On June 11, 2012, Apple held its
Worldwide Developers Conference
in San Francisco. It announced that it was overhauling its family of
Mac computers and introduced a new version of its mobile operating
system for iPhones and iPads that will bring a host of new features,
including three-dimensional maps that let users zoom over an image of a
city.
The new maps software replaces Google Maps with Apple’s own mapping
system, in a sign that Apple is further distancing itself from the
Internet search giant that it once considered a close partner.
Apple made the boldest changes in its computer line to its high-end laptop computer, the
MacBook Pro,
which is now one-quarter thinner than the older model and has a
high-resolution “retina display” akin to the screen on new iPads and
iPhones. Apple was able to slim down the laptop, which will start at
$2,200 for a model with a 15.4-inch screen, by eliminating its DVD drive
and getting ride of its hard drive in favor of a faster form of storage
technology called flash.
Other new features in the new mobile operating system, iOS 6, include
improvements to Siri, the voice-activated virtual assistant in the
latest iPhone. While Siri initially worked with a limited set of
Internet services — allowing users to, say, search for restaurants
through Yelp — it will now let them use natural voice commands to search
for sports statistics, make restaurant reservations using OpenTable and
look up showtimes for movies.
Siri also has a new function, Eyes Free, that will allow car drivers
to communicate with the voice assistant by pushing a button on their car
steering wheels. General Motors, BMW and Toyota are among the auto
manufacturers who have agreed to put such a button in their vehicles.
Apple also said it reached an agreement with Facebook that more
deeply weaves the social network into Apple’s devices, allowing people
to share photos to Facebook, for example, without having to open a
separate Facebook app. The new features in the operating system will
become available for iPhones, iPads and the
iPod Touch when iOS 6 is released this fall.
Apple’s new Macs will ship with the operating system that Apple
introduced in February, OS X Mountain Lion, which takes some features
from Apple’s mobile products and blends them into the Macs.
A new feature in Mountain Lion, which will be released in July, is
Power Nap; it will allow computers to fetch software updates, e-mails
and other data from the Internet while the machines are asleep.
Overview
Apple, founded in 1976 by Steven P. Jobs and Steve Wozniak, is the
world’s largest technology company in terms of market capitalization,
taking the lead from its longtime rival Microsoft in 2010.
Over the last decade, Apple has redefined the music business through the
iPod, the cellphone business through the
iPhone and the entertainment and media world through the
iPad.
On Oct. 5, 2011, the company announced the death of Mr. Jobs, after a
long battle with pancreatic cancer. Rarely has a major company and
industry been so dominated by a single individual, and Mr. Jobs’s
influence went far beyond the iconic personal computers that were
Apple’s principal product for its first 20 years. Again and again, Mr.
Jobs gambled that he knew what the customer wanted, and again and again
he was right.
The death of Mr. Jobs stirred deep emotions inside and outside Apple
and raised concerns about whether the company can, in the long run,
continue its remarkable streak of hits.
In August 2011, Apple named
Timothy D. Cook as the company’s chief executive.
Antitrust Suit Over E-Books
In April 2012, the Justice Department
filed a civil antitrust lawsuit against Apple and five major book publishers, charging that the companies colluded to raise the price of e-books in 2010. The government’s decision has put
Amazon.com in a powerful position:
the nation’s largest bookseller may now get to decide how much an e-book will cost, and the book world is quaking over the potential consequences.
The dispute centers on a pricing policy that many in the publishing
industry consider critical to its survival as e-books become an
increasingly large share of the market. And because electronic books are
so new, the cost structure is an emerging issue on which there is
little history to provide guidance and many diverging interests.
The pricing policy, known as the agency pricing, lets publishers set
the retail price of books offered through Apple’s iBookstore, with Apple
taking 30 percent of the revenue. The model was developed in response
to what publishers saw as the growing dominance of the field of Amazon,
which they feared would end up destroying their ability to set their own
prices.
Three publishers that were investigated, the Hachette Book Group,
Simon & Schuster and HarperCollins, agreed to a settlement that will
most likely overturn their pricing model. Macmillan and Penguin Group
USA, which were also named in the suit, have not yet settled.
