Apple illustrated a past era of global capitalism
WTALKING HEN about Apple, it’s hard to avoid superlatives. It is the most valued company in the world, with a market value of $ 2.5 billion. Over 80% of this amount was raised during Tim Cook’s tenure. No other CEO has created more absolute value for shareholders. As he celebrates his tenth birthday at the helm this week, he can look back with satisfaction. Instead of trying to emulate the Apple co-founder, he took Steve Jobs’ creation and made it better and bigger. Much of this success is due to maintaining the innovation record of Apple and its brand. But Mr. Cook has also benefited from a fading era of open, globalized capitalism. He plans to stay in charge for five years or more. The way it handles the new environment will be the next epic chapter in Apple history.
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Even by the standards of other tech giants, Apple is unusual. It is older (created in 1977); it mainly sells computer equipment; it is controlled by investors and not by founders; and it is more global, with a higher share of sales outside its home market than Alphabet, Amazon, Facebook, Microsoft, Alibaba or Tencent. Under Mr. Cook’s leadership, he exploited four trends. One is global supply chains: it has built a huge production network with China at the center and components sourced from all over the world. This machine is being started up ahead of the launch of the new iPhone 13 next month, with unit sales of around 90 million euros. In addition to employing Chinese workers, Apple has killed Chinese consumers, the second big trend. Its annual sales from China have roughly quintupled over the past decade to $ 60 billion, more than any other Western company.
Apple also flourished at a time when governments were relaxed about companies with high market shares. While the cell phone industry was once brutal (think the rise and fall of BlackBerrys) and is still very competitive for cheaper phones, Apple dominates the high end, with a market share of revenues of over 60% in America and a dominant position in operating systems there. Rather than competing with rival tech giants, it enjoyed cartel comfort, receiving vast payments from Google in exchange for making it the iPhone’s search engine. The latest trend is tax evasion. Thanks in part to legal structures using tax havens, Apple has paid on average cash income taxes of just 17% of pre-tax profits over the past decade.
However, these four trends are becoming less favorable. Geopolitical tensions threaten global supply chains. President Xi Jinping’s authoritarian policies have blunted the lure of relying on Chinese consumers for 18% of sales. Its new slogan of “common prosperity” may signal a desire to cut corporate profits. Western trustbusters target technology, including payments from Google and the Apple App Store, which Epic Games, the maker of “Fortnite”, accuses of charging excessive fees. And an agreement negotiated this year by the OECD could gradually force multinationals to pay more taxes.
So what exactly is Mr. Cook’s plan? One of his accomplishments has been to keep Apple’s cult of secrecy. Wall Street survives on a generous share buyback regime and meager information on company strategy. However, some things are clear.
Apple will find ways to avoid the tax bills, but the rate it pays will likely increase. It will continue to evolve into a subscriber-based business with over a billion users who benefit from a range of services (which already generate 21% of sales). Apple still relies on beautiful design and flawless workmanship, but it also wants to be a trusted middleman in a toxic and unruly digital world capable of charging high fees. And it will continue to try to invent a new generation of hardware – iGlasses or iCars, let’s say – that can complement the iPhone as a gateway to Apple’s world.
Yet on the two thorniest issues, Mr. Cook has not made up his mind. On supply chains, although Apple has shifted the allocation of its own long-term assets to America (the share has increased from 38% in 2012 to 70% today), major suppliers, including TSMC, a chip company, are reluctant to put production there. If the China-U.S. Divide deepens or if Apple’s relationship with Beijing deteriorates, Cook will have to move away from China, with far-reaching consequences for its margins and for global trade.
Meanwhile, the heat of trustbusters and Apple’s shift to services may catalyze competition with other tech companies. Apple fought with Facebook over privacy this year; it could go even further into research, e-commerce or entertainment, thus breaking the comfortable club of technology. The remainder of Mr. Cook’s tenure is unlikely to be as successful as the first decade, but his decisions will be just as important. ■
Clarification (August 26, 2021): This article has been edited to clarify that reference to Apple’s dominance in operating systems refers to its position in America.
This article appeared in the Leaders section of the print edition under the title “The future of Cappletalism”