Ideas

Compared To Google, Amazon And Facebook, Apple Ain't So Bad After All

Tim Cook’s company is a rock of common sense in an industry that’s gone rogue.

Apple, "the perfect tech company for this day and age"?
Leonid Bershidsky

-Essay-

I've long been a critic of Apple, but today I give up: It's the perfect tech company for this day and age, an example to the rest of Silicon Valley.

After Apple's latest results announcement, one could knock it yet again for its stable dependence on a single mature product — the iPhone. That product delivered 62.2% of the company's sales; the average for the previous 10 quarters was 62.4%, so the growth in earbud, smartwatch and streaming subscription sales does nothing to reduce the iPhone's dominance.

The 3% year-on-year iPhone unit shipment increase is good by Apple's recent standards, but not great compared with a few years ago, when 40% increases weren't out of reach. The pricey new iPhone X delivered a 14% year-on-year iPhone revenue increase but, because the unit uses more expensive components than its predecessors and because component prices are generally high now, not a gross margin increase: Gross profit in the quarter to March 31 reached 38.3%, compared with an average of 38.6% for the previous 10 quarters. There's only so much one can do in a mature market, even with Apple's clout and savvy.

One could also knock Apple for preferring to distribute its cash to shareholders rather than to spend it on innovation. It's planning a $100 billion share buyback, while its research and development spending only reached $3.4 billion in the last quarter — 5.5% of revenue. For comparison's sake, Amazon spent $6.7 billion on R&D in the same three months — 13.2% of revenue, and Google spent $5 billion, 16.1% of revenue.

Gone are the times when, on Apple earnings calls, analysts would ask excitedly about Apple's product pipeline. Talk of industry-disrupting Apple products such as a car or even a smart TV has died down. On Tuesday's call, there was just one question about innovative offerings, and it concerned health applications, an important driver of Apple Watch sales but not a potential world-beating sensation. Apple appears to be happy to think small and focus on its shareholders, not on pie-in-the-sky ideas, like other tech companies, including industry leaders.

Tim Cook introducing the iPhone X — Photo: Xinhua/ZUMA

But I'm no longer knocking Apple for any of this. In fact, I'm sorry I ever did.

Why the change of heart? Because this is a time when Amazon is pushing innovations that don't solve any real-world problems but may create some: like smart speakers, with their threat of big brother-style surveillance in exchange for a minimal increase in convenience, or complex and expensive cashierless stores that won't deliver much of an improvement to our shopping experience but may cost underprivileged people their jobs. This is a time when an entire driverless car industry is trying to convince the world that its products are safe before it can even come up with convincing stats — or prevent deadly accidents like the one in Tempe, Arizona, earlier this year. This is a time when Google is trying to subvert new privacy regulations to turn them against content producers. A time when Facebook, blasted by media and regulators for ignoring people's privacy concerns, starts a dating service which will collect people's most intimate data.

This is a time when companies whose innovations are more intrusive than useful, more gimmicky than problem-solving, operate with business models that either burn investors' cash or turn the users into products.

At a time like this, Apple is a rock of common sense, sobriety, dignified engineering supremacy, prudent financial and supply chain management, effective marketing, and customer-oriented retailing. It's a traditional business that does most things well, demands a high price for it, and receives that high price. With Apple, what you see is largely what you get, and when it's not, the company will not just apologize but offer a fix.

Just listen to Chief Executive Officer Tim Cook talking on the latest earnings call:

If you look at our model, if we can convince you to buy an iPhone or an iPad, we'll make a little bit of money. You're not our product. And so that's how we look at that. In terms of benefit, we don't really view it like that. We view that privacy is a fundamental human right and that it's an extremely complex situation if you're a user to understand a lot of the user agreements and so forth. And we've always viewed that part of our role was to sort of make things as simple as possible for the user and provide them a level of privacy and security. And so that's how we look at it.

It's as traditional as it comes, and it's refreshing in its simplicity. Cook could be running a German Mittelstand industrial firm, not the world's most valuable company, based in Silicon Valley. That sets him, and Apple, apart in an industry that has already gone wrong and is rapidly turning evil. Instead of taking part in this ugly process, Apple exemplifies what economists describe as the maturity of the information technology revolution. It shows that a stage of useful progress is over and doesn't tip over into overhyped uselessness.

For that, I am thankful. (But I won't buy a $1,000 phone; sorry, Mr. Cook.)

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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