APPLE TALKS NEW STRATEGY AFTER CHINA FLEXES ITS MUSCLES
This is what you hear and read. Sure, it was a hell of a run—iPhone, iPad, all that—but it’s about to end, and fast. If you need any proof, just look at China: the world’s largest smartphone market, flooded with ever-cheaper handsets and tablets from domestic manufacturers that didn’t even exist when the iPhone was first announced. You think those cheap handsets and tablets will confine themselves to the Middle Kingdom? Of course not—China will be the epicenter of a global collapse in device prices. The competition will be beyond Thunderdome, fought by companies armed with little more than a free operating system from Google (GOOG) and razor-thin profit margins. The Cupertino (Calif.) maker of chamfered-edged, precision-etched baubles? Toast. Check Apple’s (AAPL) stock price, down around 33 percent since its peak about a year ago.
None of this rattles Tim Cook. Oh, he’s heard it, of course, but his soft-spoken, deliberate manner in interviews is not cover for how, say, Apple’s share price affects his mood. “I don’t feel euphoric on the up, and I don’t slit my wrists when it goes down,” he says. “I have ridden the roller coaster too many times for that.” When asked about the rise of low-cost manufacturers, he’s equally even-tempered. “It happens in every market I’ve seen,” he says. “It happens in all consumer electronics, from cameras to PCs to tablets to phones to—in the old world—VCRs and DVDs. I can’t think of a single consumer electronics market it doesn’t happen in.”
Story: Studio Outtakes From Apple’s Cook, Ive, and Federighi
Cook, 52, is sitting in a sunlit conference room on the top floor of Apple’s main building. He’s wearing a navy polo, dark trousers, and his signature, rectangular rimless eyeglasses. It’s two days after he introduced Apple’s latest smartphones, the iPhone 5S and iPhone 5C. When he entered, the first thing he wanted to know was what I thought of the new handsets. (The 5C looks good. I like the 5S, too, though the white-and-gold model has a flashy, Emirates airline vibe.)
“There’s always a large junk part of the market,” Cook says. “We’re not in the junk business”
To Cook, the mobile industry doesn’t race to the bottom, it splits. One part does indeed go cheap, with commoditized products that compete on little more than price. “There’s always a large junk part of the market,” he says. “We’re not in the junk business.” The upper end of the industry justifies its higher prices with greater value. “There’s a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers,” he says. “I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business.”
For longtime followers of Apple, this has a familiar ring. Responding to similar skepticism in 2004, Steve Jobs, the company’s late co-founder, said, “Apple’s market share is bigger than BMW’s (BMW:GR) or Mercedes’s (DAI:GR) or Porsche’s in the automotive market. What’s wrong with being BMW or Mercedes?” That was before Apple came tantalizingly close to total domination in several product categories (in one, the iPod, the company effectively established a monopoly) and reset expectations of what it could do, especially on Wall Street. Now, six years after the release of the original iPhone, Apple no longer has the mobile marketplace to itself. It has to square off against giants such as Samsung Electronics; previous mobile all-stars Motorola (GOOG) and Nokia (NOK), which are now respectively part of Google and (soon) Microsoft (MSFT); and a rash of new rivals such as Xiaomi of China and Micromax of India that can undersell anybody. Is taking the high road truly a sustainable strategy, or does it merely delay the inevitable?
The past 12 months have been unusually active at Apple. The company added the iPad Mini to its lineup, renovated its top-of-the-line smartphone with the 5S, expanded the iPhone line with the 5C, and released iOS 7, the most significant upgrade to its mobile operating system in years. And it managed all that while adding a low-carb “paleo” food station to its cafeteria. It also reshuffled its executive ranks, showing talented-but-divisive iOS chief Scott Forstall the door and splitting his responsibilities between Jonathan Ive, Apple’s chief designer, and Craig Federighi, who heads software at the company.