Home' Trinidad and Tobago Guardian : February 5th 2015 Contents BG24 THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt FEBRUARY 2015 • WEEK ONE
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Never before has so much money
been made by a single company in
so short a time. On January 27 Tim
Cook, CEO of Apple, announced
that it had made US$18 billion in
its latest fiscal quarter, which ran
almost to the end of December 2014. That beats the
previous record of US$15.9 billion reported by Exxon
Mobil, the oil giant, in 2012, according to S&P Dow
Apple s telephone-number-sized profit stemmed
largely from sales of its hugely popular iPhone, which
accounted for more than two-thirds of its US$74.6
billion revenue. Chief executives rarely admit to being
dumbfounded by their companies performance, but
Cook conceded that it was "hard to comprehend"
the extent of the interest in Apple s products. He
noted that, on average, 34,000 iPhones were bought
every hour of every day during the latest quarter.
That added up to 74.5 million telephones, way more
than market-watchers had expected.
Apple is the world s largest company by market
capitalisation, and also its most profitable. Strikingly,
it has risen to greatness using a rather old-fashioned
business model: selling highly desirable objects at fat
gross margins, which hit almost 40 per cent in the
latest quarter. The tech industry has spawned numer-
ous software-based firms, such as Facebook and
Google, that don t have to worry about shifting goods
around, yet they make much less than the Colossus
of Cupertino. Amazon handles lots of physical goods,
but loses money.
Another thing that sets Apple apart from the tech
pack is its success in conquering China. While rivals
have been frustrated there, Apple recently became
the largest force in China s smartphone market meas-
ured by units shipped, according to Canalys, a mar-
ket-research firm. Apple s revenue from the Greater
China region, which includes Taiwan and Hong Kong,
soared by 70 per cent, to slightly more than US$16
billion. Any setback in China could hurt Apple.
The company s overall dependence on the iPhone
is another risk. However, these are early days for the
iPhone 6, Apple s latest device, whose bigger screen
takes the firm into the "phablet" category of larger
telephones that are wildly popular with customers.
Optimists also point out that Apple s share of the
smartphone market is small compared with devices
using Google s Android operating system, so it has
plenty of room to grow.
If it is still to reduce its dependence on iPhones,
Apple will need new money-spinning giz-
mos. Cook said this week that its much-
ballyhooed smartwatch will go on sale in
April. Tim Bajarin of Creative Strategies, a
consulting firm, thinks that Apple could sell
as many as 24 million of them in the first
12 months after the launch, producing bil-
lions of dollars of new revenue. Sanford C
Bernstein, a research firm, reckons that the
watches will have a higher-than-average
gross margin, which bodes well for profits.
Apple should be able to make more money
from software and services too. The firm s
online store of software apps had its busiest-
ever day on Jan. 1, and the introduction of
a smart watch will lead to another app feed-
ing frenzy. Apple profits by taking a chunk
of the money developers make from app
sales and in-app purchases. By binding cus-
tomers into its "ecosystem" of hardware
and software, plus services such as Apple
Pay, a contactless-payment system, the firm
also makes it more likely that they will stay
with it when they upgrade their gadgets.
This still leaves the company with a
headache that other firms would die to have:
its Croesus-like mountain of cash, which
now stands at US$178 billion, a figure that
is greater than the market capitalisations of
information-technology giants such as Intel
and IBM. Apple, which already has spent
billions of dollars on share buybacks, will
revisit its plans to return money to share-
holders and discuss them in April.
Cook can expect plenty of calls from
activist investors before then, no doubt from
their shiny new iPhones.
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
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