In December 2011, the European antitrust authority announced that it was
undertaking a similar investigation.
Pledge to Improve Working Conditions in Chinese Factories
In late March 2012,
Foxconn,
which manufactures electronics for Apple and other technology
companies, pledged to sharply curtail the number of working hours within
its Chinese factories and significantly increase wages, a move that
could improve working conditions across China.
The shift came after a far-ranging inspection by the Fair Labor
Association, a monitoring group, found widespread problems — including
numerous instances where Foxconn violated Chinese law and industry codes
of conduct by having employees work more than 60 hours a week,
sometimes for 11 or more days in a row.
The monitoring group, which in the preceding weeks had surveyed more
than 35,000 Foxconn employees and inspected three large facilities where
Apple products were manufactured, also found that 43 percent of workers
surveyed had experienced or witnessed accidents, and almost two-thirds
said their compensation “does not meet their basic needs.” Many said
that the unions available to them did “not provide true worker
representation.”
Apple, which recently joined the Fair Labor Association, had asked
the group to investigate plants manufacturing iPhones, iPads and other
devices. A growing outcry over conditions at overseas factories had
prompted protests and petitions, and several labor rights organizations
had started scrutinizing Apple’s suppliers.
Earlier, a collection of advocacy groups sent Apple an open letter
calling on the company to “ensure decent working conditions at all its
suppliers.” Tim Cook, Apple’s chief executive, had also visited visited
an iPhone production plant run by Foxconn while on a visit to China.
Since January 2012, Apple has released a list of 156 of its suppliers
— which it had previously declined to identify — and has begun posting
regular monitoring reports on hours worked by factory employees. Apple,
which has regularly audited its suppliers since 2006, said in a
statement on March 29, “We share the F.L.A.’s goal of improving lives
and raising the bar for manufacturing companies everywhere.”
The impact of Foxconn’s hour and wage changes could signal a new,
far-reaching turn in reforms. Foxconn is China’s largest and most
prominent private employer, with 1.2 million workers, and though the
Fair Labor Association’s investigation was limited to Apple factories,
the shifts that were announced have the potential to increase wages and
improve working conditions across Foxconn, which also manufactures
products for hundreds of other brands, and at non-Foxconn plants across
China.
Foxconn’s promises include a commitment that by July of 2013, no
worker will labor for more than 49 hours a week — the limit dictated by
Chinese law. Foxconn, which has its headquarters in Taiwan and is
controlled by the billionaire Terry Gou, has also pledged that despite
cutting hours, employees’ salaries will not decline.
Experts say such promises will most likely require Foxconn to hire
tens of thousands of new employees as well as raise wages, steps that
could cost it hundreds of millions of dollars annually. Those moves, in
turn, are likely to influence the prices paid by Foxconn’s customers,
which include every major electronics company, and could increase the
retail cost of consumer electronics products like smartphones and
tablets unless Apple and others accept lower profit margins.
Dividend and Share Buyback
On March 19, Apple
announced that it would pay a quarterly stock dividend
of $2.65 a share beginning in the quarter that starts in July and its
board authorized a $10 billion share buyback, two moves that will use up
some of its cash hoard of nearly $100 billion to reward investors.
The company said it would use up to $45 billion of its domestic cash
on the stock buyback and dividend program. The three-year stock buyback
would begin in September 2013. The company said it would spend about $10
billion on the dividend per year.
As its cash has piled up, Wall Street analysts and investors had
begun to call more loudly for Apple to return some of it to
shareholders. Although having too much cash is rarely seen as a burden
for a company, Apple earns less than 1 percent in interest on the cash,
which many investors view as wasteful.
Third Generation iPad
On March 7, 2012, Apple updated the iPad with a high-definition screen, faster wireless connection and several other refinements.
The new iPad is scheduled to go on sale March 16 for a starting price
of $499, unchanged from the last generation of iPads. The product has a
screen that provides a comparable level of clarity to the iPhone’s
“retina display,” with higher-resolution than conventional
high-definition televisions, according to Apple executives
And in a sign that Apple intends to more seriously protect its market
share in the tablet market, the company said it would continue to sell
its second generation iPad, dropping the price to $399 from $499.
