Maybe it's the death of Steve Jobs, maybe it's all the high expectations, or maybe it's just that there is only so much innovation that can come from one company, but Apple's (AAPL 2.15%) innovative firepower seems to be slowing down. The company may have built a business model that works with considerable success, but there are reasons to believe that its time as a growth company are over. Most of those reasons stem from possible droughts in innovative ideas.
Gang warfare
First, Apple seems scared. The signs of that fear came from suing Samsung (NASDAQOTH: SSNLF) relentlessly over iPhone patents. They sued the Korean maker of such devices as the Galaxy and the Galaxy Note series for features as simple as the little iPhone "bounce-back" feature when you reach the bottom of a page.
Two years after trying (unsuccessfully) to get Samsung products completely banned for sale in the U.S. on patent claims, they are trying again. Apple has recently renewed lawsuits against Samsung trying to get their stuff out of the United States. All of this seems to imply that Apple is investing a considerable amount of energy — and money — into getting a competitor off of their turf. While I appreciate a good gang drama as much as the next guy, competition in the smartphone market does the consumer good by motivating innovation, and Apple's tactics imply that it is scared that it can't keep up.
But their disputes with Samsung are only the beginning. Two years ago, Apple joined forces with Microsoft, BlackBerry, and others to outbid Google (GOOG 0.42%) for a stash of patents that were up for grabs from the now-bankrupt Canadian telecom firm Nortel. That patent portfolio contained a veritable goodie basket of wireless telecom technologies that Google wanted, but the alliance — named "Rockstar Bidco" — would have done almost anything to keep that from happening.
As if ganging up on Google in a bidding war wasn't enough, they recently decided to lock and load. They recently dropped a massive patent suit against Google and other companies that produce phones using its Android operating system. Google may have adapted by acquiring Motorola, but Rockstar still won a crucial patent battle and put Google on its heels. However, in diving into the patent troll business, Apple and its cohorts seem to be showing their hand: They are scared.
Apple, with its hands not only in this shenanigan but in its dealings with Samsung, seems to be feigning offense as a mask for defense. Clever strategy, but over time the cracks may begin to show when they must produce their own innovations.
Put up or shut up
Ultimately, though, Apple could prove the nay-sayers wrong, and it might have a few aces up its sleeve. If Apple continues to improve on its core business while maybe breaking some new ground, it should be able to add value to its shareholders. There are reasons to doubt, however, that it can meaningfully do that.
First, if they are going to make a play for the new technology game, they are behind. There may be rumors of an iWatch that they are working on, but Samsung has already unveiled their hi-tech watches. And Google Glass, while expensive and nerdy-looking right now, is already being introduced to prescription glasses and sunglasses to make them more fashionable, according to the New York Times . Google will also be trying to lower the cost once they move beyond the prototype phase, CNET said.
Next, there's software. After Apple dropped Google Maps as the stock iOS maps app, the one it produced on its own was awkward and impractical. Further, the Reminders app is just plain bad compared to other task managers, Siri's coolness factor has worn off, and the iWork suite is a poor replacement for Office. Much of their software is now free on the app store, which makes it more accessible, but also may imply that they're trying to make up for gaps in quality.
With their core computer business, they seem to be doing OK but underwhelming. Their most recent generation of Macbook Pros had little to show over the previous models except prettier screens with slight performance improvements. With the speed of innovation in the computer business, pretty retina displays aren't going to be enough to justify such higher prices, especially when the competition is beginning to think more outside the box with touch-screens and tablet convertibles.
The bright spot for Apple mostly lies in the new iOS 7. While it experienced a few issues upon its release, iPhone and iPad users adopted it with record speed, according to the International Business Times . That speed is not lost on app developers, who will begin to flock to iOS, giving it a better app infrastructure in the long run — even despite the larger market share of Android phones. iOS 7 also happens to be very pretty, and users like pretty.
Bulls on parade
Markets may have seen a banner year in 2013 and Apple was a small part of that, and some even expect it to do well in 2014 with projections of success for the iWatch and Apple TV. However, as the economy improves and loose monetary policy begins to expire, the reasons to believe that Apple is a bit scared of losing its innovative spirit will become especially punctuated.
Unless Apple is able to surprise the pundits in 2014 by unleashing some new and creative products and improvements on its current business, it may be past its prime. That it started giving out its extra cash in dividends in 2011, instead of reinvesting it in innovative technology — or legal fees — does not help their case. It may be that Apple is on the decline. That isn't necessarily a bad thing as it still makes a good product and provides decent dividend income, but Apple's days as a growth company could be over.
