A new piece from the New York Times acknowledges the astounding past and present successes of Apple, quickly becoming the world’s biggest publicly held company. But for as much as Apple may seem unstoppable, financial analysts can already see the end of its success lifecycle.
When you consider the amount of time, energy, interest, and money that a large segment of the population invests into Apple, it’s difficult to imagine a day when the company could ever be eclipsed by another electronics giant. Could another company come along and be cooler than Cupertino? Could the iPhone — perhaps the world’s only product that doubles as a cultural artifact — be usurped by a new, novel device that makes our favorite smartphone seem outmoded?
Given the passing of Apple Founder and CEO Steve Jobs, who is largely accredited with the ingenuity of Apple’s landmark products, some imagine it to be a possibility. I’ve argued that Jobs’ role as pioneer and visionary at Apple is not dissimilar to Walt Disney, and his critical role in founding and launching the Disney empire. But just as it can be argued that the Disney brand has ebbed — or is perhaps even on the wane — consumers wonder if Apple’s brightest days are now behind them.
According to an interesting new piece by the New York Times, that might be the case — and the reasons might be far more empirical than simply saying that the company will underperform due to Steve Jobs’ passing.
Writer James B. Stewart explains that, according to the mathematical proof known as the “golden theorem,” “Apple is so big, it’s running up against the law of large numbers.” The result is an insurmountable trajectory towards reaching critical mass and no longer being able to create significant growth — or at least the booming growth that we’ve come to associate with Apple. Stewart explains it this way: “To increase its revenue by 20 percent, Apple has to generate additional sales of more than $9 billion in its next fourth quarter. A company with $1 billion in sales has to come up with just another $200 million.”
Upon faced with this reality, some Apple fans might be compelled to pump their fists and proclaim the company’s infinite greatness, saying that no sales target is too big for Apple to hit. But that’s pie in the sky. This isn’t about “Apple hating,” it’s simply a numerical fact that, based on historical data, shows us that there is an inevitable rise and fall to great companies. Just as the great people who found them come and go in this world, so too do the businesses that bear their names and/or visions.
In this way, it becomes apparent that maintaining something like 20 percent growth will be impossible: “If you extrapolate far enough out into the future, to sustain that growth Apple would have to sell an iPhone to every man, woman, child, animal and rock on the planet.” We wrote an article a while back about how a study found that 35% of all consumers say they will purchase the iPhone 5. Even if that astounding number comes true, someday it still might not be enough to satisfy Wall Street.
When Apple Becomes “Too Big To Fail”
I’m a big fan of catch phrases — I think they’re hilarious. I particularly love how politicians and pundits pick them up and then cannot put them down. I’ve always been fond of the catch-all “What did the President know, and when did he know it?” Or, a few years back, Al Gore (did you know there’s actually a tag for him on this blog?) injected the word zeitgeist into the yapping mainstream.
Actually, I hate that word.
More recently, we’ve become accustomed to the phrase “Too big to fail,” thanks in large part to the bailing-out of failing, flailing multi-billion, multi-national companies that are so massively important to the world economy that their failure could trigger chain-reactions that could usher in a Mad Max Beyond Thunderdome generation in the first world.
To date, Apple has been the antithesis of too big to fail — in fact, they have been the rare success story in a sea of economic malaise and destruction that has defined the past four or five years. No bailouts for Cupertino: they’re rolling in cash, and continuing to expand.
But is it impossible to imagine that a day will come where there is no more upside to Apple, the sheen will have come off of its brand, and yet the failure of the company would mean a chain reaction of layoffs and the destruction of massive market segments whose existences rely solely on its existence?
Stewart explains that massive companies of the past have already gone the way that Apple will someday go as well: “Other companies that have reached the top appear to have been felled by Bernoulli’s law [the golden theorem]. Cisco Systems held the top position and hit a market capitalization of $557 billion — larger than Apple’s — in March 2000, at the peak of the technology bubble. Its market capitalization today is about $100 billion, and shares are down nearly 80 percent since March 2000.”