Apple also introduced a new version of Apple TV, the company’s $99
set-top box for accessing Internet video, that streams movies in the
sharpest of the high-definition video formats, called 1080p.
The new iPad, which has no numbers or letters following its name, is
an effort to keep growth chugging along in a two-year-old business that
has turned into a major technology franchise for the company.
Speaking from the same stage where Steven P. Jobs, the company’s late
chief executive, introduced the second generation iPad almost exactly a
year before, the company’s new chief executive, Timothy D. Cook, said,
“In many ways, the iPad is reinventing portable computing and
outstripping the wildest predictions.”
The third generation iPad looks virtually indistinguishable from its
predecessor, without any of the bold outward design changes often
associated with new products from the company.
It features a faster processor — an A5X quad-core chip — and a higher
resolution screen — 2,048 by 1,536 pixels, more than 3.1 million
pixels, or four times more than the second generation iPad.
It operates on the fourth-generation cellphone network technology
known as LTE. In the United States, the new iPad works on AT&T’s and
Verizon’s networks .
The iPad also allows users to dictate e-mails, though Apple did not
introduce an iPad version of Siri, an iPhone virtual assistant feature
that can schedule appoints and perform other tasks using natural
sounding commands.
In fall 2011, Apple disappointed some pundits and enthusiasts by
making mostly incremental enhancements with its latest smartphone, the
iPhone 4S. That product ended up defying doubts to become a smash hit,
leading to record sales over the holidays. During that time, Apple,
based in Cupertino, Calif., solidified its lead as the most valuable
company in the world, with a market capitalization of almost a
half-trillion dollars, well ahead of its nearest rival, Exxon Mobil.
The new iPad may show how durable Apple’s hold on the tablet market
is. For most of the two years the iPad has been on sale, Apple has faced
a phalanx of competitors, from Hewlett-Packard, Research In Motion,
Samsung and Motorola, yet none has established a firm beachhead in the
tablet business. A few of those competitors, like Hewlett, gave up.
Apple sold 15.4 million iPads over the holiday quarter and 55 million
of the devices in total since they first went on sale in 2010.
The chief criticism that some stalwarts of the PC industry have
leveled at the iPad is that the device is not well suited for creating
content, even if it is good for consuming it. Apple, though, sought to
undermine that argument with a number of new apps. Those include a new
version of its Mac software, iPhoto, for editing photographs. A new
version of Apple’s Garage Band music software lets up to four people to
play in a virtual band together with four iPads that are connected
together wirelessly.
Working conditions in Foxconn factories, including safety lapses that led to worker deaths, were the subject of an
investigative article in January 2012 by The New York Times.
The iPhone Rules, But Its Lead Is Not Guaranteed
Apple, the global market leader in smartphones, is enjoying record
profits and sales that have transformed it into the world’s most
valuable company on any stock market. But the mobile computing industry
it has conquered in just five years is changing rapidly, and
not even Apple’s trend-setting image appears guaranteed.
It is Apple’s reward for being the progenitor of the modern
smartphone segment: the sum of its software DNA, intuitive user
experience, cash-generating universe of applications, cultivated image
of hipness and first-mover advantage. But Apple’s rivals are making
smartphones for much less, and the iPhone is becoming ubiquitous,
threatening its cachet.
In 2011, Apple became the world’s largest buyer of semiconductors,
according to Gartner, a research firm. It displaced LG of Korea as the
No. 3 maker of mobile phones by volume, trailing only Nokia and Samsung.
Apple narrowed the lead held by Android, the free operating system
developed by Google. By December 2011, 44.5 percent of all smartphone
buyers in the United States were choosing iPhones. The proportion
choosing for Android fell to 46.9 percent from 61.6 percent, according
to Nielsen.
