Transfer Pricing Associates

Could Apple go bankrupt?

post Thursday October 24, 2013

Tags: apple, bankruptcy, innovation

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Marc Faber, the well-known American investor, shook the atmosphere last week when he stated that Apple could go bankrupt. He argued that Apple is relatively distressed, producing “an array of frivolous products”.

Faber compared Apple to Polaroid in the 1970s. Polaroid, the pioneer in instant photography, was also founded by an innovative individual, Dr. Edwin Land, who had a great number of patents registered under his name. However, when Land left the company, Polaroid was in great trouble keeping up its innovative feature.  

Does Faber have a point? Let’s take a look at the facts.

Apple set its profit growth rate extremely high, demanding that at 10% increase it needs over $5 billion a year. This is a very high threshold, which is difficult to achieve even for such a successful company as Apple.

Furthermore, records of previous years indicate a lower tendency towards keeping the company at the forefront of innovation technology. The newly released products are mere improvements of already existing ones instead of introducing cutting edge technologies. This is best evidenced by the recent “upgrade” of the fifth generation of iPhones or through the release of a thinner iPad Air.

Faber also questioned the necessity of the products; whether they are really serving customer needs or are they simply toys for adults? The truth in this is that Apple nowadays is more often seen as a luxury brand instead of a tech company.

The competition has not been idle either and they are quickly closing up the gap. The smartphone market is not led by Apple anymore, and the tablet market is also more and more divided among the tech companies.

Lastly, Apple is notorious of its incompatibility with business partners. However, the question is how sustainable it is to keep up their progress without cooperating with other strategic partners.

Source: CNBC

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