Taking a byte out of the Apple economy

The Apple economy is far more widespread and far-reaching than people care to admit, but there is no reason why the Cupertino tech giant’s rising tide shouldn’t lift all boats, writes John Kennedy.

On Saturday, as part of a weekly tradition, I walked into my local Xtra-vision video store to buy my fiancée her App Store card for her games and it struck me once again just how Apple has managed to sweep its way into every aspect of our lives, online and offline. Even when it is not selling you phones or computers, it will be selling you something. Expect that to continue.

Just two days previously I was at the Apple special event in San Francisco witnessing the unveiling of the new iPhone 6s and 6s Plus, the new iPad Pro, the new Apple TV and some tantalisingly beautiful new Apple Watch designs as part of a collaboration with Hermès.

For an hour before the event, journalists paced impatiently inside the Billy Graham Civic Auditorium and some, already in line, started taking pictures of the doors leading into the auditorium. I watched eminent tech writers like Walt Mossberg from Re/Code and The Verge and Lance Ulanoff from Mashable get in line with everybody else. There was no special treatment, no silly pecking order; everyone was the same. Few who were there were aware at that point that Apple had footed the bill for refurbishing the entire auditorium ahead of the event.

‘The premium car market including Mercedes-Benz, BMW, Audi and Lexus generated US$220bn in revenue last year. iPhone revenue in the last 12 months alone was US$146.6bn’

The doors opened and within seconds journalists had swarmed like locusts into their allotted seats. As I stood there and silently fumed, somebody tapped my shoulder and said I could take an unmarked seat on the other side of the stage.

No sooner had I settled into my chair than the figure of Apple’s chief designer Jonny Ive loomed overhead as he shook hands with a guy next to me. “Great, I’m going to be asked to move,” I thought, as software chief Craig Federighi strode by smiling and shaking hands with people. The whole thing had a sense of reunion about it.

Apple, noted for its secrecy, was unconcerned if journalists sat cheek by jowl with its top people. This, I thought, is clearly indicative of a company very secure in itself and so organised that at that particular point it didn’t matter where journalists sat.

And so the show began and CEO Tim Cook darted lynx-like about the stage, perching on the side of the stage and grinning broadly as Apple’s biggest fan.

Amidst the presentations I was nearly jolted out of my seat by the sudden sound of an Irish accent when Irene Walsh from former Siliconrepublic.com Start-up of the Week 3D4Medical came on stage to demonstrate the iPad Pro’s precision when it comes to digitally dissecting the human anatomy.

As I watched, I realised that the whole thing about Apple is organisation and structure. Each event is a masterclass (Never mind Carlsberg, if Apple did events…) Each annual or bi-annual reveal shows how, after the passing of Steve Jobs in 2011, Cook has finessed a strong team around him, taking the strategic long view rather than the tactical and panicky short-term view Wall Street often forces on its CEOs.

The characters themselves are emerging. Federighi is the comedian of the troupe, throwing in deadpan humour as he cycles through the features of the new iPhone 6s; Eddy Cue’s costumes – in this case, a bright red silk shirt and matching shoes – are getting more flamboyant, and Phil Schiller gets to do what he does best: sell.

It’s a bit like watching a rock band find its stride. Metaphors aside, this is the team that has masterminded a near US$1trn technology powerhouse.

Inside the Apple economy

Irene Walsh from Dublin app firm 3D4Medical on stage at last week’s Apple special event in San Francisco

Apple faces wars on numerous fronts. It has arguably already won the smartphone wars; sales of the iPhone rose 35pc in the last quarter while rivals like Samsung and HTC are being pummelled as lossmakers. It is relishing the continued popularity of devices like iPads and Macs, again reporting sales that are heading upwards while Windows and Android device makers are seeing sales head south.

It has just opened up a new front in the war for the living room with the Siri-controlled new Apple TV with opportunities to become the operating system of the living room, a fate that Microsoft with its Xbox and Sony with its PlayStation franchise don’t wish to countenance.

Unthinkable a decade ago, Apple is now in the fashion business with its Apple Watch, creating a line-up of hues, colours and metallic materials that make efforts by Motorola and Samsung seem drab and one-dimensional by comparison.

‘Apple has maintained its presence in Cork and in recent months it has been rumoured Apple is planning to double the size of its Cork operation as part of a €700m investment’

Years ago Apple was singled out for its closed loop on hardware and software – accused of being too narrow, too stubborn and overly protective – and now it is reaping the whirlwind. Google is good at internet and software, not at hardware, as Google Glass showed. Samsung is good at hardware, but continues to fail miserably in software. Microsoft won the PC revolution in the ’90s but is still only gingerly stepping into hardware with Surface and Xbox, too afraid to offend big PC manufacturers whom it depends on for OEM license sales.

