Apple (AAPL) Earnings: Steve Jobs Slips Into The Past

Apple may be the most extraordinary technology company of the last two decades. It has introduced three products: the Mac, which took years to become a financial success; the IPod, arguably the most fantastic consumer electronics device ever introduced; and the Iphone, which now appears likely to become one of the world’s preeminent smart phones.

While Steve Jobs founded the company, his banishment in 1985 and return in 1998 puts the beginning of the current Apple, Apple 2.0, with the launch of the iMac, a version of the company’s first product and the phoenix he used to rebuild the firm.

The Mac sold 1.3 million computers in the April-June 2008 time frame according to IDC. That was a 32% increase over the same period last year and a breathtaking run that put the company behind only Dell (DELL) and HP (HPQ) in US unit sales. The Mac could have hardly been taken as a serious competitor to the PC as recently as two years ago. Jobs has mixed a better hardware product with his own popular operating system and the power of the Apple brand to push the Mac into an unimaginable position. PC companies are not threatened by Apple computer sales and Microsoft (MSFT) has to be concerned with the success of the Mac OS. Apple has essentially become a true rival to the entire computer eco-system in just a very few quarters.

Some investors have been concerned that the growth of the iPod is slowing, and, indeed it is. After seven years, Apple has sold 150 million of the multimedia players. When Apple reports its latest quarter, the market expects it will have sold a little over 10 million iPods. While that is impressive, the product will never again see high double digit growth rates.

For one company to have two products as successful as the Mac and iPod in less than twenty year’s time is extraordinary by any measure, particularly because computers and music players are almost entirely different products with vastly different buyers. Apple has created what are essentially two companies with dissimilar expertise and markets. But, it has worked, and that is a testament to Job’s genius.

Job’s has managed a third act which may well be as astonishing as the first two. The iPhone would have been considered a success based on the sales of its first 2.5G versions. The new 3G model has been greeted with enthusiasm even greater than that created by its predecessor. In its first three days on sale, it moved one million units. It is one of the rare products which actually trumps itself.

And, that is Jobs greatness–his ability to leave what has been successful to grow on its own and venture off to something else which carries great risk especially because he always enters existing markets.  Jobs is not so much an innovator as he is the most talented “improver” in American business history. The Mac was not the first personal computer, the iPod not the first MP3 players, and the iPhone certainly not the first cellular handset.

As Apple announces its earnings, Wall St. is counting on revenue of $7.36 billion and profits of $1.08 a share. In the period a year ago, Apple’s EPS was $.92 and revenue was $5.4 billion.

Shares in Apple have fallen to $165, down from a 52-week high of almost $203. Part of the drop may be due to concern over earnings. A large part of it relates to the long odds that Apple can make it through a recession without a sharp dip in earnings.

The more important, unspoken concern is that Jobs must run out of magic at some point. The odds against what he has accomplished with the company’s current portfolio of products were astronomical. It is a level of success which, because it is unprecedented, leads the faithful who buy the products and the stock to believe that extraordinary inventiveness has no end.

Nothing could be further from the truth. Jobs has thrashed the competition so soundly and stayed on the current edge so long that his time beating the devil is probably coming to an end.

The problem with nearly boundless success is that it rarely lasts long in the American capitalist system. Compared to most corporate successes, Apple’s has gone on for eons.

Jobs now has to contend with the competition which becomes fiercer with each day he breaks another sales record for his products. Dell, HP, Acer, and Lenovo cannot afford to let Apple pick up more market share. It will anyway, put each step forward will be more difficult. The same will hold true as Apple does more damage to Research In Motion (RIMM), Nokia (NOK), Samsung, Sony Ericsson, and even mortally wounded Motorola (MOT).

The worst that Jobs is up against is not the companies that want a piece of Apple’s current successes. His greatest challenge is the firms that want a piece of what he plans next. He has become a larger and larger target of the inventiveness and imagination of competition great and small.

Jobs may have a fourth product somewhere between his mind and the drawing board, a product which could become a global success, a worthy next act. But, that is not likely. The odds against him getting as far as he has were extraordinary. His genius has fanned the flames of many others who would be like him.

Jobs success does not so much breed contempt as it does a boundless desire to best him.

Douglas A. McIntyre