Apple Worldwide Developers Conference 2013: 5 Signs Apple May Be in Trouble
Nerds, geeks, dweebs and fanboys everywhere are gearing up for Apple's annual Worldwide Developers Conference (WWDC), scheduled for this coming week, at which point the company is expected to release a slew of new software and hardware upgrades. But perhaps most important for the company is the chance to reclaim control of the headlines after a series of events have put Apple on the defensive, forced to spend front-page space talking about their books, their taxes, their labor, and their stock.
The Cupertino-based company is a global tech leader and one of the most recognizable brands in the world — its shiny new products routinely make the front page, as does its dirty laundry. Next week will be their chance to show customers that it's still got the magic mojo that made it one of the runaway business success stories of the last couple decades. But until then, let's look at a few of the things that have investors worried.
1. Labor Disputes
Apple has built much of its success and its fortune on an impeccable supply chain with incredible efficiency and industry-leading profit margins. But the company's relationship to labor has been turbulent after a series of suicides in its Chinese factories made headlines in 2010.
Apple outsources much of its labor to a Taiwanese-based contractor called Foxconn, which manufacturers products for a number of tech giants and employs over one million workers. Foxconn has recently confirmed that there were multiple delays along its supply line in October due to disputes among employees, as well as a sprawling brawl of over 2,000 employees in a Taiyuan Foxconn plant in September, and three more suicides earlier this year.
Wang Xiangqian, former professor at the China Institute of Industrial Relations, believes it's time that Foxconn improve conditions for employees. "What happens in Foxconn's factories shows that it needs to improve working conditions," he explained, "and its handling of worker relations. Foxconn may have put more focus on efficiency and discipline, which is not wrong, and may have overlooked employees' feelings as human beings."
Timothy D. Cook, who took over as Apple’s chief executive after co-founder Steve Jobs passed away in 2011, has vowed that the company is taking action on labor concerns, joining the Washington-based Fair Labor Association in 2012. Cook made a personal visit to the country in March of 2012, and another earlier this year, and has vowed to bring the production of certain Mac lines back to America by 2013.
Apple's love-hate relationship with South Korean computer giant Samsung has been making headlines as well, as the competitors continue to duel out their epic patent disputes in courtrooms all over the world. Apple secured a major victory in August of last year when a judge found Samsung had willfully infringed on five of seven disputed patents, and awarded California company $1.05 billion in damages. But Samsung got the upper hand last week, when the U.S. International Trade Commission found Apple in violation of a Samsung patent covering the transmission of information over certain wireless networks.
"We are disappointed that the Commission has overturned an earlier ruling and we plan to appeal," said Kristen Huguet, an Apple spokeswoman. She said that the ruling, which prohibits the importation of a number of Apple devices into America, "has no impact on the availability of Apple products in the United States."
The patent is a technical one, and pertains to the transmission of information across a certain generation of wireless network. It affects only those devices that operate on the AT&T network — specifically, the iPhone 4, iPhone 3GS, iPad 3G, iPad 2 3G, and iPad 3. The iPhone 5 and fourth-generation iPad were unaffected.
The ruling can be blocked by an appeals court or overturned by a presidential veto (which many think is unlikely, given President Obama's unwillingness to anger South Korea, a major U.S. trading partner).
3. Falling Stock Price
What has investors the most spooked is Apple's plummeting stock price, which has been in a free-fall ever since it peaked at just over $700 in September of 2012, down over a third to $441 today. Joe Weisenthal at Business Insidernoted that during the recession, Apple seemed "to exist in a world of their own rules, and their own returns. Apple seemed disconnected from the hum-drum economy."
Now that things are improving, other stocks are beginning to grow as Apple continues to drop. Investors are concerned about a growing number of smart competitors in the smartphone market, which had been a reliable cash cow for Apple ever since the original iPhone debuted in 2007, as well as falling profit margins — 37.5% in the last quarter, compared to 47.4% in the same year-ago period.
The company launched an ambitious plan earlier this year in an effort to please investors, announcing an ambitious 15% dividend and $60 billion stock buyback, the largest in the company's history.
Tim Cook, in a conference call with analysts, said that he shared the frustration of investors. "We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases," he assured them. Apple had previously been sitting on $144 billion in cash and investments.
Nick Wingfield, writing for The New York Times, notes that "the rarity of Apple's decline in profit, which was expected, underscores how one of the most remarkable winning streaks in business has come to an end, at least for now." Many are concerned that they have become like Microsoft — still large and profitable, but unable to grow in the way they once had.
By virtue of its size and visibility, Apple has become a poster brand for a growing debate on the corporate tax system after a congressional board last month found that the company had diverted tens of billions of dollars from the IRS, saving an estimated $8 billion in taxes since 2007. Tim Cook and other executives were called to appear before Congress to explain.
Though it doesn't appear that Apple broke any laws, they certainly avoided a few. Many note that Apple certainly isn’t the only corporation to explore tricks in the tax system, though many were shocked at the size and complexity of its programs. As Tim Cook notes in the interview below, though, Apple still handed over $6 billion to the IRS last year — making it the largest taxpayer in the United States.
And of course, who could forget PRISM — the story that broke late last week when leaked documents revealed the collaboration of nine major U.S. tech firms, Apple included, in a massive classified U.S. government data collection program. Apple, like the rest, denied knowledge of the program or the intimate involvement that many of the documents implied: "We have never heard of PRISM," the company said. "We do not provide any government agency with direct access to our servers."
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