The scale of Apple is worth considering. In the third quarter of 2015 the company reported revenues of US$50bn and a resulting profit of US$20bn – 40pc of revenue. The tech giant is rumoured to be making plans to enter the self-driving, electric car market and if it wanted to it could snap up Tesla for small change but not without disrupting its entire business model. Apple will do what it does on its own terms and in its own time.

To get some perspective, Tesla reported Q1 revenues of US$940m, and a profit of US$260m, 20pc of revenue. Ford, once also a key employer in Cork like Apple is today, reported Q1 revenues of US$34bn and a gross profit of US$5.2bn. Porsche reported Q1 revenues of €17.2bn, yielding a €4.3bn profit.

So whether Apple gets into cars, it doesn’t matter, it is predominantly a smartphone company today. Prior to 2007, it wasn’t.

In the entire past fiscal year, the iPhone generated US$102bn in sales – that is more than Google, Facebook or Twitter’s annual revenue combined.

As Bloomberg recently surmised – the premium car market including Mercedes-Benz, BMW, Audi and Lexus generated US$220bn in revenue last year. iPhone revenue in the last 12 months alone was US$146.6bn.

Ireland in the eye of the Apple storm

In 1980, Apple was what we would today consider a start-up when it selected Cork to spearhead its global manufacturing push. This is perhaps where IDA Ireland’s understated brilliance in targeting companies like Apple, Microsoft, Google, Twitter and Facebook while they are so young is best demonstrated.

Apple has maintained its presence in Cork and in recent months it has been rumoured Apple is planning to double the size of its Cork operation as part of a €700m investment.

Apple currently employs around 4,000 people in Cork. It has been reported that the California technology company is planning to buy land adjacent to its operations in Holyhill, Cork, in a move that will transform its operations and could accommodate up to 2,000 more people.

‘Apple has contributed 629,000 jobs in Europe, from app developers and suppliers to business processes and retail’

Let’s not have any doubt — the Cork operation has played a pivotal role in Apple’s growth trajectory. It was initially a pure-play manufacturing hub where engineering managers still feared an encounter with a young and ambitious Steve Jobs who would visit Cork occasionally: “You had better have had your numbers right in case he stopped you,” a former manager once told me.

Cork rolled with the changes at Apple over the last three decades, growing and receding and growing again.

Apple’s longstanding investment in Ireland has come under the uncomfortable glare of the European Union in the last year. Cook has vehemently denied Apple has any kind of special tax deal with the Irish Government. But in a 10K filing last year the tech giant admitted changes to tax structures will see increased taxes on profits.

Despite this Apple continues to invest in Ireland. In February, Apple announced a major €850m data centre operation in Athenry, Galway, which will be powered purely by renewable energy and which will result in the creation of 200 construction jobs.

Apple will also directly fund at least six Irish renewable energy projects, amounting to a potential additional investment of €400m on top of the €850m the company is investing in the green data centre in Athenry, Galway.

But it is not only the Irish economy that has benefited from Apple. An economic impact study on behalf of Apple estimates the California tech giant has contributed 629,000 jobs in Europe, from app developers and suppliers to business processes and retail.

Apple pointed out that 50pc of all direct and indirect app economy jobs in the EU28 can be directly attributed to iOS. The app revolution has added nearly 500,000 iOS jobs to the economy in Europe since the introduction of the App Store in 2008. Apple said it has paid US$6.5bn to developers across Europe, nearly 30pc of the US$20bn Apple has paid to developers around the world to date.

Apple’s new iPhone products aren’t expected to hit Ireland until October and there is still no green light yet on when the Apple Watch will go on sale here. Ireland still has no Apple Store, but that could just be a matter of time. All things considered, Ireland has done well out of the Apple economy and will continue to do so.

So whether it’s about rejuvenating civic auditoriums in San Francisco or selling iTunes cards in local video stores in Ireland or harmonising traffic on motorways in China or the UK in the decades to come, the Apple economy is spreading.

Apple last week revealed an iPhone Update Program that for US$32 a month allows users to get a new iPhone every year. This was lost in the heat of the moment on many people. Effectively Apple has played a trump card that will consolidate its leadership of the smartphone industry. How long will it be before Apple will be your mobile network carrier of choice?

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