By 2016, more than half of all smartphones sold will cost less than
$300, according to Informa Telecoms and Media, a research firm. Last
year, 81 percent — most of them iPhones — cost more than $300. The
proportion costing less than $200, which currently makes up 5 percent of
the global market, is expected to increase almost fivefold, to 24
percent, by 2016.
iPad Trademark Case in China Suspended
On Feb. 22, 2012, Apple defended itself in a Chinese court against
allegations that it does not own rights to the
iPad
trademark in China, a challenge that threatens to prevent the company
from selling one of its most popular products in one of its
fastest-growing markets.
After a heated, four-hour session at the Shanghai Pudong New Area
People’s Court, the local district judge did not issue any ruling or
give any public indication of how the case would be resolved.
The case was suspended the next day.
The court released a statement on its Web site saying it would not rule
because a related trademark court case between the two companies was
pending in Guangdong Province, in southern
China.
An Apple spokeswoman confirmed the court decision and said the
company would continue to challenge the position of the Chinese company,
Proview International, which claims it owns the trademark rights to the
iPad name in mainland China.
Apple insists that one of its subsidiaries acquired the rights to the
iPad name in China from the Chinese company several years ago, before
the tablet computer was released.
But the Proview parent company, a computer display maker based in
Taiwan, says its subsidiary in Shenzhen retains the rights to the iPad
name in the mainland. Proview is facing bankruptcy and has said it is
trying to force Apple to pay some compensation.
A lawyer representing Proview in the Shanghai case said he was
surprised by the Shanghai ruling but that Proview would continue to
press its case in the city.
The dispute has been an annoyance to Apple at a time when the
company’s products are growing increasingly popular in China. Some of
the world’s busiest Apple stores are in Beijing and Shanghai.
Recently, Proview has had more success in several smaller Chinese
cities, persuading the local authorities to either block the sale of the
iPad in their regions or to confiscate some of the product.
Yearly Updates for Mac Operating System
In February 2012,
Apple announced that it will update Mac OS X once a year. It will begin in summer with Mac OS X 10.8, code-named Mountain Lion, only a year after the Lion version was released.
When Lion was introduced in summer 2011, the big changes were all
about making the Mac more like an iPad. Trackpad gestures simulated the
multitouch gestures on an iPad screen.
Mountain Lion brings even more of the iPhone/iPad features to the
Mac. The suite of Mac apps mimic what’s on the iPhone/iPad, like
Reminders, Notes, Messages and Game Center. Through a free iCloud
account, all of these apps are synced instantly and smoothly across all
your Apple gadgets.
The Power of the iPhone
In late January 2012, Tim Cook, Apple’s chief executive, said
the iPhone 4S accounted for the majority of iPhone sales
— a significant statement considering that at the time, the iPhone 3GS
was free with a two-year contract, and the iPhone 4 cost $100. Even in a
down economy and with a free iPhone in its portfolio, Apple still
managed to sell the expensive, newer 4S to most of its customers.
Yet the free and reduced-price iPhones were still important to the
company’s business. Tero Kuittinen, a senior analyst at MGI Research,
said the free iPhone 3GS gave Apple the opportunity to expand
aggressively into markets where smartphones are not as popular yet, like
China and Africa.
Jan Dawson, an analyst with Ovum, said not to underestimate the power
of the free iPhone 3GS and the cheaper iPhone 4. “You’d better believe
the other iPhones are selling, too,” he said. “They’re suddenly
competitive with the lower-end smartphones that you used to get if you
couldn’t afford an iPhone.”
Tools to (Someday) Supplant Print Textbooks
On Jan. 19, 2012, Apple
introduced three free pieces of software revolving around education.
It released iBooks 2, a new version of its electronic bookstore, where
students can now download textbooks; iBooks Author, a Macintosh program
for creating textbooks and other books; and iTunes U, an app for
instructors to create digital curriculums and share course materials
with students.
Digital textbooks made for iBooks can display interactive diagrams,
audio and video. The iBooks Author app includes templates made by Apple,
which publishers and authors can customize to suit their content.
Apple said electronic high school textbooks from its initial
publishing partners, including Pearson, McGraw-Hill and Houghton Mifflin
Harcourt, would cost $15 or less. That is much cheaper than print
textbooks, some of which can cost over $100.