And there are examples outside of the technology sector as well: “Exxon Mobil, recently displaced by Apple as the biggest company by market value, took over the top spot in 2006, seven years after the merger of Exxon and Mobil. At the end of that year, its market capitalization was $447 billion. Today it’s $35 billion lower. General Electric held the title for a number of years, most recently in 2005, when its market capitalization was $370 billion. Today, it’s just $205 billion.”
Given the record profits of oil companies over the past decade, the Exxon Mobil example really drives the point home: even their profits have not been able to defy the law of unsustainable numbers. And this is a company that produces something that the world’s economy is predicated on. Considering that in only six years Exxon Mobile has lost $35 billion dollars in market capitalization, it isn’t impossible to imagine a period where Apple will similarly slip.
Let’s Enjoy The Apple While It Lasts
The good news, however, is that there is plenty of good news to overshadow the doom and gloom of long-term projections for Apple. Just as the “bad news” that the sun will someday die out is tempered by the fact that it is still tens of thousands of years away, so too is Apple’s supernova far off on the horizon. In spite of all these “golden numbers,” Stewart reminds us that Apple stock is still currently seen as undervalued, in spite of its $500 per share price tag. And we have what looks to be several years of exciting Apple products ahead of us: this year, the iPad 3 and iPhone 5 — and maybe even an iTV. Somewhere down the line, an iPhone 6.
It isn’t as if Apple will come crashing down in 2012, or even 2013 for that matter. But it isn’t a bad idea to take notice of a company like Exxon Mobile, or Cisco, or GE, or Microsoft, or AOL — all of whom at one time seemed unstoppable. When those companies began to decline, it affected people’s’ wallets, but not their hearts. Apple means something to its customers more than earnings on a tax form — their products are ingrained into people’s’ social, work, and entertainment lives. Imagine! In six years, Apple could be on the outside looking in on a new leader in technology. It’s not a matter of if — it’s a matter of when
When you consider the amount of time, energy, interest, and money that a large segment of the population invests into Apple, it’s difficult to imagine a day when the company could ever be eclipsed by another electronics giant. Could another company come along and be cooler than Cupertino? Could the iPhone — perhaps the world’s only product that doubles as a cultural artifact — be usurped by a new, novel device that makes our favorite smartphone seem outmoded?
Given the passing of Apple Founder and CEO Steve Jobs, who is largely accredited with the ingenuity of Apple’s landmark products, some imagine it to be a possibility. I’ve argued that Jobs’ role as pioneer and visionary at Apple is not dissimilar to Walt Disney, and his critical role in founding and launching the Disney empire. But just as it can be argued that the Disney brand has ebbed — or is perhaps even on the wane — consumers wonder if Apple’s brightest days are now behind them.
According to an interesting new piece by the New York Times, that might be the case — and the reasons might be far more empirical than simply saying that the company will underperform due to Steve Jobs’ passing.
Writer James B. Stewart explains that, according to the mathematical proof known as the “golden theorem,” “Apple is so big, it’s running up against the law of large numbers.” The result is an insurmountable trajectory towards reaching critical mass and no longer being able to create significant growth — or at least the booming growth that we’ve come to associate with Apple. Stewart explains it this way: “To increase its revenue by 20 percent, Apple has to generate additional sales of more than $9 billion in its next fourth quarter. A company with $1 billion in sales has to come up with just another $200 million.”
Upon faced with this reality, some Apple fans might be compelled to pump their fists and proclaim the company’s infinite greatness, saying that no sales target is too big for Apple to hit. But that’s pie in the sky. This isn’t about “Apple hating,” it’s simply a numerical fact that, based on historical data, shows us that there is an inevitable rise and fall to great companies. Just as the great people who found them come and go in this world, so too do the businesses that bear their names and/or visions.
