Apple’s trillion-dollar valuation: A milestone, a cash cow, a dilemma

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Apple’s trillion-dollar valuation: A milestone, a cash cow, a dilemma

It was long before the age of Twitter, but it had all the characteristics of a Twitter declaration: short, witty and wrong. In 1997, when Steve Jobs had just returned to Apple Inc., someone asked Michael Dell what he would do with the company, which was on the brink of bankruptcy then. Dell replied: “I will shut it down and return the money to shareholders.”

On Thursday, 21 years later, Apple became the first American company—and the second in the world, after Petro China in 2007—to cross $1 trillion in market capitalization. Its milestone, which comes on the back of a small surge, comes at a time when some of its technology rivals and contenders in the race to $1 trillion are facing a tough time.

Milestone: $1 trillion before rivals

Facebook’s valuation dropped by a whopping $120 billion after it issued a warning about its revenue growth. Even as it licks the wounds from the Cambridge Analytica scandal, it uncovered another attempt to manipulate users. Elsewhere, Google has been slammed with a $5 billion fine by the European Union for Android antitrust violations. Amazon has faced the ire of US president Donald Trump, who in March tweeted that Amazon was scamming the US Postal Service by paying less.

Cash cow: iPhone still drives Apple

The surge in Apple share price came after it announced its latest quarterly results on Tuesday. Apple’s latest iPhone, the iPhone X, which some criticized as being too expensive, helped the technology giant beat analyst expectations. The iPhone X, which costs, $999, pushed iPhone sales growth by 20% t $29.91 billion in the quarter. Apple has hinted that it will launch $1,000 phones in the future. It pays to be expensive.

The launch of the iPhone in 2007 by Steve Jobs essentially created a new category of phones. And despite a large number of competitors who have tried to beat it down with more features, better features and lower price, the iPhone has managed to drive the company’s revenue and earnings growth since. In the last quarter, Apple sold 41.3 million iPhones, contributing to 56% of its $53.26 billion revenues.

Dilemma: Apple’s cash quandary

However, iPhone’s singular success has raised concerns about Apple’s ability to create new categories of business. Its wearables business continue to grow—last quarter, it generated $3.74 billion in revenues from this segment—but nothing has come close to the success of iPhones.

There has been news about Apple launching a television, which many expected would disrupt the category. There were also speculation about Apple getting into cars, but those have died down too.

The big question is whether Apple has become an operations-focussed company, satisfied with small improvements, from a disruptive innovation-focussed company that it was under Steve Jobs. One indicator of the lack of ideas is the cash piling up at Apple. It has cash reserves of over $250 billion. Facing criticism that it is holding most of it oversees, it has pledged to move it back to US.

In the long run, what it does with those reserves whether it can match, even better, the stirring heights it has bit with the iPhone since 2007.

source: livemint