Textbooks are a fat target for the technology industry. Sales of
electronic textbooks accounted for only 2.8 percent of the $8 billion
domestic textbook market in 2010, according to Forrester Research. But
it will take time for the technology to change how most textbooks are
purchased.
There is the obvious challenge of finding the money for schools to
buy iPads, which start at $500 each in stores. Also, schools have to
become comfortable with the idea of paying for rights to iPad textbooks
for new students every school year, rather than paying a one-time fee
of, say, $60 for a printed textbook that lasts five or six years.
Publishers, too, will have to get used to the idea of Apple taking a 30
percent commission on sales.
Demand for iPhones in China
On the same day Apple released its list of suppliers, it introduced the
iPhone 4S in Beijing, an event that turned ugly, when
Apple failed to open its flagship store and a frustrated crowd responded by pelting the store’s gleaming glass walls with eggs.
Apple said in a statement that it had temporarily suspended sales of
all iPhones at its five mainland China stores for the safety of
customers and employees. The phones were still offered online, through
Apple’s official partner, Unicom, and at authorized resellers.
Demand for iPhones in China far exceeds supply, which has spawned an
army of scalpers who hire migrant workers to snap up products that the
scalpers then resell at jacked-up prices. Wary of unrest, police ordered
the store not to open. Furious, some would-be customers threw eggs.
Police dispersed the crowd and temporarily cordoned off the store.
At Apple’s other Beijing store and three stores in Shanghai, the
iPhone 4S sold out quickly, leaving some would-be buyers disappointed,
but with no reports of incidents.
China is Apple’s fastest-growing market: with just five of the company’s stores, it accounts for one-sixth of its global sales.
Winning a Patent Case
On Dec. 19, 2011, Apple
won a victory on a smartphone patent claim
against HTC Corporation, one of the world’s largest makers of
smartphones running the Android system. The International Trade
Commission ruled that a set of important features commonly found in
smartphones were protected by Apple, a decision that could force changes
in how Google’s
Android phones function.
The ruling was only a partial victory for Apple because the
commission overruled an earlier decision in Apple’s favor in the case,
involving a patent related to how software is organized internally on
mobile devices. It would have been harder for the defendant in the case,
HTC, to adapt its devices to avoid infringing that patent, legal
experts said.
The ruling from the commission found that HTC had only infringed one
of the two patents. Apple initially accused HTC of infringing 10
patents, but six were dropped from the case. The commission’s judge
ruled that HTC infringed two of the remaining four.
The commission imposed a formal import ban on any HTC phones that infringe on the patent, starting April 19, 2012.
Warming Up to Big Business
During his years at the company, Steve Jobs
never cared much for selling Apple products to big businesses.
He so disliked the process of catering to the needs of business, rather
than those of consumers, that he called chief information officers in
corporations “orifices” at a conference in 2005.
But a funny thing happened in the last few years. Big companies
started buying Apple products — a lot of them — for their employees.
The iPad and
iPhone
have given the Apple symbol a presence in workplaces that Apple never
enjoyed when it was strictly focused on selling Macintosh computers.
While corporate technology buyers say Apple does not try to hide the
fact that consumers are still its top priority, they note that the
company has gotten easier to work with in recent years, adding features
to its devices that make them more palatable to business. It also
doesn’t hurt that Apple’s new chief executive, Mr. Cook, is known to be
far more at ease meeting with the C.I.O.’s Mr. Jobs once so memorably
disparaged.
Apple has begun to drop hints that it sees the corporate market as a
big growth opportunity. During recent earnings calls with Wall Street
analysts, Apple executives boasted about the portion of Fortune 500
companies testing or deploying iPads and iPhones — 92 percent and 93
percent, respectively, Apple said in October 2011.
Among the big customers Apple has won recently is the home
improvement retailer Lowe’s, which says it bought about 42,000 iPhones
to be used by employees on store floors. Another is the airlines, which
have begun to use iPads to replace the printed aircraft flight manuals,
navigation charts and other material that pilots are required to bring
on board.
Information technology departments, though, may find working with
Apple a challenge. Historically among I.T. managers, Apple Macs were
largely shunned as too expensive, and the company was viewed as not
serious about making the computers blend well in corporate environments.
