Apple reports record quarter, stocks plummet

Sales of Macs down 18 per cent, iPad sales up nearly 50 per cent, iPhone sales up 30 per cent.

Apple's released its quarterly earnings yesterday, and they weren't great. Although, in Apple's case, "not great" still means that revenue grew 18 per cent year on year to $54.5bn, profits hovered at $13.1bn, and its financial year 2012 is the largest corporate earnings year in history. Twitter loves to talk about first-world problems — this is "biggest-company problems" of the highest order.

Sales of Macs were down 18 per cent, but iPad sales had grown by nearly 50 per cent, and iPhone sales by almost 30 per cent. The iPhone 5 was the best-selling smartphone worldwide, and the astronomical mark-up on it — it generates a 55 per cent profit margin for the company — means that it will be jealously guarding that market for some time.

Still, the narrative is that Apple's had a bad quarter (because they really ought to own a small country by now, and their failure not to do so is frankly embarrassing), and so in after-hours trading, stocks were down 10 per cent.

The diagnosis seems to be that a hefty chunk of the decoupling of revenue and growth was down to the much-reduced profit margins of the iPad Mini. Apple's profit from sales of the 7 inch iPad is much lower than it gets from sales of the full-size one (although that hasn't stopped people arguing that it's making a mistake to charge so much for it, or not to put a vastly expensive retina display on it), so to the extent that its growth is because of entering that new market, its profit share will fall.

Worse for the company is that there is some evidence the mini is cannibalising sales of the full-size iPad. Certainly, respected bloggers like Marco Arment and John Gruber report preferring their minis to their old iPads, and they would seem to be the target market for the full-power device.

But if its problems stem from a growing presence in low-margin markets, then it's rather odd that the proposed solutions are… growing their presence in low-margin markets. Apple regularly comes under pressure for their low and declining share of the smartphone market — currently at around 20 per cent — with the implication that its strategy of chasing profit over raw sales is wrong. Reports that the company is attempting to build a low-price iPhone which would debut in late 2013 suggest that the company is taking the recommendation to heart.

But it seems that if it does bring out a successful low-margin entry level device, it will be slammed for declining profit; if it doesn't, it will be slammed for declining market share. Meanwhile, whatever the company does, it will be raking money in hand-over-fist. Maybe the problem lies with the people doing the slamming?

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Chuka Umunna speaks at the launch of Labour's education manifesto during the general election. Photograph: Getty Images.
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After so badly misjudging the leadership contest, how will the Blairites handle Corbyn?

The left-winger's opponents are divided between conciliation and aggression. 

When Labour lost the general election in May, the party’s modernisers sensed an opportunity. Ed Miliband, one of the most left-wing members of the shadow cabinet, had been unambiguously rejected and the Tories had achieved their first majority in 23 years. More than any other section of the party, the Blairites could claim to have foreseen such an outcome. Surely the pendulum would swing their way?

Yet now, as Labour’s leadership contest reaches its denouement, those on the right are asking themselves how they misjudged the landscape so badly. Their chosen candidate, Liz Kendall, is expected to finish a poor fourth and the party is poised to elect Jeremy Corbyn, the most left-wing leader in its 115-year history. For a faction that never ceases to underline the importance of winning elections, it will be a humbling result.

Though the crash has been sudden, the Blairites have long been in decline. Gordon Brown won the leadership unchallenged and senior figures such as John Reid, James Purnell and Alan Milburn chose to depart from the stage rather than fight on. In 2010, David Miliband, the front-runner in the leadership election, lost to his brother after stubbornly refusing to distance himself from the Iraq war and alienating undecided MPs with his imperiousness.

When the younger Miliband lost, the modernisers moved fast – too fast. “They’re behaving like family members taking jewellery off a corpse,” a rival campaign source told me on 9 May. Many Labour supporters agreed. The rush of op-eds and media interviews antagonised a membership that wanted to grieve in peace. The modernising contenders – Chuka Umunna, Liz Kendall, Mary Creagh, Tristram Hunt – gave the impression that the Blairites wanted to drown out all other voices. “It was a huge mistake for so many players from that wing of the party to be put into the field,” a shadow cabinet minister told me. “In 1994, forces from the soft left to the modernising right united around Tony Blair. The lesson is never again can we have multiple candidates.”

While conducting their post-mortem, the Blairites are grappling with the question of how to handle Corbyn. For some, the answer is simple. “There shouldn’t be an accommodation with Corbyn,” John McTernan, Blair’s former director of political operations, told me. “Corbyn is a disaster and he should be allowed to be his own disaster.” But most now adopt a more conciliatory tone. John Woodcock, the chair of Progress, told me: “If he wins, he will be the democratically elected leader and I don’t think there will be any serious attempt to actually depose him or to make it impossible for him to lead.”

Umunna, who earlier rebuked his party for “behaving like a petulant child”, has emphasised that MPs “must accept the result of our contest when it comes and support our new leader in developing an agenda that can return Labour to office”. The shadow business secretary even suggests that he would be prepared to discuss serving in Corbyn’s shadow cabinet if he changed his stances on issues such as nuclear disarmament, Nato, the EU and taxation. Were Umunna, a former leadership contender, to adopt a policy of aggression, he would risk being blamed should Corbyn fail.

Suggestions that the new parliamentary group Labour for the Common Good represents “the resistance” are therefore derided by those close to it. The organisation, which was launched by Umunna and Hunt before Corbyn’s surge, is aimed instead at ensuring the intellectual renewal that modernisers acknowledge has been absent since 2007. It will also try to unite the party’s disparate mainstream factions: the Blairites, the Brownites, the soft left, the old right and Blue Labour. The ascent of Corbyn, who has the declared support of just 15 MPs (6.5 per cent of the party), has persuaded many that they cannot afford the narcissism of small differences. “We need to start working together and not knocking lumps out of each other,” Woodcock says. There will be no defections, no SDP Mk II. “Jeremy’s supporters really underestimate how Labour to the core the modernisers are,” Pat McFadden, the shadow Europe minister, told me.

Although they will not change their party, the Blairites are also not prepared to change their views. “Those of us on this side of Labour are always accused of being willing to sell out for power,” a senior moderniser told me. “Well, we do have political principles and they’re not up for bartering.” He continued: “Jeremy Corbyn is not a moderate . . .
He’s an unreconstructed Bennite who regards the British army as morally equivalent to the IRA. I’m not working with that.”

Most MPs believe that Corbyn will fail but they are divided on when. McFadden has predicted that the left-winger “may even get a poll bounce in the short term, because he’s new and thinking differently”. A member of the shadow cabinet suggested that Labour could eventually fall to as low as 15 per cent in the polls and lose hundreds of councillors.

The challenge for the Blairites is to reboot themselves in time to appear to be an attractive alternative if and when Corbyn falters. Some draw hope from the performance of Tessa Jowell, who they still believe will win the London mayoral selection. “I’ve spoken to people who are voting enthusiastically both for Jeremy and for Tessa,” Wes Streeting, the newly elected MP for Ilford North, said. “They have both run very optimistic, hopeful, positive campaigns.”

But if Corbyn falls, it does not follow that the modernisers will rise. “The question is: how do we stop it happening again if he does go?” a senior frontbencher said. “He’s got no interest or incentive to change the voting method. We could lose nurse and end up with something worse.” If the road back to power is long for Labour, it is longest of all for the Blairites. 

George Eaton is political editor of the New Statesman.

This article first appeared in the 03 September 2015 issue of the New Statesman, Pope of the masses