The tech titan

Apple has been an outlier in multiple ways

Last week, the market capitalisation of the world’s most valuable company, Apple, crossed $3 trillion, although it has since corrected to $2.83 trillion. The consumer electronics giant was the first business to hit $1 trillion market-cap, back in 2018. Since then, its market cap has jumped 200 per cent. It generated a record $365 billion in 2021 revenues — a 33 per cent rise over 2020’s $274 billion, which was itself 9.9 per cent higher than in 2019. Profits rose to $94.7 billion, from $57.4 billion in 2020, a rise of 65 per cent. The growth rates are impressive, given the high base. This year may be even better, given the many new scheduled launches, including five new Macs, a new iPad, an upgraded Apple Watch and a new augmented reality headset. All these will also feed into the services Apple offers. It’s been a great decade under the stewardship of Tim Cook, who took over in late 2011 when the legendary Steve Jobs was terminally ill. Revenues have grown at a compound annual growth rate (CAGR) of over 11 per cent under Mr Cook, while market valuation has risen at 23 per cent CAGR. 

Roughly half of revenues come from the iPhone, with digital services like AppleCare, Apple Pay, iCloud storage, warranties, Apple Music, Apple Arcade, Apple TV+, and the Apple Card, contributing the second-largest chunk of around 15 per cent. The rest is divided across the hardware and accessories portfolio, including the iPad, the laptops and desktops. Apple isn’t just a market leader. It is a strategic outlier. It manufactures nothing, doing designs, and farming out to contract manufacturers, to make and assemble. Over 200 companies supply components, and Foxconn has piggy-backed on Apple’s success to become a contract manufacturing behemoth. Apple started to diversify its supply chain out of China after the pandemic— India has been a beneficiary of this de-risking initiative. In another sense, Apple has always been an outlier. It has successfully kept its ecosystem closed, with successive iOS iterations tightly integrating hardware, software, and services. This is in contrast to its competitors, which all use a mishmash of off-the-shelf components, and offer a mix-and-match of operating systems and services. The tight integration generates better margins. But this strategy depends on several things. Apple must continually second-guess all the services consumers conceivably want, and provide those; it must maintain a reputation for quality across every segment; and it requires excellent branding to convince consumers to pay premiums. 

Mr Cook’s management has seen controversies as well. As an openly gay individual, he’s been an icon of the LGBT movement. He has fought to keep device and cloud encryption secure, despite pressure from lawmakers to give access, and despite the Pegasus controversy. However, he has also bowed to pressure from China, which lobbied for the removal of pro-democracy apps used in Hong Kong, and for the censorship of anti-China content, reportedly as the quid pro quo for a $275 billion deal. Apple has also faced criticism about Foxconn’s treatment of workers in India and China. Ten years is a long time in the tech industry. Apple has kept the pole position through many generations of change. Although the pandemic has enforced new paradigms of work-from-home, creating new revenue streams, it remains imperative for tech companies to endlessly reinvent themselves. Whether Apple can continue to do this in the new era of Web 3.0 and Meta remains to be seen.