Apple’s 4 Big Challenges for the Years To Come
#4. Finding a successor to the iPhone
No record seems to resist the Cupertino company. At the beginning of this year, Apple became the first company to exceed a market cap of $3T. If it took 38 years for the company founded by Steve Jobs to reach a market cap of $1T after its IPO, it took only two years to reach $2T in mid-2020, and finally, one and a half years to reach $3T.
The crazy thing about this $3T market cap is that it represents more than all the wealth produced in one year in the UK. Yet the UK is the fifth-largest economy in the world according to the World Bank. Since that $3T record, a legitimate correction has taken place, dropping Apple's market cap to around $2.9T.
However, this seems to be only a temporary setback, as Apple's potential for the future remains strong. This is quite extraordinary when you remember that Apple was still on the verge of bankruptcy in 1997. Many predicted that the Apple brand would run out of steam when Tim Cook took over as CEO from Steve Jobs.
That was not the case, and Apple must now perpetuate its history by taking on several huge challenges in the years to come. These challenges are the size of a group that cashed in one billion dollars every day in 2021. Here are the 4 biggest challenges facing Apple in the coming years.
1. Overcoming component shortages
Getting electronic chips has become an obsession for manufacturers around the world, led by carmakers, over the past year. Between a surge in demand for processors, memory, and other sensors, and the difficulties of large Asian production sites in the face of a wave of natural disasters and pandemics, shortages and price hikes have set in.
In July 2021, Tim Cook warned that supply difficulties would become “more significant” in the summer and fall. In October, according to Bloomberg, the brand had to cut its iPhone 13 production targets by 10 million units, to 80 million by the end of 2021. Those supply pressures haven't gone away. But they should “ease in early 2022,” writes Wedbush analyst Dan Ives in a note, who prefers to focus on “underlying demand, which we believe will be the defining catalyst for the price going forward”.
2. Tempering Sino-American tensions
Under President Donald Trump, Tim Cook had managed the tour de force of not offending the White House while remaining the only American Tech giant to do flourishing business in China, the new strategic adversary of Washington.
In 2021, Apple was making a fifth of its sales in China, while American sanctions were hitting many Chinese companies, including the smartphone manufacturer Huawei, which was brutally deprived of American software and electronic chips to the point of threatening its survival.
The arrival of the Biden administration has not eased these tensions. Nor has the recent takeover of China's tech giants by Beijing. Nor have the growing military threats to Taiwan (where the most advanced semiconductor factories are located).
In this context, Apple's position is delicate. It cannot do without the Chinese market, nor without the assembly factories for its iPhones, which are mainly located in China. The group has already made important concessions, by letting Beijing exercise its censorship on its devices and its local application store. If it does not want to do more, it will have to conciliate with Chinese authorities who insist on the primacy of politics over economics. And prevent any open conflict with the United States.
3. Avoiding the wrath of the antitrust authorities
The threat has never been stronger. In America, Europe, and Asia, the competition authorities all have Apple in their sights. The group is accused of locking up its universe, to the detriment of the consumer, its competitors, and innovation. The media lawsuit filed by Epic Games, the publisher of the game Fortnite, has put the spotlight on the 15 to 30% commission charged by Apple on all payments made within its App Store, the only mobile application store authorized on the iPhone.
Over the past few years, Apple has been making more and more concessions to developers to avoid having to let go of this golden goose. But already, the American justice and its South Korean counterpart have ordered the group to allow third-party payment methods.
The British antitrust authority, which has just published a long preliminary report on the Apple-Google duopoly, is considering a series of drastic measures:
Make alternative app stores available on iPhones.
Allow third-party payment methods by developers.
Restrict the possibility for Apple of pre-installing their apps.
The European Commission, meanwhile, accused Apple of abuse of dominance in the spring of 2021, following a complaint from Sweden's Spotify. The group can now defend itself and propose changes to its practices before the European Union renders a final verdict. A possible fine could, according to the European texts, represent up to 10% of Apple's global turnover.
4. Finding a successor to the iPhone
The biggest challenge for Apple has been the same since the outsized success of the iPhone after its release in 2007: come up with another revolutionary product to start a new growth cycle. So far, the company has found strong auxiliary engines. Apple has sold more than $30 billion worth of iPads this year, and even more of the various connected gadgets that have been added to its range (headphones, speakers, watches, etc.).
Above all, the development of services, with in the first place the commissions of its very juicy App Store, is bringing in a lot of money: 68 billion dollars in 2021. But none of these activities has seriously challenged the iPhone. iPhone sales have accounted for more than half of Apple's revenue, uninterrupted, for the past ten years.
With $22 billion in R&D spending this year, Apple is giving itself the means to innovate. Among the most discussed projects, despite the secrecy with which the group surrounds its activities, there is of course the Apple Car, whose time could soon come. But also the insistent rumor of augmented reality glasses, which could arrive as early as this year and launch Apple in the great adventure of the Metaverse.
Because even if Tim Cook doesn't want to hear about this word, which he considers a mere buzzword, Apple intends to be a major player in this field of the future on which all the Tech giants are already betting big.
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