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Apple grows, faces challenges

Size is the enemy of growth. It is one of the unwritten laws of business, a matter of simple percentages.

india Updated: Jan 30, 2011 22:13 IST

Size is the enemy of growth. It is one of the unwritten laws of business, a matter of simple percentages. After all, when a company has $1 billion in yearly sales, an extra $1 billion doubles its size. Add $1 billion in new business to a $10 billion-a-year company, and it amounts to just 10% growth. The size-growth tradeoff seems inevitable, an inescapable force like gravity.

Try telling that to Apple, the corporate giant that two weeks ago reported a 71% jump in quarterly sales. Apple generates revenue at the rate of $100 billion a year. Its chief executive, Steven P Jobs, who went on medical leave this month, is ailing, but the company is certainly not.

Hit products like the iPod, the iPhone and the iPad are fuelling Apple’s logic-defying growth. The latest entry — the iPad, introduced in April — is on track to deliver $15 billion to $20 billion in revenue in its first full year of sales, says A M Sacconaghi, an analyst at Sanford C Bernstein. At that size, if the iPad were a stand-alone company, it would rank within the top third of the Fortune 500.

The software and services that work on Apple’s hit products are accelerating its extraordinary expansion. Apple provides the underlying technology and marketplace: iTunes software and the iTunes Store for managing, downloading and buying music and media; iPhone and iPad software for creating applications; and the App Store for sampling and buying them.

“Apple has hit that magical combination of gradually shifting from a product to a platform strategy,” says professor Michael A Cusumano, Sloan School of Management at MIT.

Apple, the early leader in PCs, fell behind, despite some stellar products, because it made mostly its own hardware and software, and did not nurture a large community of mutually dependent partners, analysts say.

But concerns lie ahead. And the biggest may be a platform challenge from Google. In one question, David Eiswert, portfolio manager of the T Rowe Price Global Technology fund, sums up the risk: “Will we eventually see the PC model all over again in this market?”