Also, although Apple’s secrecy about where its products are headed
may help it make a big marketing splash in the consumer market,
corporate I.T. departments like to know more so they can budget for big
new technology investments.
Apple’s New Pricing Strategy
Once known as the tech industry’s high-price leader, Apple
has been beating rivals on price over the last several years, according to an article in The New York Times on Oct. 23, 2011.
For instance, people who wanted the latest Apple smartphone, the
iPhone 4S, were able to get one the day it went on sale if they were
willing to wait in a line, spend at least $199 and commit to a two-year
wireless service contract with a carrier.
Or they could have skipped the lines and bought one of the latest
iPhone rivals from an Apple competitor, as long as they were willing to
dig deeper into their wallets. For $300 and a two-year contract, gadget
lovers could have picked up Motorola’s Droid Bionic from Verizon
Wireless, or they could bought the $230 Samsung Galaxy SII and $260 HTC
Amaze 4G, both from T-Mobile, under the same terms.
Apple’s new pricing strategy is a big change from the 1990s, when
consumers regarded Apple as a producer of overpriced tech baubles,
unable to compete effectively with its Macintosh family of computers
against the far cheaper Windows PCs. But more recently, it began using
its growing manufacturing scale and logistics prowess to deliver Apple
products at far more aggressive prices, which in turn gave it more power
to influence pricing industrywide.
Analysts and industry executives say Apple’s pricing is an overlooked
part of its ability to find a large audience for its products beyond
hard-core Apple fans. Apple sold more than four million iPhone 4S
smartphone over its debut weekend.
People can still easily find less expensive alternatives, with less
distinctive and refined designs, to most Apple products. Within the
premium product categories where Apple is most at home, though,
comparable devices often do no better than match or slightly undercut
Apple’s prices.
Next Act for the iPhone
In October 2011,
the company unveiled an eagerly awaited new version of the device,
the iPhone 4S, that comes with a “virtual assistant,” Siri, that
recognizes voice commands by users to schedule appointments, dictate
text messages and conduct Web searches.
Although the new phone is virtually indistinguishable on the outside
from its predecessor, the iPhone 4, it is packed with better technical
innards, including a more advanced camera. The phone also includes a
more powerful chip known as the A5, the same microprocessor that acts as
the brains inside the iPad.
Despite the new features and the improved technology, Apple fans
expressed disappointment on Twitter about the lack of a design change.
Investors reacted as well, sending the stock down 5 percent on the day
the phone was introduced.
Nonetheless, Apple
said it
sold more than four million iPhone 4S’s during
the device’s first weekend on sale. That figure is more than double the
1.7 million units of the iPhone 4 that Apple sold during its first
three days on the market in June of 2010.
The iPhone 4S is available on the AT&T, Verizon and Sprint
networks. The phone also runs on two kinds of cellphone networks, GSM
and CDMA, allowing its operation worldwide.
The Android Challenge
With every new iPhone, Apple faces the challenge of how to entice its
legions of fans to upgrade to the new device and to convert the much
larger pool of people who don’t yet own one. The second task is the more
difficult one, as mobile phones running the
Android
operating system by rival Google have flooded the market, with wider
distribution from wireless carriers, more hardware choices and often
cheaper price tags.
When the previous iPhone update was released, in June 2010, Apple and
Google each accounted for about the same share of new smartphone sales.
Since then the market has shifted dramatically in Google’s favor.
During the second quarter of 2011, Android devices accounted for 43.4
percent of new smartphone sales to Apple’s 18.2 percent, according to
the research firm Gartner.
Both companies’ mobile businesses are growing swiftly as they steal
share from rivals like the maker of the BlackBerry, Research in Motion,
that have fallen behind their technical innovations.
Yet Apple, by many measures, still remains the smartphone player to
beat, with better profits from the business, huge influence among mobile
app makers and innovations that rivals scramble to copy.
New Initiative: iCloud
In June 2011, Apple
unveiled iCloud, a new, free storage and syncing service meant to simplify how millions of people gain access to music, photos and files across multiple devices.
