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The Apple Rush to Judgment Continues

You don’t have to look far to find yet another report suggesting that Tim Cook doesn’t have much time left to prove that he’s up to the task of helping Apple grow and prosper during the next few years. Although the wolves from Wall Street aren’t circling the company as eagerly as they used to, and the stock has rallied in recent days, it’s hard to guess how long it’ll take for the bears to assert themselves once again.

It’s clear Apple is in somewhat of a state of transition, with revenue growth slowing, and profits falling, after some stellar years beating market estimates. Some analysts will suggest that this is normal for even the most successful companies. For Apple’s growth to continue at previous levels, they’d literally be in a position to take over most of the world’s financial markets in a few years, not to mention possessing 99% market share for everything they build. That, clearly, is absurd.

In the real world, just what opportunities does Apple have to build revenue beyond the current product lineup? If I had all the answers, I’d be making millions as a financial advisor, but let me just suggest that Apple ought to be judged by the products they actually sell, or plan to sell, rather than imaginary products that may never actually exist. But it also requires a measure of realism. As smartphone and tablet markets become more and more saturated, it’ll be more about satisfying existing customers, and encouraging them to buy more gear from Apple, than in getting new customers. Apple cannot play in every single playground, even if tech and financial analysts say it must be so.

Right now, the darling company in the industry is Samsung. It’s not that Samsung has invented anything terribly new or different in the smartphone and tablet space, and forget about personal computers. But they are doing well following the leaders with good enough solutions to gain credible market share numbers around the world. They also build very cheap gear, which is attractive to people who can’t afford the good stuff, or just want something, anything, to fit a certain need. So maybe someone wants a cheap cell phone to make calls, and keep a simple contact list. The iPhone is much too powerful for such a basic task, but maybe Samsung has just the right feature phone.

However, selling cheap gear isn’t a big profit center, unless a company sells lots and lots of product. So when people demand that Apple build a less expensive iPhone — one that’s less expensive without a subsidized carrier deal — they are not seeing the forest from the trees. Companies that try to fill each and every product niche aren’t always so profitable. Take a look at the PC industry. Apple’s Mac profits are greater than the sum of the next five companies. That’s just for Macs. Apple continues to dominate in smartphone and tablet profits too.

In short, Apple never plays the cheap gadget game, even though you can get an iPod shuffle for $49. That doesn’t mean there is destined to be a cheap iPhone, although I suppose it’s possible to make one that costs less and still yields sufficient profits for Apple. It depends not just on delivering an elegant form factor that will attract customers on a budget, but the bill of materials. If Apple cheapens the brand, loyal customers may look elsewhere, and Apple’s biggest advantage right now is the growing ecosystem. That’s something the competition can’t touch.

So even if Apple suffers from a quarter or two where revenue and gross profits aren’t as high as some might prefer, the skeptics need to consider Apple’s approach, which is to play long ball. Yes, Apple has had bad quarters before, even when Steve Jobs sat in the CEO’s chair. But the stakes are higher now, and Apple has become so high-profile that every little thing they do is closely watched.

On the other hand, if Apple introduces some really successful products for the second half of the year, and revenue and profits soar, will the skeptics listen, or just say it’s all a flash in the pan?

This doesn’t mean that Cook has carte blanche, however. Apple’s board will no doubt get antsy if the promised product launches aren’t quite as successful as many hope, or come later than promised. But sometimes late delivery of a product may be due to conditions beyond Apple’s control. Aside from mastering the sophisticated manufacturing techniques required, consider Macs. If Intel’s latest chips are late to the party, Apple will have to delay product refreshes too. Apple will get blamed, even though all the other PC companies that use the very same chips will get a pass.

But I’m not playing the “it ain’t fair” game here. Apple’s amazing growth in recent years has put them in the crosshairs, and it’s something that is going to be a natural part of the landscape for a long, long time.