Apple: Eight Months Later

Described as a mixture of Picasso and Edison by Oracle CEO, Larry Ellison, Steve Jobs can’t be replaced, but will his absence pull down the Apple giant? The mere absence of Steve Jobs’ iconic presence at Apple would not in itself be enough to ruin the world’s most profitable company. 

Apple has been imbued with Jobs’ philosophy from the board room to the warehouse, and shareholders are keenly aware of the design and innovation that have contributed to Apple’s phenomenon. They are not likely to lose their grip on the winning equation that Jobs discovered and implemented.

However, will executive director Tim Cook make a fatal strategic mistake, will wily competitors Nokia and Samsung steal away Apple’s business or will scandal and greed bring the beloved computer corporation to its knees?

Rumors about Apple’s corporate greed abound. The world’s attention was grabbed in April this year by uproar over Apple’s alleged involvement in an anti-trust suit brought by the U.S. Justice Department. Amazon’s sales of e-books were gouged badly by an alleged conspiracy by Apple, Simon & Schuster, Hachette Book Group, Penguin Group, Macmillan, and HarperCollins. The lawsuit charges the publishers and Apple with a conspiracy to set up a new model for e-book pricing that took pricing out of the hands of retailers and no longer allowed them to sell books at wholesale prices.

The release of the iPad in April 2010 made the new higher pricing for e-books possible. This strategically placed the iPad in a position to cut into Amazon’s sales with its Kindle e-book reader. Apple’s arrangement with the publishers allowed it to reap a 30 percent commission on every e-book sold. While three of the publishers have settled out of court with the DOJ, Apple and Macmillian have refused to settle.

Macmillan and Apple’s defense hinges on their allegation that Amazon monopolized the e-book industry and that they had a right to break that monopoly. However, e-book consumers probably feel just the opposite since Amazon made the books available at $9.99 each, and Apple’s iPad sold them between $12.99 and $16.99. The e-book conspiracy is not the only recent Apple debacle.

Apple is also being sued in Australia in May 2012 over false advertising for the third generation iPad. Apple claimed that the new iPad could connect to a 4G mobile Australian network. The drawback is that the network’s frequency is not compatible with the iPad. Apple will lose its third generation iPad sales in Australia and will have to refund Australians for its lack of research into the Australian mobile network. That one surely must have made Apple cringe.

Apple’s public relations people have their work cut out for them. But they surely pulled a rabbit out of the hat with the Foxconn Chinese labor dispute. They managed to make Apple look like a knight in shining armor after Apple hired the Fair Labor Association in 2012 to audit working conditions at Foxconn, the largest manufacturer of electronics.

In 2010, fourteen suicides occurred at the plant, and workers constantly complained about becoming robots due to the long work hours and mechanical, repetitive tasks. At one point in 2012, 150 Foxconn workers threatened to jump off a building. Publicity over working conditions at the plant reached Apple consumers who began to protest iPad and iPhone manufacturing conditions at U.S. stores with disturbing graphics like “Rotten Apple” and “Bloody Apple.”

The audit revealed that Chinese workers at the plant were working an average of 60 hours a week to earn a monthly salary of about $400. The workers live in dormitories, and their salary includes room and board. After the audit, Apple arranged for a 49-hour work week and a raise in wages to compensate for the lost work hours. Apple is the first to hold a Chinese plant to Chinese labor laws.

The move was a win-win for Apple, but not competitors like Amazon, Dell, Nokia and HP,  who also use the Foxconn factories. Apple’s profit margin is high, and the wage increase will only amount to an extra $2 per unit, but its competitors may not find it so easy to take on the wage increase.

Plus, cutting down on Foxconn’s production time means that Apple’s competitors will also be slowed down. Usually Apple’s competitors hit the market with a cheaper, comparable product after Apple introduces theirs. With the shorter working hours at Foxconn, consumers will have to wait longer before they can get their hands on the Apple mini me’s.

Apple might get buried under a pile of patent paperwork. The problem isn’t the disputes about Android that it has with Motorola, HTC and Samsung. It’s more about the Kodak moment it’s having over its iPhone patent infringement.

Kodak has been holding its digital photography patents over the heads of smartphone manufacturers like Samsung and LG to the tune of nearly $1 billion between them. If Apple loses its patent dispute with Kodak on June 23 of this year, it may be out over $1 billion for breaking Kodak’s patent rights in the past, and perhaps owe hundreds of millions more in the future.

While the patent disputes Apple has with its copy cats are a disturbing issue for Tim Cook, who compares it to putting your own signature on someone else’s painting, the real issue for Apple may not be ownership rights. An issue that could really affect Apple’s bottom line is the way that app developers are being besieged for royalties by Lodsys on the one hand and sued by MacroSolve for patent infringement on the other.

Apple needs these app developers for its iOS innovations, and it’s becoming more difficult for them to operate due to litigation and the need for a large budget that takes into account the royalties and patent infringement penalties. The app developers can’t afford to defend themselves in the patent infringement cases and end up simply caving in to the allegations.

In order for Apple to continue to innovate, it needs to protect its app developers from the denizens of the iOS world. It should preempt Lodsys and Macrosolve from striking its Apple loyal developers by taking legal action against them. If Apple fails to defend its iOS developers, they may not be able to continue to provide the design and functionality that Apple is known for.

The upcoming Worldwide Developers Conference on June 11 will tell the tale as to whether Apple is feeling the pain of Steve Jobs’ departure from the planet. If the rumors are right, Apple has been channeling Steve just fine. The next generation of iMac and Macbook Pro’s to be revealed at the WWD will feature retina displays with mega resolution and Intel Ivy Bridge processors. The Intel chips support a new 3D transistor that enables Apples new 3D mapping system.

Apple is responding to its challenges and continues to deliver the sexiest technology on the planet. While it has had its share of scandals, it shares them with many other technology companies and corporations. While Steve Jobs was an idealist, he was also a fierce competitor and competing in the technology business is a lot like strategic warfare.

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This article was written by David Nance for the team at Center Networks. Visit CN in the future for their great reviews, including their fatcow reviews.

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