They did it again.
Mean times, lean times, in-between times. It doesn’t matter.
At Apple, Inc., maker of the Macintosh computer, iPhone and iPod, quarterly profits and revenues surpassed predictions, causing stock to rise to the highest in two years, above $207 per share.
While Wall Street and most of the technology industry limped along for the last three months, Apple’s fourth quarter revenues rose to a whopping $9.87 billion — the second best quarter ever after last Christmas.
Although innovation leader and CEO Steve Jobs is the face everyone associates with Apple, most of the company’s success over the past 18 months has been achieved in his absence. Jobs only recently returned to the helm of the company he built following a brush with death and a life-saving liver transplant.
Jobs may be an icon of business imagination and leadership, but more importantly, he has built a corporate culture that thrives on innovation, even during a recession.
Nearly 10 years ago, business writers were etching Apple’s epitaph. Sales had plummeted and the stock was moribund. Instead of retreating, Jobs led a new wave of innovation in developing the iPod.
In the Old Days
Prior to the iPod, digital music players were clunky and expensive. Jobs and his team of trendsetters saw an opportunity to revolutionize the way music was being consumed, and they pounced.
This one innovation turned the delivery of digital media on its head. Seemingly overnight, Apple became a leading provider of not only digital media technology, but through its iTunes division; a portal for a new generation of digital consumers.
With the success of the iPod, Jobs and company turned their attention to the ongoing revolution in communication. Instead of trying to build a better mousetrap, they shifted the paradigm by creating the iPhone.
The company, whose share of the personal computer market once was shrinking in the face of global competition, suddenly became a worldwide leader in media and communications.
Through Jobs, Apple has become a superlative brand. Like Mercedes, BMW or Rolex, consumers are willing to pay a premium for the Apple products.
No one competes with Apple because no company really makes what they make. In many ways, this has been Apple’s greatest innovation.
The corporate culture Jobs created at Apple saw the recession not as a time to pull in its horns, but rather as an opportunity for reinvention. Instead of firing talent to preserve the bottom line, it viewed talent as the bottom line. Instead of curbing investments in new technology to reduce risk, it bucked the trend.
The results have been stunning. The market is now rewarding Apple for its wiliness to “think different.”
Recessions push most corporate managers to become more conservative. New product development is stopped while the accountants hunker down to trim expenses and risk. Preservation in hard times is a natural instinct.
Was There Really a Recession?
Forward thinking companies like Apple, Google and even McDonald’s, all of whom have continued to proper in the midst of the downturn, saw the recession as an opportunity to conceive new ideas. They not only realized that they must continue to create products for price-conscious consumers to buy, but be prepared with new products when the economy finally emerged from the doldrums.
A terrific example is McDonald’s successful foray into the premium coffee market. Starbucks blazed the trail. But in a recession, a $4 latte lost it cache.
By introducing premium coffee drinks at a more affordable price, some store profits at the Golden Arches have soared. McDonald’s success now has forced Starbucks to rethink its model and to now introduce its own “value menu.”
When Jobs made his first public appearance last month after his year-long sabbatical, it wasn’t to focus on his illness. Although he referred to his good fortune, he premiered an updated iPod such as the Nano with a built-in video camera and iPhones that are able to operate at faster processing speeds. The iPhone is now available in 80 countries, and will become available in China at the end of the month, the world’s largest mobile phone market.
This attitude and confidence may explain why gross margins at Apple were up to an unbelievable 36 percent, which rocketed profits 46 percent to $1.67 billion for the quarter. By comparison, competitors like HP and Dell are lucky if they can squeeze 5 percent profits out of their products.
From the perspective of Apple and other companies that have followed their lead, it’s almost as if the recession never happened.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
