Apple Faces Daunting Challenges in 2012

"It was the best of times, it was the worst of times." The opening line from Dickens' A Tale of Two Cities succinctly frames the way people of that Victorian age regarded the sometimes-up, sometimes-down state of the world they lived in.

The famous line is also a handy paradigm for thinking about consumer-electronics giant Apple (Nasdaq: AAPL  ) -- a company in the midst of unprecedented success, and a company in the midst of unprecedented challenge.

His man Cook
Overshadowing all other Apple news in 2011 was the death of Steve Jobs. Happily, there was no succession drama and the reins of CEO were pre-emptively handed over to veteran COO Tim Cook, who had been Jobs' top lieutenant and the logistics magician who streamlined the company's supply chain, fattening up margins and helping make Apple the enormously profitable enterprise it is today.

Cook knows the company as well as, if not better than, Jobs himself did. He's also as disciplined a leader and as hard a worker as was Jobs. Cook, however, is no Steve Jobs when it comes to product vision. This point has been made again and again, but it bears repeating.

Jobs wasn't a one-man show. Jobs hired the best people in their fields, who brought him their best ideas in the execution of his broad vision. But his true brilliance lay in knowing perfectly which of those ideas to pursue and which to abandon. That's what made all the difference for Apple, and it's what Cook might not bring to the role of CEO.

That's, like, so last year
Consumers and industry analysts alike have come to expect big Apple product news every year. Even with Jobs' illness and subsequent death, 2011 would be no exception. But when the company failed to launch an iPhone 5 over the summer, fielding instead an upgraded version of its iPhone 4, there were murmurs that the company was already losing its innovative edge -- a key contributing factor to its moat in the highly competitive world of consumer gadgetry.

People still lined up to get their hands on the latest iPhone, but Apple's share of the smartphone market slipped from 16.6% to 15% last year, leaving Samsung as the world's largest manufacturer of smartphone handsets. And Google's (Nasdaq: GOOG  ) Android operating system accounted for 52.5% of market share in the third quarter of 2011, a number that doubled from a year earlier.

Then there's the new smartphone alliance of Nokia (NYSE: NOK  ) and Microsoft (Nasdaq: MSFT  ) . Nokia's new high-end phone, which uses Microsoft's operating system, will be introduced in the states in 2012 (at the upcoming CES, anyone?). Initial reviews of the sleek Nokia handset and distinct Microsoft OS have been positive.

Another Apple success story, the iPad, also faces stiff competition in the form Amazon.com's (Nasdaq: AMZN  ) Kindle e-reader. One model, the $199 Kindle Fire, operates well enough as a tablet computer, at an attractive enough price point, to be a possible threat to the much more sophisticated and more expensive iPad. Amazon is reporting that it sold more than 1 million Kindles per week in December.

My kingdom for a horse, or at least another moat
Opining recently on Apple, industry analyst Rob Enderle of the Enderle Group told the Financial Times: "[This] ... is going to be a pivotal year. ... Apple for the last decade has clearly led the market and now the market has proved to be very good at being a 'fast follower.'" In the same piece, Tim Bajarin, president of the research firm Creative Strategies, told the newspaper that "2012 could be another big product year for the Apple, rivaling 2010 when the iPad was launched."

So it's the best of times for Apple, and it's the worst of times. Well, maybe no one would argue it's the worst of times for a company that recently touched the top spot by market capitalization. I think it's fair to say that the company has challenges ahead for this year but is well placed to handle them.

For the fiscal year ending in September, Apple raked in a staggering $108 billion in revenue, up from $65 billion the year before, netting out as $26 billion in profits. Apple's $82 billion war chest is a moat in and of itself.

Plus, given Jobs' long period of physical decline, he no doubt helped plan out at least the next few years of the company's direction. So, in a sense, Jobs' singular vision is still at work in the company, with Cook doing what he's always done best: executing it.

But Apple isn't the only company well positioned to cash in on the booming smartphone and tablet PC markets. Learn about three more, handpicked by our Foolish analysts, in this special free report: "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Get your copy while it's still available.