Mr. Jobs said that iCloud would replace the personal computer as the
central hub of people’s digital lives — storing photos, music and
documents. Relying on the PC, he said, no longer works now that millions
of people have multiple devices, each with photos, documents, songs,
phone applications and other files.
At the center of iCloud is a new version of iTunes that will allow
users to download on any device any song they have ever purchased. Songs
that were not purchased from iTunes can be added for $25 a year, Mr.
Jobs said.
The iCloud service also works with documents, apps and photos through a new service, Photo Stream.
In October 2011, Apple announced that 20 million customers had signed up for iCloud.
An Underdog Becomes a Giant
Apple, the Silicon Valley company that has become an icon of personal
computing, rose to its greatest heights in the years after Mr. Jobs
returned to its helm and opened horizons beyond the desktop.
With its coveted gadgets, Apple has cast something of a spell over
consumers and investors. The iPod and the iPhone have been major forces
in the music and smartphone industries, respectively.
As measured by the value of its stock, Apple shot past Microsoft, the
computer software giant, in May 2010 to become the world’s most
valuable technology company. The changing of the guard caps one of the
most stunning turnarounds in business history for Apple, which had been
given up for dead only a decade earlier. The rapidly rising value
attached to Apple by investors also heralds an important cultural shift:
consumer tastes have overtaken the needs of business as the leading
force shaping technology.
As one success follows another, the company finds itself in a
bewildering position. As the tech industry’s perennial underdog, Apple
was frequently scorned and dismissed by larger and more successful
competitors like Microsoft or Dell. Now, with growing frequency, the
company is seen by competitors and other industry players as a bully.
Companies like Google and Adobe have accused Apple of unfairly using
its clout to exclude their technologies from the iPhone and iPad. And
some application developers are fretting under Apple’s tight control of
those devices.
Perhaps the loudest complaints came after Apple barred some
third-party programming tools from the iPad, including Adobe’s Flash
software, which is widely used to create online videos and Web
applications.
The decision led to a very public war of words between Adobe and Mr.
Jobs. It also prompted the Federal Trade Commission to begin asking
questions about the effect of Apple’s decision on competition.
Then, in June 2010, Apple appeared to make the switch from excluded
to excluder in the mobile ad market. Policies for the iPhone 4 bar
Google and AdMob from selling ads on the device, resulting in a
complaint to the FTC from Google, which was in the unusual position of
playing victim.
The FTC inquiry is not the only one concerning potentially
anticompetitive behavior by Apple. The Justice Department began a
preliminary investigation into whether Apple pressured music labels to
exclude Amazon.com, its rival in digital music distribution, from
certain licensing agreements. And Apple is one of many Silicon Valley
companies whose hiring practices are being examined by the department.
The latest inquiry from the commission has raised eyebrows among some
antitrust experts, in part because Apple currently controls less than a
third of the smartphone market in the United States.
Apple likes to maintain tight control over what programs can appear
on the iPhone — a task that became a little bit harder on July 26, 2010,
when the Library of Congress, which has the power to define exceptions
to an important copyright law, said that it was legal to bypass a
phone’s controls on what software it will run to get “lawfully obtained”
programs to work.
The issue has been a topic of debate between Apple, which says it has
the right to control the software on its devices, and technically adept
users who want to customize their phones as they see fit.
Apple also said that altering the phones encouraged the pirating of
applications, exposed iPhones to security risks and taxed the company’s
customer support staff. But iPhone hobbyists say they simply want to
have free range to use certain features and programs on their phones
that Apple has limited or failed to offer.
The Early Years
Founded in 1976 by Mr. Jobs and Steve Wozniak, Apple came of age as
one of a wave of firms — including Atari, Radio Shack and Texas
Instruments — that were looking for ways to transform the digital
computer into a home appliance. Of that first personal computing
generation, it is Apple that has consistently found a way to touch the
zeitgeist. Apple’s microprocessor-based consumer products have found
expanding consumer markets around the world, beginning with the Apple II
computer, widely adopted in education during the 1970s.
