7 Dark Sides of Apple

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When it comes to Apple (NASDAQ:AAPL), journalists, company-watchers and product owners alike tend to focus on its positives. Some of us have rooted for the (one-time) underdog that seemed to be the only thing preventing a Windows-only world. Some have cheered an innovator that seemingly values aesthetic design as much as profit. Others love the company that keeps delivering what we didn’t realize we wanted (until it was there).

Whatever the reason, people seem quite willing to hold Apple in higher regard than the Microsofts (NASDAQ:MSFT) or Hewlett-Packards (NYSE:HPQ) of the world. Maybe it was Steve Jobs’ infamous reality distortion field.

However, it’s important to recognize that Apple is a corporation. It’s run for profit, and that means it doesn’t always play as nicely as is commonly believed. In fact, Apple can get downright ugly at times. So, as part of InvestorPlace‘s special report about Apple on the occasion of the iPhone’s fifth birthday and in the interest of presenting a balanced view of Apple, here’s some illumination into seven areas of what can be called the darker side of Apple.

Tax Evasion

Apple is an immensely profitable company that operates globally, yet part of that profitability is a calculated strategy to open subsidiaries and locate offices in tax-free havens to reduce the income tax it pays. Perhaps the most blatant of these measures is its subsidiary Braeburn Capital, located in corporate-tax-free Nevada to avoid the 8.84% corporate tax rate in California, where Apple’s headquarters is located. According to The New York Times, Apple paid just $8.3 billion in taxes worldwide in 2011, which equates to a 9% tax rate. Walmart (NYSE:WMT), in comparison, pays a 24% tax rate.

Crushing the Competition

Apple has a long history of incorporating popular features offered by third-party developers into subsequent updates to its own software. Once Apple incorporates a key feature into OSX or iOS, the unlucky developer finds its software goes from being a top seller to dud.

For example, Nuance Software’s (NASDAQ:NUAN) Dragon Dictate for Mac is a popular, $200 solution for hands-free dictation on Apple’s Mac computers. With the announcement that the next OSX release will include built-in dictation support, the future is grim for Dragon Dictate. This phenomenon has given rise to “What Did Apple Just Kill?” lists posted on tech news websites after every major Apple announcement.

e-Book Price Fixing

Do you remember when Amazon’s (NASDAQ:AMZN) Kindle e-books used to be $9.99? Then they started creeping up to the point that new e-book releases are sometimes more expensive than the paper versions. The U.S. Department of Justice thinks Apple had something to do with that, and it’s investigating the company for charges of colluding with publishers and using its eBooks store and iPad to break Amazon’s low-price model.

Environmental Issues

Apple hits the radar of environmental groups for several reasons: Its data centers are energy-intensive, its products use energy and the materials its products are made from have to be disposed of eventually.

Greenpeace calls out Apple for situating data centers where electricity is derived from burning coal and has previously hounded the company for use of toxic materials such as chlorinated flame retardants in iPhones and other devices.

Apple has moved to address many of these issues, but it continues to be singled out for such practices. Apple claims its latest and greatest laptop, the MacBook Pro with Retina Display, uses a “highly recyclable aluminum and glass enclosure,” but Wired points out that fusing the glass to the aluminum as Apple has done (and also did with the latest iPad) means the recyclability is doubtful.

Foxconn

Apple has faced an ongoing PR crisis due to working conditions at Foxconn, the Chinese manufacturer of the iPhone and iPad. Working conditions (including long hours and industrial accidents) and low pay among Foxconn’s 1.2 million employees led to a string of suicides and worker demonstrations. Tim Cook has met personally with Foxconn leaders in order to resolve this embarrassing situation, but it refuses to go away with another worker suicide reported last week.

Litigation

Apple has been engaged in seemingly nonstop lawsuits, particularly around patents in the mobile space. While sometimes on the defensive, Apple isn’t blameless in these spats and has taken offensive action against the likes of HTC, Samsung and Google (NASDAQ:GOOG). Apple reportedly spent over $100 million on lawyers for the HTC case alone. The constant barrage of lawsuits over patents threatens innovation and has kicked off an age where failing tech companies risk being broken up and sold off for their patent portfolios.

Planned Obsolescence

With an operating system that’s relatively locked down, Apple products have always been more “closed” than their Windows counterparts. But the company has taken to making its devices physically inaccessible as well. For example, users can’t replace an iPad battery — take it to Apple instead. Website iFixit, which specialize in Mac equipment teardowns, reports the new MacBook Pro with Retina Display is the least repairable laptop it has ever seen. Everything inside is either glued or soldered. Repairs mean shipping it to Apple, while upgrades to meet the demands of new operating systems are virtually impossible.

When iOS 6 was announced at WWDC 2012, the original iPad — only two years old — was left off the compatibility list. Sure, other platforms do this too (Android smartphones in particular have been cursed by lack of support for new OS versions), but Apple appears to be becoming more aggressive about pushing customers into constant replacement cycles.

So, yes, it’s good to celebrate Apple for the amazing products it has created and for the innovative drive it embodies. But it’s also healthy to keep those accomplishments in perspective — and be clear-eyed about the real world Apple operates in.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2012/06/7-dark-sides-of-apple/.

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