By almost any measure, Apple had an awfully good start to the year. It sold $43.6 billion worth of stuff, a record for this time of year, and earned $9.5 billion. It sold 7 percent more iPhones than a year ago and 65 percent more iPads, and it recorded 30 percent more revenue from iTunes, software and service sales. It had $12.1 billion in cash in its accounts and $105.6 billion in liquid securities. The company said it will more than double the amount of that lucre it returns to shareholders in the form of share buybacks and dividends.
But while things in many ways look good for Apple, they are looking considerably less so for AAPL. Shares of the widely held stock are off 43 percent since its September high. And the reasons why teach something about business and innovation.
Apple's soaring profitability over the past decade has been driven by a series of wildly successful new products: first the iPod, then the iPhone, then the iPad.
Each of those products has followed a cycle: brilliant innovation, followed by explosive growth in sales, paired with profit margins that make other makers of consumer technology products drool, followed by a leveling off of sales, an onslaught of new competition as rivals catch up in quality, and downward pressure on margins.
But products that change the way people live and are rapidly adopted by millions of people don't come along every day. Almost by definition, products that could live up to the success of those predecessors are going to be hard to imagine; if it were easy to imagine them, somebody would have already made them.
So Apple's stock price is essentially a minute-by-minute referendum on the ability of the company to find some big new thing that will drive profits over the coming years. At its current price of about $400 a share, investors are betting that the answer is no, that while Apple will still make plenty of money from making iPhones, Macs and other products to come, there will be no explosive growth out of the company based on the new new thing.
The reason Apple stock was treading water Wednesday despite the company's reporting of better-than-expected profits is that investors view the company's decision to return more money to shareholders as a tacit acknowledgement that it doesn't have major investment opportunities on the horizon; you need a $100 billion horde only if you have something to spend it on, and if you don't, you may as well give it to the shareholders.
Innovation is a curious thing. The market's pessimism about Apple's future profitability is a bet that true, world-changing innovations like the ones that have made the company wildly profitable in the past decade don't come around every couple of years.
There is every reason to think that Apple will continue to be a highly profitable company in the years ahead and will continue to make excellent products. But to grow from here, it will need a type of spark of inspiration that is a rare thing indeed.