Why Apple investors are deservedly worry

Apple announced the new iPhones recently.  And mostly, nobody cared.

Remember when users waited anxiously for new products from Apple?  Even the media became addicted to a new round of Apple products every few months.  Apple announcements seemed a sure-fire way to excite folks with new possibilities for getting things done in a fast changing world.

But the new iPhones, and the underlying new iPhone software called iOS7, has almost nobody excited.

Instead of the product launches speaking for themselves, the CEO (Tim Cook) and his top product development lieutenants (Jony Ive and Craig Federighi) have been making the media rounds at BloombergBusinessWeek and USAToday telling us that Apple is still a really innovative place.  Unfortunately, there words aren"t that convincing.  Not nearly as convincing as former product launches.

CEO Cook is trying to convince us that Apple"s big loss of market share should not be troubling. iPhone owners still use their smartphones more than Android owners, and that"s all we should care about.  Unfortunately, Apple profits come from unit sales (and app sales) rather than minutes used.  So the chronic share loss is quite concerning.

Especially since unit sales are now growing barely in single digits, and revenue growth quarter-over-quarter, which sailed through 2012 in the 50-75% range, have suddenly gone completely flat (less than 1% last quarter.)  And margins have plunged from nearly 50% to about 35% - more like 2009 (and briefly in 2010) than what investors had grown accustomed to during Apple"s great value rise.  The numbers do not align with executive optimism.

For industry aficianados iOS7 is a big deal.  Forbes Haydn Shaughnessy does a great job of laying out why Apple will benefit from giving its ecosystem of suppliers a new operating system on which to build enhanced features and functionality.  Such product updates will keep many developers writing for the iOS devices, and keep the battle tight with Samsung and others using Google"s Android OS while making it ever more difficult for Microsoft to gain Windows8 traction in mobile.

And that is good for Apple.  It insures ongoing sales, and ongoing profits.  In the slog-through-the-tech-trench-warfare Apple is continuing to bring new guns to the battle, making sure it doesn"t get blown up.

But that isn"t why Apple became the most valuable publicly traded company in America.

We became addicted to a company that brought us things which were great, even when we didn"t know we wanted them - much less think we needed them.  We were happy with CDs and Walkmen until we discovered much smaller, lighter iPods and 99cent iTunes.  We were happy with our Blackberries until we learned the great benefits of apps, and all the things we could do with a simple smartphone.  We were happy working on laptops until we discovered smaller, lighter tablets could accomplish almost everything we couldn"t do on our iPhone, while keeping us 24x7 connected to the cloud (that we didn"t even know or care about before,) allowing us to leave the laptop at the office.

Now we hear about upgrades.  A better operating system (sort of sounds like Microsoft talking, to be honest.)  Great for hard core techies, but what do users care?  A better Siri; which we aren"t yet sure we really like, or trust.  A new fingerprint reader which may be better security, but leaves us wondering if it will have Siri-like problems actually working.  New cheaper color cases - which don"t matter at all unless you are trying to downgrade your product (sounds sort of like P&G trying to convince us that cheaper, less good "Basic" Bounty was an innovation.)

More (upgrades) Better (voice interface, camera capability, security) and Cheaper (plastic cases) .  It is defending and extending your past success.  There"s nothing wrong with that, but it doesn"t excite us.  And it doesn"t make your brand something people can"t live without.  And, while it keeps the battle for sales going, it doesn"t grow your margin, or dramatically grow your sales (it has declining marginal returns, in fact.

And it won"t get your stock price from $450-$475/share back to $700.

We all know what we want from Apple.  We long for the days when the old CEO would have said "You like Google Glass?  Look at this.......  This will change the way you work forever!!"

We"ve been waiting for an Apple TV that let"s us bypass clunky remote controls, rapidly find favorite shows and helps us avoid unwanted ads and clutter.  But we"ve been getting a tease of Dick Tracy-esque smart watches.

From the world"s #1 tech brand (in market cap - and probably user opinion) we want something disruptive!  Something that changes the game on old companies we less than love like Comcast and DirecTV.  Something that helps us get rid of annoying problems like expensive and bad electric service, or routers in our basements and bedrooms, or navigation devices in our cars, or thumb drives hooked up to our flat screen TVs ---- or doctor visits.  We want something Game Changing!

Apple"s new CEO seems to be great at the Sustaining Innovation game.  And that pretty much assures Apple of at least a few more years of nicely profitable sales.  But it won"t keep Apple on top of the tech, or market cap, heap.  For that Apple needs to bring the market something big.  We"ve waited 2 years, which is an eternity in tech and financial markets.  If something doesn"t happen soon, Apple investors deserve to be worried, and wary.

(Adam hartung is the managing director at Spark Partners.)

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