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How Long Can the Apple Gravy Train Last?

In the days following Apple’s announcement of the second best quarterly earnings in the company’s history, the stock price predictably soared after taking a huge dive. This came in the wake of fears that wireless carriers may be revolting against the high subsidies they have to pay for an iPhone compared to the competition. Certainly the fact that smartphone activations were much lower at AT&T during the last quarter stoked some of those fears, except that 78% of those activations were iPhones. You’d think the other handset makers would be really frightened.

Certainly, the sales figures looked encouraging, since they mostly met or exceeded industry analyst expectations. Take the 35.1 million new iPhones sold in the March quarter. Yes, maybe sales slowed in the U.S., but they were going gangbusters elsewhere, particularly in developing nations such as China. Gone are the days when Apple would depend on the good old U.S.A. for the lion’s share of sales of Macs and mobile gear.

Now when it comes to a smartphone, you can expect that customers will upgrade every two years or so, depending on how quickly they can get out of their current wireless contracts without paying a fee. There are always going to be new customers, but at some point in time, most of the people who want smartphones will have them. Since the iPhone earns the highest customer retention rate in the industry, Apple can be assured of continued high sales of replacement units, but with a flattening growth curve as the market becomes saturated. That, of course, depends on continuing to deliver compelling new models.

Obviously, I wouldn’t consider myself qualified to judge when iPhone overload might happen. As you recall, by the time iPod sales flattened, Apple was already on to the iPhone, so it’s inevitable there is a product waiting in the wings for when the iPhone market reaches its maximum potential.

With the iPad, it’s an all-new ballgame, as sales have already exceeded those of new Macs by nearly three times. Compared to traditional PCs, it puts Apple at the top of their game, as more and more people embrace the iPad. The potential appears to be huge, even though some industry analysts are saying that Android and forthcoming Windows 8 tablets will take greater and greater pieces of the pie. That, however, remains unproven. There seems to be little or no interest in Android tablets, except for the real cheap models for people who find paying $399 for the iPad 2 to be too daunting for them.

As far as the Amazon Kindle Fire is concerned, I actually ran into an owner the other day, to my surprise, a store clerk. Ever the inquisitive journalist, I asked her about the Kindle Fire, and she told me she got it to read e-books, and wanted something fairly cheap. The iPad wasn’t really on her radar. Typical of regular people, she doesn’t pay attention to online geek chatter, although I did suggest she take a look at the iPad at an Apple Store and see if that Kindle Fire was really ideal for her needs.

That doesn’t mean that she’d go out and buy an iPad the very next day. At the same time, we don’t know just how successful the Kindle Fire has been for Amazon, since they don’t break out numbers. If there’s a 2012 Kindle Fire, maybe an updated model or a version with a 10-inch screen will indicate the possibility that it has become reasonably successful. Amazon may also be basking in the potential glory of being able to fix e-book prices again because of the U.S. Department of Justice lawsuit against Apple and the two publishers that have not, as yet, agreed to a settlement.

For a few years at least, though, it seems that the iPad has the potential to grow by leaps and bounds if Apple doesn’t screw up.

When it comes to  the Mac, one reason not often discussed for the fact that sales only increased by 7% in the last quarter is cannibalization. Rather than buy a new Mac, it’s possible a fair number of potential customers went for an iPad instead. Certainly the fact that the Mac lineup hasn’t been refreshed in a while is another key reason. But I expect that to be remedied now that the Intel Ivy Bridge chips have begun to ship in earnest.

Indeed, you may wake up any day now to find a new Mac lineup announced in an Apple press release, or perhaps when you visit the Apple online store. Yes, there is a lot of life left in the Mac platform, given that they still aren’t so popular in some parts of the world. But the traditional PC lost its luster a while back.

However, the Mac is destined to become the next iPod, meaning a product well past its prime that will begin to cater to a shrinking user base. When that happens, though, more and more of you will have moved to an iPad or a successor product.

The future of Apple’s gravy chain, however, will depend on how quickly they move from aging technologies to the next great thing. Even then, growing revenue 50% or 100% each year clearly has a finite limit. It’s not as if Apple is destined to own the world some day.