The first quarter of 2008 was the most successful in Apple’s history. The company boasted revenue of $9.6 billion and a net profit of $1.58 billion, compared to revenue of $7.1 billion and a net profit of $1 billion in the third quarter of 2007. But its second quarter results were down ($7.51 billion in posted revenue and $1.05 billion in net profit) from the first quarter. Some people think this downtick signals the beginning of an unfortunate trend-line … or worse. I hope not. But there is certainly more going on here than meets the eye.
In the eighteen months since Apple dropped Computers from its name, the company has greatly expanded its reach. However, with massive growth have come security flaws, software bugs, faulty hardware and a plethora of other puzzling problems.
While Steve Jobs’ operation is known for its quality products and devoted fan boys, it seems that the company has compromised quality for growth. So much so that even Apple’s most devoted supplicants (like me) are beginning to lose faith.
While Apple has had small production problems for years, lately the company has experienced an eerily high amount of bad press for malfunctioning electronics. The major problems began with the release of its new Leopard Operating System.
While the system works great on new Macs (where it is pre-installed by the factory) users running older machines, who tried to make the update, experienced what can only be described as “the blue screen of death,” a complaint that gets its name from fatal crashes in Microsoft Windows. Days after the release of Leopard, message boards erupted with complaints from angry users, many of whom still pray at the Jobsian alter. But many of whom have long memories.
While the Leopard Chronicles were widely covered, the problems in Cupertino did not stop there. In fact, they actually got worse, culminating with the release of the 3G iPhone.
Apple has been promoting the new iPhones as “twice as fast, half the price.” But are they? Not so much. While the hype for the 3G iPhone was ungodly, the phone also received a fair amount of bad press from pundits who noted a significant increase in the cost of data and lackluster battery life. Regardless, the 3G iPhone sold over a million units in its first weekend on the market.
That same Friday, July 11, Apple decided to open its Application store, launch MobileMe (an updated version of its .mac platform, which includes access to a broadband cloud), and release a software update for the original iPhone.
iPhone 1.0 users were vocal about the problems associated with the software update, which caused many iPhones to become plastic bricks. A quick Google search for “iPhone Brick” will yield 2,080,000 results from very sad iPhoners. No matter how you spin it, Apple was unprepared for the launch.
Nothing has been more indicative of Apple’s growing pains than its ultra flawed MobileMe service. The service, which was a large update to its existing .mac platform, has been universally panned. One of the talked-about problems with MobileMe was that a small percent of users lost email service for a few days. The problem was so serious that a colleague of mine got an email from his girlfriend last weekend while sitting on the beach next to her. Puzzled, he asked her if she had just sent him a message from her iPhone. She said, “No.” He showed her the email. She barely recognized the message because she had sent it a week earlier. This was last weekend, a month after the initial problems were reported, and reportedly fixed. The service has been so bad that Apple even publicly stated that its performance has been sub par, and has given subscribers three extra months of service for free. But what good is three free months if the service doesn’t work properly?
Apple’s problems don’t stop there. The company announced that they would replace iPod Nanos (which caught fire) and MagSafe power chords, which broke or melted. Speaking of fire, the company also had a major problem roughly ten days ago when a fire erupted at its Research and Development building on the grounds of its headquarters on the infamous 1 Infinite Loop campus. Small disasters, to be sure, but when you add them up, you begin to see a pattern.
With rumors of Jobs’ declining health, security bugs, the options backdating scandal, engineers canceling appearances at hacker conferences and the continuing saga of 3G iPhones’ awful performance on AT&T’s 3G network (including this week’s pending class action lawsuit citing poor iPhone performance), Apple cult members are in a tizzy. Will the Street be next?
Can the House of Jobs get back on track? Despite major problems in the last 18 months, Apple still tops the ACSI’s customer satisfaction survey — ten points higher than closest competitor, Dell. And sales are robust. Apple shipped 2,319,000 Macintosh computers which represented a 44 percent growth in units sold and a 47 percent increase in revenue for the quarter year-over-year. iPod sales were up five percent in units (22,121,000) representing a 17 percent revenue increase year-over-year and, the faithful purchased 2,315,000 iPhones during the same quarter. Nice numbers.
So, to paraphrase the immortal words of Donnie Osmond, “One bad apple don’t spoil the whole bunch, girl. Oh, I don’t care what they say, I don’t care what you heard.”
Disclosure: No positions