Despite record revenue, have Apple’s iPad and iPhone hit their zenith?

Late yesterday, Apple announced its Q1 2013 (calendar Q4 2012) earnings – and you can forget whatever you might have heard about the iPhone or iPad’s dwindling popularity. Yet again, Apple has broken its own record and posted revenues of $54.5 billion (£34.4 billion) – the greatest quarter of any company ever – driven entirely by sales of the iPhone and iPad.

Apple’s Q1 2013 profits came in at $13.81 billion (£8.3 billion), up 13.5 per cent over the same period last year. 47.8 million iPhones were sold, up 39 per cent. 22.9 million iPads were sold, up 64 per cent. We don’t have exact figures for the iPad mini, but it is apparently selling well.

Macs were down 15 per cent, but not to worry: Apple’s cash reserves now total $137 billion (£87 billion). All told, Apple’s stock price is up 20 per cent from the same time last year ($509 vs. $423), while the rest of the S&P 500 index is up just 13 per cent. In terms of earnings – profits – Apple is up 35 per cent, while the rest of the US stock market is up just 2 per cent. Perhaps most importantly, Apple’s revenues from China were up 67 per cent, from $4 billion (£2.5 billion) to $6.8 billion (£4.3 billion).

For all intents and purposes, Apple is rocking. No other tech company even comes close. And yet, following the earnings call, Apple’s stock prices actually fell 10 per cent. No one knows exactly why, but the general consensus still seems to be that Apple is peaking, and will soon be on its way down. Despite posting record breaking revenue and profits, analysts expected more. Whether they’re right to expect more is another question entirely – 20 per cent growth, in a world economy that is still fairly stagnant, is really quite impressive.

During the earnings call, Tim Cook also took the chance to downplay the rumour that Apple had reduced the size of its iPhone order, which caused a large drop in stock price last week. He didn’t address the rumours that the next iPhone might come in a range of colours, or a low-cost “mini” variant, though. The last couple of days have seen a new rumour, too, that there will be an iPhone Plus (or “iPhone Math,” depending on the English proficiency of some translations).

Ultimately, the biggest risk for Apple is being passed by Samsung and other mobile device makers. Apple has already lost its technological advantage, and its lead in design and desirability is being steadily eroded. Apple’s biggest strength, and the reason for its status as the world’s most valuable company, is its massive profit margins – but in the face of Android’s equally massive growth, it’s unlikely that Apple can retain its position at the top of the smartphone and tablet market without changing its business model.

Apple has had a truly magnificent run since the introduction of the iPhone in 2007. Just take a look at the graph above; Apple’s quarterly revenues have grown from $7 billion (£4.5 billion) to $54 billion (£34 billion) in just six years, almost exclusively thanks to the iPhone and iPad. With growing pressure from Android and the commoditisation of the mobile computing market, though, iDevices have probably reached their zenith – and thus Apple finds itself at a crossroads. It can either hold onto its fat profit margins, but relinquish market share – or it can drop its prices, introduce more models, and go toe-to-toe with the Android upstarts.

I don’t think anyone knows which way Apple will go, which is probably why analysts and traders are bearish on AAPL stock. The next iPad and iPhone releases will be very interesting to see indeed.

Image Credit: Cult of Mac