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.
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.
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