In 1979, Mr. Jobs made a legendary visit to Xerox’s Palo Alto
Research Center, where he saw a prototype personal computer called the
Alto. He took away a range of ideas about computer design and graphical
user interface and developed two families of computers, the Lisa and the
Macintosh. Aiming to make Apple’s products “insanely great,” Mr. Jobs
was convinced that they could change the world.
Although the Lisa failed commercially, the Macintosh succeeded,
reshaping the computer industry over the next decade. Its success,
however, came at great cost to Mr. Jobs, who was forced out of the
company in 1985 by his handpicked chief executive, John Sculley, a
recruit from Pepsi.
Apple initially prospered under Mr. Sculley, and the Macintosh
briefly reached a market share of more than 15 percent of the personal
computer industry, but the company foundered as Microsoft’s Windows
operating system became the desktop computing standard.
The company began to unravel when Mr. Sculley placed a large bet on
the arrival of the hand-held computing market. When Apple’s Newton
failed commercially, he was forced out in 1993.
In 1997, Apple’s current era dawned when Mr. Jobs returned after more
than a decade in exile. At the time, many analysts gave him little
chance of resurrecting the company, which had largely been written off
by the computer industry. Michael S. Dell, who built his own PC empire,
was even quoted as suggesting that Apple’s smartest move would be to
“shut it down and give the money back to the shareholders.” Starting
with the title of interim chief executive, however, Mr. Jobs
systematically rebuilt the company’s Macintosh franchise by adding an
operating system he had developed at Next Inc.
The Beginning of a Revolution
In 2001, Mr. Jobs introduced the iPod music player, setting the
company on its current course as a major force in consumer electronics.
The iTunes Music Store, created to enable users to fill the device with
audio, has made Apple an important force in the music industry as well.
Over 10 billion songs from the store have been downloaded since the site
went active in April 2003.
In 2007 Apple introduced the iPhone, a convergence of entertainment,
computing and communications that has roiled the cellular phone
industry. Its Apple TV set-top box has had less impact, but signals a
continuing interest in the living room.
In April 2010, Apple announced that it had sold more than 300,000
iPads on the device’s first day on the market, a figure that included
preorders. That met the expectations of financial analysts who were
keeping tabs on the release of the company’s highly anticipated tablet
computer. Apple also said iPad users had downloaded more than one
million apps from the company’s App Store and more than 250,000
electronic books from its iBookstore.
Wall Street warmly greeted the news in May 2010 of Apple’s dominance
over Microsoft, calling it the end of an era and the beginning of the
next one. Microsoft, with its Windows and Office software franchises,
had dominated the relationship most people had with their computers for
almost two decades, and that was reflected in its stock market
capitalization. But the click-clack of the keyboard has ceded ground to
the swipe of a finger across a smartphone’s touch screen.
And Apple is in the right place at the right time. Although it still
sells computers the iPhone is the most critical product in Apple’s
line-up and the largest source of its revenue, accounting for more than
$13.3 billion — almost half of total company sales — in the 2011 third
quarter earnings.
2012 Earnings: First Quarter
At the end of April, Apple
reported that net income for its latest quarter surpassed forecasts as
iPhone sales increased 88 percent. The company sold 35.1 million iPhones, and said its
iPad sales grew 151 percent to 11.8 million.
For Apple’s fiscal second quarter that ended March 31, the company
reported net income of $11.6 billion, or $12.30 a share, compared with
$6 billion, or $6.40 a share, in the same period a year earlier.
Apple’s revenue was $36.2 billion, up from $24.7 billion a year ago.
Apple previously told Wall Street to expect earnings of $8.50 a share
and revenue of $32.5 billion for the quarter. But as they do nearly
every quarter, analysts viewed Apple’s official figures as low-ball
estimates and came up with their own more bullish forecasts. On average,
analysts surveyed by Thomson Reuters expected Apple to report earnings
of $10.06 a share and revenue of $36.81 billion for the quarter.
The company said it expected revenue in its third quarter of about
$34 billion and diluted earnings per share of about $8.68, lower than
analyst estimates of $37.5 billion and $9.96 per share.
