NEWS ANALYSIS: Apple delivered lower-than-expected financial performance during the fourth quarter and expects a downturn in the first quarter of 2013. Has the company passed its peak?
Apple’s calendar fourth-quarter (fiscal first-quarter) performance was the prime example of the quandary the company currently finds itself in. Apple generated $54.5 billion in revenue and recorded a net profit of $13.1 billion.
Those phenomenal numbers alone would normally make market analysts cheer and send investors rushing to buy more Apple shares. After all, Apple generated $46.3 billion in revenue and sold 10 million less iPhones in the same quarter a year ago.
However, Apple’s quarter was considered a miss by Wall Street
. Analysts had been hoping for much higher revenue, and the company’s $13.1 billion profit matched its net income during the fourth quarter of 2011, when its revenue was billions of dollars less. Combine that with talk of a weaker-than-expected calendar first quarter and some market watchers are wondering whether Apple has passed a peak it can never hit again.
But making such prognostications is an admittedly risky business. Apple naysayers for years have been saying that the company is at its height, only to see its business soar to new heights. But there’s a chance—and it’s just a chance—that Apple’s peak might have come and gone.
Here are the reasons why.
1. It’s just a matter of time, regardless of the company
The possibility that Apple might have passed its peak might have nothing to do with the company itself and everything to do with the fate of all enterprises and the law of diminishing returns. At some point, every company hits its all time peak and for many reasons no amount of new investment in new products or businesses can bring together the combination of circumstances that supported such incredible growth. Given Apple’s profit figures, it appears the plateau may be setting in.
2. It’s far behind in the most important market
China is the world’s most important market for technology companies
. Apple knows it. Samsung knows it. And Microsoft knows it. That’s precisely why all of the tech giants are competing so hard in China. The trouble for Apple is its iPhone is not selling as well as it would like in a country where many consumers view Apple smartphones as too expensive. If that continues, Apple could find itself in deep trouble.
3. Margins are getting tighter
As noted, Apple was able to generate a high of $54.5 billion in sales during the fourth quarter. However, the company’s profit of $13.1 billion matched the prior-year quarter, which was able to earn on $46.3 billion in revenue. Apple’s margins are getting tighter each quarter. That’s bad news for any company.
4. Competitors are catching up
So, why are Apple’s margins shrinking
? The company might just need to blame it on its competitors. Companies like Samsung and Google are delivering high-quality products at prices that beat Apple’s. The iPhone maker is now forced to respond by offering more products and keeping its pricing low, despite rising component costs. Competition might just be leading to Apple’s decline, which is the way free markets are supposed to work.