
Why the change of heart? Because this is a time when Amazon is pushing innovations that don’t solve any real-world problems but may create some: like smart speakers, with their threat of big brother-style surveillance in exchange for a minimal increase in convenience, or complex and expensive cashierless stores that won’t deliver much of an improvement to our shopping experience but may cost underprivileged people their jobs. This is a time when an entire driverless car industry is trying to convince the world that its products are safe before it can even come up with convincing stats — or prevent deadly accidents like the one in Tempe, Arizona, earlier this year. This is a time when Google is trying to subvert new privacy regulations to turn them against content producers. A time when Facebook, blasted by media and regulators for ignoring people’s privacy concerns, starts a dating service which will collect people’s most intimate data.
This is a time when companies whose innovations are more intrusive than useful, more gimmicky than problem-solving, operate with business models that either burn investors’ cash or turn the users into products.
At a time like this, Apple is a rock of common sense, sobriety, dignified engineering supremacy, prudent financial and supply chain management, effective marketing, and customer-oriented retailing. It’s a traditional business that does most things well, demands a high price for it, and receives that high price. With Apple, what you see is largely what you get, and when it’s not, the company will not just apologize but offer a fix.
Just listen to Chief Executive Officer Tim Cook talking on the latest earnings call:
If you look at our model, if we can convince you to buy an iPhone or an iPad, we'll make a little bit of money. You're not our product. And so that's how we look at that. In terms of benefit, we don't really view it like that. We view that privacy is a fundamental human right and that it's an extremely complex situation if you're a user to understand a lot of the user agreements and so forth. And we've always viewed that part of our role was to sort of make things as simple as possible for the user and provide them a level of privacy and security. And so that's how we look at it.
It’s as traditional as it comes, and it’s refreshing in its simplicity. Cook could be running a German Mittelstand industrial firm, not the world’s most valuable company, based in Silicon Valley. That sets him, and Apple, apart in an industry that has already gone wrong and is rapidly turning evil. Instead of taking part in this ugly process, Apple exemplifies what economists describe as the maturity of the information technology revolution. It shows that a stage of useful progress is over and doesn’t tip over into overhyped uselessness.
For that, I am thankful. (But I won’t buy a $1,000 phone; sorry, Mr. Cook.)
©2018 Bloomberg L.P.