Bill Gates trashes iPads; Apple Inc. bleeds clients to Samsung

Apple is bigger than ever – that’s how Fortune magazine begins profiling Apple Inc. (NASDAQ:AAPL), which has jumped more than 10 slots (11) to land at No. 6 in the latest annual ranking of the magazine’s largest US corporations.

The most sought-after ranking heaps praises at Apple Inc. for what it has done right in the past year, yet calls it “battered and confused” in real life.

That, in fact, nicely sums up Apple Inc.’s current predicament – going forward, it will have to choose between being big and being profitable, between constant innovation and getting it right every time, between investing the money in new technology and keeping shareholders happy by returning part of the cash mountain on top of which it is sitting pretty today.

And in all this, they have the tiny issue of fierce competition by the likes of Samsung, BlackBerry, Sony, Nokia, HTC… even Huawei, constantly trying to nibble market share away from its popular iPhone. The battle in the tablets market, of course, is hotting up too, offering Apple no respite there either.

In fact, Microsoft co-founder, the legendary Bill Gates, has just taken a dig at Apple Inc.’s popular iPad, saying “a lot of those [read: iPad] users are frustrated, they can’t type, they can’t create documents, they don’t have Office there.” Of course he is right, but try telling that to the 20 million users worldwide that bought an iPad just this last quarter.

Notwithstanding what Gates just said, Apple’s clearly the leader in the tablets domain, and is arguably the leader in the smartphones domain too. Yes, Samsung indeed has more smartphone sales to show over the past few quarters, but Apple’s dominant position still holds although that position is seriously challenged by Samsung now. And if Apple Inc. cannot come up with an ace pretty soon (WWDC is around the corner, from June 10-14), it is in serious danger of losing the top spot, and shareholder interest .

Fortune does call Apple the “king of the hill” but in the same sentence maintains that being one is “a high-pressure job”. But it does have a laundry-list of things that have worked in Apple’s favour – or did so in 2012.

“As the power and breadth of the Fortune 500 goes on display in this issue, one of its best-known companies, Apple, stands out for so many reasons they are barely countable,” says Fortune. “In the list itself, Apple is the star, unchallenged,” it adds, before rattling off the positives.

“Once a tag-along, it has mountain-climbed to No. 6, with $156.5 billion in revenues. Its 2012 profits were an eye-popping $42 billion (second only to Exxon’s $45 billion); its market value of $416 billion led all others at our March measurement date, and it has a pure monopoly on 10-year shareholder returns: first in earnings-per-share growth, with an incandescent annual rate of 86 per cent, and first in total return, with an annual 54 per cent.”

Indeed, Apple has kept shareholders happy with its money-minting devices like the iPods, the iPhones and the iPads, and now with the $100 billion in its cash return programme. Still, it’s got to do that – launch money-making devices and keep shareholders satisfied – over and over again to retain its huge investor base.

What it needs to more than ever is simple: launch new products with appealing features at tempting prices in order to rope in ever more customers for its iDevices. This will help it maintain its spectacular growth so far – an unenviable task at the very least.

But what Tim Cook seems to be doing more often than launching new products is apologising for its mistakes. “CEO Tim Cook had to apologise a lot in the past year – once in September for the failure of Apple’s maps app, and then to Chinese consumers this April for slow repair services – this in a market that Cook said this past January would be Apple’s largest,” sums up As Fortune.  

Instead, Apple has been bleeding potential customers with its uptight approach with carriers in the developing world, it’s major growth markets for tomorrow – and today. According to a new analysis, prohibitive carrier requirements made by Apple have prevented some 2.8 billion customers from having access to the iPhone.

Horace Dediu, the brain behind the Asymco blog [https://www.asymco.com/], estimated this untapped market potential in his comments to Bloomberg.

Consider this: Despite aiming to make China its biggest market, Apple has yet to strike a deal with China Mobile, the largest carrier in the world, with 715 million subscribers. In addition, it has not yet had a tie-up with NTT DoCoMo, Japan’s largest mobile provider, which is also fast gaining ground in India.

On the other hand, maintains Dediu, arch-rival Samsung has been super-active in this respect, and has agreements in place with almost all of the world’s 800 carriers.

A major bone of contention between the Cupertino-based giant and the carriers are Apple’s sales quotas, which mandate that carriers achieve a set number of device sales at negligible margins for the initial few months of the contract period for Apple’s high-end iPhones.

This proves costly for carriers, especially for those that do not have a large number of subscribers that use costly data plans and therefor can’t cushion the hit they get from offering the devices at almost zero margins.

According to Dediu, not many carriers that Apple hasn’t had an agreement yet are willing to resect Apple’s prohibitive terms – which means it can’t grow a lot unless one of the two parties blinks.

Apple may actually be looking at a solution for this impasse with its rumoured low-cost iPhone, which will do away with the need for contract subsidies for a large number of mass market customers. Plus it might relax some of its strict requirements.

Whatever it needs to do, it needs to do quickly. Apple Inc.’s (NASDAQ:AAPL) share prices jave seen wide swings between $702 and $385 apiece within the past seven months. It can’t afford to take its shareholders on such a risky joyride often if it is to retain its position in the Fortune 10.

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