Fool contributor John Grgurich thinks that, excepting the extreme poverty, the raw sewage running through the streets, and the horrors that passed for modern medicine, Victorian England would have been a cool place to be. John also owns no shares of any of the companies mentioned above. The Motley Fool, however, owns shares of Google, Amazon.com, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, Apple, and Amazon.com and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.


Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2012, at 7:37 PM, daveshouston wrote:

    Geez, how pitiful. You're quoting Rob Enderle, one of the world's most prominent morons. He's right up there with Michael Moore and Keith Olbermann.

  • Report this Comment On January 06, 2012, at 8:08 PM, jonkai wrote:

    the stock price action since "2012" began, disagrees with your assessment that 2012 has "daunting" challenges... (atleast for the next 6 months)

  • Report this Comment On January 06, 2012, at 8:10 PM, jonkai wrote:

    by the way, Rob Enderle was the one, (well one of many) who said the iPod business would be taken away by Dell and the Zune and the like..... how did that turn out?

  • Report this Comment On January 06, 2012, at 8:40 PM, BradApple wrote:

    The author of this flawed analysis overstates the significance of Android market share growth during the third quarter of 2011 by failing to explain that this occurred during the quarter PRIOR to Apple's introduction of the iPhone 4S – a time when many customers held off on smartphone purchases in anticipation of Apple's latest model.

    Although the author acknowledges that "people still lined up" for the iPhone 4S, he fails to call out the fact that Apple is reported to have sold an astonishing 35 million iPhones in the December quarter of 2011. That record-breaking sales performance attests to how uniquely well positioned Apple is the outset of 2012 – contradicting his headline about "daunting challenges."

    http://allthingsd.com/20120105/30-million-iphones-sold-in-ap...

  • Report this Comment On January 06, 2012, at 10:08 PM, Aapl202056 wrote:

    These articles are so funny. They were saying the same thing a year ago. How about if you list some numbers of all iOS devices compared to all android devices.. Or how about profits? I really don't see how android will serious challenge apples products. There is room for both. Point is, apple will be fine, and even great this year as it has been for the past 5 years. Why would this year be any different? Cause some OS us throwing free software to and device with a chip in it. C'mon man.....

  • Report this Comment On January 06, 2012, at 11:34 PM, Kalanihawaii wrote:

    Eric schmidt, did you write the article? Maybe not, maybe this is the same guy that produces those Samsung commercials.

  • Report this Comment On January 07, 2012, at 12:47 AM, alexkhan2000 wrote:

    What a pathetic and laughable article...

  • Report this Comment On January 07, 2012, at 2:33 AM, ToddKaime wrote:

    A friend was complaining about his new "droid". It was dropping calls even though a strong signal was indicated. Calls were not ringing through. Among other problems. Perhaps the strong Android sales are the result of buyers lining up to get a new one that actually works. The iPhone? One time is enough.

  • Report this Comment On January 07, 2012, at 11:00 AM, XMFGrgurich wrote:

    I'm actually an Apple user and fan, but my point was, the company gets it from both sides no matter what it does. It's kind of silly. And I stated at the end I think Apple is well positioned for anything that comes down the pike this year, but make no mistake, things are coming.

  • Report this Comment On January 07, 2012, at 2:12 PM, CraigNotGreg wrote:

    @TMFGrgurich

    'I'm actually an Apple user and fan, but my point was, the company gets it from both sides no matter what it does."

    If this is true, why is the headline of this article "Apple Faces Daunting Challenges in 2012"? You didn't list one challenge that is daunting or new. iPhone revenue continues to go through the roof despite increases in Android market share. The new Nokia phones are an unknown at best and analysts are reporting brisk iPad sales despite the introduction of the Kindle Fire. Do you really need to be the hundredth writer to report these "challenges"?

    Please stop the troubling practice (now rampant on Motley Fool) of using sensationalist headlines to draw readers to your content. Some new and/or legitimate analysis of Apple's challenges in the marketplace is long overdue.

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