January 27, 2013 7:21 pm

Perspective on Apple amid the clamour

It is hard to think of a company whose influence has been so profound, says Michael Moritz

It is ironic that both Dell and Apple shared big news last week.

Back in 1998 Michael Dell, then the crown prince of the personal computer industry, recommended that Steve Jobs shut down Apple, which was in dire shape, and distribute the proceeds to shareholders. By contrast, reflecting the turmoil now afflicting all PC makers, Mr Dell is negotiating to borrow money to make his company disappear from public view. Apple, meanwhile, announced that its shareholders would receive a Valentine’s day dividend of $2.5bn – a tiny portion of its $137bn cash pile.

But Apple earnings announced on Wednesday, and the subsequent fall in the value of its stock, grabbed more headlines than Mr Dell’s prospective leveraged buyout. Moments after the financial figures were released, which showed a slowing growth rate, soothsayers took their gloomy predictions to the Twittergraph. The hordes who bought Apple stock in the past few years stampeded for the exits.

Lost amid the mewling and mindless pandemonium was any sense of perspective. In the first quarter of Apple’s fiscal year – the crucial period from October to December in which the year’s highest-earning holidays fall – the group’s revenues for the first time topped $50bn, and it earned more than any other business. Sales were $8.2bn higher than in the same quarter of the preceding year

This jump in quarterly sales – just the gain – is more than one-and-a-half times the revenue Facebook is expected to record for all of last year. Were Apple a nation, its gross domestic product would rank about 45th in the world – well ahead of Pakistan and New Zealand. It is almost enough to make you think Apple should have a seat in the UN.

The television sound-biters were aghast that Apple’s sales growth was “only” 18 per cent and that management was forecasting slower growth. Everyone seems to have forgotten that it is hard for any company to grow quickly – and even harder when it is already massive. For comparison, during their most recent fiscal years Microsoft grew about 4 per cent and Cisco about 6 per cent – although the first is only about half Apple’s size, and the latter about a third. IBM shrank about 2 per cent to $104bn in sales.

Apple’s results, unlike those of Microsoft, Cisco and IBM, have not been boosted by sizeable acquisitions; rather they are the result of a handful of products that, as the label says, are designed in California. This makes its achievement even more remarkable. No company of a similar size has grown at Apple’s pace.

Between September 2000 (when it had sales of about $8bn) and September 2007, Apple grew – largely thanks to the iPod – at an average rate of 17 per cent. In the past five years, propelled by the iPhone and iPad, growth accelerated to almost 45 per cent. If that preposterous rate were to continue, annual sales would top $3tn by 2020, leaving it lodged between the current GDP of France and Germany. Even the devotees who camp outside its stores before a product release would have a tough time believing that Apple will occupy a place between the Maginot and Siegfried lines. If growth were to slow to 5 per cent it would have sales of $231bn in 2020 (compared with $156bn in 2012). At 10 per cent a year, sales would be a flabbergasting $335bn.

Everyone knows the business will face stronger competition in the future. This is because almost every company in the world suffers from acute Apple envy. Apple has thrown several mainline industries, including music, movies, television, publishing, cameras and 35mm film, into convulsions. The entire Japanese consumer electronics sector, bereft of the software that helps distinguish Apple’s products, has been hopelessly outpaced, as have Finland’s Nokia and Canada’s RIM.

Others – chip suppliers, wireless carriers, specialised glassmakers, outsourced manufacturers and hundreds of thousands of app developers – watch every twitch with hopeless admiration and silent apprehension. Anyone with their wits about them has been galvanised into action by Apple’s success.

More importantly, Apple has set a lasting example for entrepreneurs and professionals worldwide. Millions of young engineers and programmers scrutinise every moment of a product announcement. Hip students in art and design schools are imbued with Apple’s sensibility. Marketers and advertisers try to mimic its creative approach. Manufacturing hands seek to unravel the mysteries of its supply chain. Old-time retailers wonder how it can possibly attract more than 120m visitors in a 12-week period, garnering sales per square foot twice those of Tiffany and four times those of Michael Kors, the luxury retailer of the moment.

It is difficult to think of a company of the past 50 years whose influence and ingenuity have been as profound or widespread as the one formerly known as Apple Computer, Inc. Whatever happens to Apple in the future, consumers everywhere will be far better off because of the bolts of energy that have emerged from One Infinite Loop, Cupertino, California.

The writer is chairman of Sequoia Capital, the firm that provided Apple with its first financing in 1978

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