Apple’s iPhone 5 May Signal Bigger Problem

Its missteps must be offset by smooth upcoming launches

   

When Steve Jobs passed away just over a year ago, there was considerable speculation about how the loss of its obsessively perfectionist CEO would affect Apple (NASDAQ:AAPL). That question gained steam in recent weeks with worries that the iPhone 5 release is the first real indicator of what the post-Jobs Apple might look like — and that it shows a company that’s stopped sweating the details.

Which, of course, wouldn’t be a good thing. Apple leapfrogged from computer-maker into the spot it currently occupies — a consumer technology leader and the world’s most valuable company — largely because of a decade-long run of releasing products featuring leading-edge design and attention to detail that competitors simply couldn’t match.

The iPhone 5 has been a different beast. Although Apple’s new flagship smartphone has been widely praised and is selling like hotcakes (5 million sold on its first weekend), its release has come with a series of snafus that are unlike the Apple we know. And together, they have turned the iPhone 5 launch from an expected windfall for investors to a painful experience that has seen the company shed $60 billion in market value.

Some issues include:

  • Replacing Google (NASDAQ:GOOG) Maps with its own Maps app — a version that, despite a partnership with GPS-maker TomTom (PINK:TMOAF), was not quite ready, led to public ridicule and ultimately resulted in a public apology from CEO Tim Cook.
  • Abandoning the standard dock connector that iPods, iPads and iPhones have used for years in favor of a new, Lightning connector that is incompatible with an array of speaker docks, rechargers, automobile entertainment systems and connector cables. An adapter is offered, but each one costs $30, doesn’t support all existing functionality and adds bulk that still prevents use with some docks.
  • Employing an authenticator chip in Lightning adapters and cables, making it difficult for third parties to offer cables to iPhone 5 buyers. Early versions offered for sale failed due to lack of this chip.
  • Offering a lack of replacement power cables for the iPhone 5. This turned the new iPhone into a brick for people who misplaced their rechargers since there were back-ordered chargers and cables, along with a lack of third-party alternatives.
  • Using a new aluminum alloy (to cut weight) and an anodized finish, which led to new iPhone 5s arriving from the factory with scratches. Apple leaned on Foxconn, its manufacturing partner, to improve quality, leading to a strike by thousands of workers, a production slowdown and ongoing back orders as the factory struggles to meet Apple’s demanding new quality standards.
  • Complaints from users that the iPhone 5’s camera is prone to producing photos with a noticeable purple flare with some light sources. A new sapphire lens component is being blamed for the problem and Apple was forced to publicly address the issue, recommending that users hold their new iPhones at a different angle or shield the device with their hand to reduce the haze.

All in all, it hasn’t been the party Apple-watchers expected.

Of course, time heals all wounds and we have a tendency to forget that the iPhone 4 — the last all-new model Apple released back in 2010 — did have some hiccups as well. Most prominently, there was “antennagate” — an issue where wireless signal strength could be degraded by gripping the phone. Steve Jobs had to offer free bumper cases to all customers to fix that issue.

And anytime you go into an Apple store, there’s a good chance you’ll run into at least one person whose iPhone 4 (or 4S) is suffering from a broken back panel, a common problem thanks to Apple’s decision to use glass both on the front and back. And last year’s iPhone 4S came with Siri, a beta release voice assistant that didn’t quite live up to billing.

Still, the iPhone 5 launch stands out for its rockiness. Many of Apple’s decisions around the product are being publicly challenged, even by the faithful Apple supporters. Former Apple evangelist Guy Kawasaki has gone on record as saying the decision to go with the new proprietary Lightning connector is “pure arrogance,” while long-time Apple fans are sounding off on forums and threatening to defect to Android after their investment in “Made for iOS” peripherals become obsolete. Questions about Tim Cook’s ability to effectively lead Apple are also increasingly common.

But the iPhone 5 is far from the end of the road. While the company needs to get that train back on the rails, two upcoming products are also important — and are likely to answer many of the leadership questions, while also showing whether the iPhone 5 launch was an anomaly or the new reality for Apple.

First is the iPad Mini, expected to be announced this month. Apple has reportedly ordered 10 million of the smaller, cheaper iPads to compete against the likes of Google’s Nexus-7 and Amazon‘s (NASDAQ:AMZN) Kindle Fire. If the iPad Mini suffers a similarly bumpy launch, there will be cause for worry.

The other big one is the iTV (Apple’s highly anticipated television project). This one looks like a minefield for Apple though, between a soft market for premium big screen TVs, increased competition from Internet-enabled “smart” TVs, cable providers who are determined to protect their turf, television studios that fear commoditization of their product and runaway expectations from the public. Still, a smooth launch is crucial.

In the end, as Apple attempts to weather the iPhone 5 missteps, there are two possible outcomes: Either it learns from those mistakes or turns in a succession of rocky product launches. The outcome is likely to determine whether Tim Cook is finally able to step out from under Steve Jobs’ shadow.

It will also strongly signal whether Apple is a company headed to $1,000 share prices — as some analysts have predicted — or one that’s peaked and is headed into a gradual decline a la other, once-dominant tech giants like Microsoft (NASDAQ:MSFT) or Sony (NYSE:SNE). Only time will tell.

As of this writing, Brad Moon did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/10/apples-iphone-5-may-signal-bigger-problem/.

©2014 InvestorPlace Media, LLC

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