By the time the markets closed on Wednesday, Apple had lost about $37 billion of its market cap. It’s a big number, but one that was totally expected; despite setting another quarterly record for revenue, income and iPhone sales, its outlook for the second quarter was uncharacteristically weak, and investors are preparing for the unthinkable: the first ever period of non-growth for the iPhone.
It was bound to happen. Nothing grows forever—particularly something that has gotten so big so fast—-but Wall Street doesn’t operate with that kind of logic. It demands continued growth, and none of Apple’s products seem poised to fill the void left by diminished iPhone sales.
So, 2016 might be a bumpy ride for Apple. While the company will almost certainly scoop up nearly all of the handset profits and still have a balance sheet most companies would kill for, there’s a distinct possibility it will lose its status as biggest company in the world (based on market capitalization) to Alphabet, while struggling to meet the lofty year-over-year sales goals set in 2015. But if history is any indicator, Apple might actually benefit from this surprising downturn, and come away all the stronger for it.
History repeats itself
The fall of 2000 should have been a great time for Apple. Heading into the all-important December quarter, it had a whole slate of new, exciting products, and its vision for the desktop of the future was finally beginning to take shape.
At the Macworld New York expo in July, Steve Jobs had unveiled a sweeping and revolutionary change to its desktop line, with new iMac and Power Mac G4 models, new displays, a brand-new optical mouse, and the jaw-dropping Power Mac G4 Cube. And at the September Paris Expo it had released new iBooks and ceremoniously shipped the very first Mac OS X Public Beta.
But instead of riding good tidings into the holiday season, Apple fell on hard times. On the afternoon of Sept. 28, 2000, it released a media alert that warned of lower-than-expected fourth-quarter earnings. In response, Apple’s stock lost 50 percent of its value in a single day, and it would be years until it rebounded. But it might have been the best thing that could have happened.
Slow and steady
Apple’s “speedbump,” as Steve Jobs described it, wasn’t due to a lack of interest in its products. The iMac was still one of the most desirable PCs around, and the small and svelte Power Mac G4 Cube had swept everyone off its feet in the Big Apple. Rather, Apple was hit with the same economic realities that had hit chip-making giant Intel earlier in the month.
“We experienced lower than expected September sales due to a business slowdown in all geographies,“ said Fred Anderson, Apple’s then-CFO. ”Our Education sales, which normally peak during September, were lower than expected. And our Power Mac G4 Cube is off to a slower than expected start, resulting in revenues below expectations."
It was the beginning of decline for PC makers across the board, and while it would be short-lived, Apple saw the writing on the wall. Instead of simply riding it out and doubling down on its strategy like its competitors did, Jobs switched gears. A greater emphasis was put on portables, starting with the Titanium PowerBook G4 and a mature iBook that ditched the candy colors and handle for a compact, all-white design. The Cube was “put on ice” less than a year into its lifespan, and just 13 months after the fateful crash, Apple would release its first non-Mac product since the eMate, and a new period of growth was born.
The next big thing
The iPod represented a new tone and a new direction for the company. It took a while for people to see it, but Jobs had pivoted Apple from a personal computer company to a personal electronics one. It was an important change, and it might not have come about without September 2000’s crash.
Apple’s position today isn’t quite as comparable, but despite its size, the company has always been unique in the tremendous attention it gets and the influence it has. And I think it will use this situation in a similar manner, as an opportunity to push even harder into new categories that will carry the company into the future. Tim Cook said as much in his remarks yesterday:
“We’ve invested through economic uncertainty in the past, and we’ve always come out stronger on the other side. In fact, some of the most important breakthrough products in Apple’s history were born as a result of investing through the downturn. We’ve also seen these times as opportunities to invest in new markets, just as we’re doing now in areas such as India and other emerging markets.”
I’m not saying that the iPhone is going away or even in a major decline. Like the Mac, the iPhone will be a part of Apple for decades to come, but that doesn’t mean Apple won’t move beyond it. It could be that Apple Watch or Apple TV is the breakthrough growth product for Apple, but in all likelihood it’s something we haven’t seen yet. But whatever the case, there’s no need to worry about the company’s health or prosperity.
Because that’s the last thing Apple’s going to do.
This story, "How Apple's new speed bump could make it a stronger company " was originally published by Macworld.