In this way, it becomes apparent that maintaining something like 20 percent growth will be impossible: “If you extrapolate far enough out into the future, to sustain that growth Apple would have to sell an iPhone to every man, woman, child, animal and rock on the planet.” We wrote an article a while back about how a study found that 35% of all consumers say they will purchase the iPhone 5. Even if that astounding number comes true, someday it still might not be enough to satisfy Wall Street.
When Apple Becomes “Too Big To Fail”
I’m a big fan of catch phrases — I think they’re hilarious. I particularly love how politicians and pundits pick them up and then cannot put them down. I’ve always been fond of the catch-all “What did the President know, and when did he know it?” Or, a few years back, Al Gore (did you know there’s actually a tag for him on this blog?) injected the word zeitgeist into the yapping mainstream.
Actually, I hate that word.
More recently, we’ve become accustomed to the phrase “Too big to fail,” thanks in large part to the bailing-out of failing, flailing multi-billion, multi-national companies that are so massively important to the world economy that their failure could trigger chain-reactions that could usher in a Mad Max Beyond Thunderdome generation in the first world.
To date, Apple has been the antithesis of too big to fail — in fact, they have been the rare success story in a sea of economic malaise and destruction that has defined the past four or five years. No bailouts for Cupertino: they’re rolling in cash, and continuing to expand.
But is it impossible to imagine that a day will come where there is no more upside to Apple, the sheen will have come off of its brand, and yet the failure of the company would mean a chain reaction of layoffs and the destruction of massive market segments whose existences rely solely on its existence?
Stewart explains that massive companies of the past have already gone the way that Apple will someday go as well: “Other companies that have reached the top appear to have been felled by Bernoulli’s law [the golden theorem]. Cisco Systems held the top position and hit a market capitalization of $557 billion — larger than Apple’s — in March 2000, at the peak of the technology bubble. Its market capitalization today is about $100 billion, and shares are down nearly 80 percent since March 2000.”
And there are examples outside of the technology sector as well: “Exxon Mobil, recently displaced by Apple as the biggest company by market value, took over the top spot in 2006, seven years after the merger of Exxon and Mobil. At the end of that year, its market capitalization was $447 billion. Today it’s $35 billion lower. General Electric held the title for a number of years, most recently in 2005, when its market capitalization was $370 billion. Today, it’s just $205 billion.”
Given the record profits of oil companies over the past decade, the Exxon Mobil example really drives the point home: even their profits have not been able to defy the law of unsustainable numbers. And this is a company that produces something that the world’s economy is predicated on. Considering that in only six years Exxon Mobile has lost $35 billion dollars in market capitalization, it isn’t impossible to imagine a period where Apple will similarly slip.
Let’s Enjoy The Apple While It Lasts
The good news, however, is that there is plenty of good news to overshadow the doom and gloom of long-term projections for Apple. Just as the “bad news” that the sun will someday die out is tempered by the fact that it is still tens of thousands of years away, so too is Apple’s supernova far off on the horizon. In spite of all these “golden numbers,” Stewart reminds us that Apple stock is still currently seen as undervalued, in spite of its $500 per share price tag. And we have what looks to be several years of exciting Apple products ahead of us: this year, the iPad 3 and iPhone 5 — and maybe even an iTV. Somewhere down the line, an iPhone 6.
It isn’t as if Apple will come crashing down in 2012, or even 2013 for that matter. But it isn’t a bad idea to take notice of a company like Exxon Mobile, or Cisco, or GE, or Microsoft, or AOL — all of whom at one time seemed unstoppable. When those companies began to decline, it affected people’s’ wallets, but not their hearts. Apple means something to its customers more than earnings on a tax form — their products are ingrained into people’s’ social, work, and entertainment lives. Imagine! In six years, Apple could be on the outside looking in on a new leader in technology. It’s not a matter of if — it’s a matter of when
