An iPhone 5 is displayed at an Apple Store in San Francisco, California.(Photo: Justin Sullivan, Getty Images)Story HighlightsRumors swirling that Apple may launch cheaper iPhoneApple could make mistake by chasing Android market shareApple should continue focus on high-quality products
When Dell’s market share stalled in 2005, retribution came quickly. The company’s stock price began a long decline that year, despite rising revenues and income. The message was clear: Investors wanted growth, not profits. In 2006, Dell cut prices, but the resulting fall in margins a bid for achieving that growth only drove the stock further underwater. Michael Dell returned to the helm, and under his leadership the company closed factories, commoditized its PCs, and made every attempt to cut prices. However, despite doing everything “right,” and caving to critics on every point, Dell’s troubles had only begun. Revenue peaked in ’08, market share dropped off a cliff in ’09, and today a much-diminished company is in talks to go private.
It’s a cautionary tale for Apple, whose position today is uncomfortably similar to Dell’s eight years ago. The company is larger and more profitable than ever, just coming off the best quarter in its history, while the stock is down 35% since September 2012 on worries over market share. Google’s Android is now the dominant player in smartphones, and the iPad, which still accounts for about half of tablets sold, is finding itself under increasing pressure. Tim Cook denied in February that the company was working on a budget version of the iPhone, but the rumors refuse to die, and analysts continue to expect that Apple will introduce a lower-cost handset. Wall Street appears to be subtly (or not so subtly) suggesting that Apple follow Dell’s ill-fated strategy, and cut prices.
But would this address the company’s problems? What, after all, is wrong with Apple? I offered my take several months ago, arguing that the marriage between Apple’s IOS operating system and its handheld devices the iPad and iPhone essentially guarantees a minority share for the company’s products. The Android ecosystem offers a wider range of hardware and more flexibility in price points, and by addressing a larger market it attracts more attention from software developers. Eventually, Droid will benefit from the same software-driven momentum that made Microsoft’s Windows so unstoppable in personal computers. In the tech world, hardware makers come and go, but platforms are forever. Apple is, and always has been, a hardware company.
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