The truth behind Apple’s next trick

In its Nov. 9, 1998 issue, the cover of Fortune magazine showed Steve Jobs, newly resurgent as interim CEO of Apple, throwing his hands up in the air with an impish smile on his face. Beneath him ran the words, "And now for my next trick . . ." Based on Apple's shares this week, however, it seems investors are still waiting for some more magic.

This week the stock hit its lowest valuation in almost 10 years, trading down more than two percent on Tuesday. Apple's outlook was further clouded by a note from UBS's Steven Milunovich, who suggested its product margins had peaked and, comparing the company to other heavyweights like Microsoft and Google, that further price-earnings expansion is unlikely. Over the last 12 months, Apple has brought out both the iPad Mini and the iPhone 5, two major releases that might be hard to top in 2013. With Jobs no longer at the helm, how many rabbits can Apple realistically pull out of its hat?

Joshua Flood, an analyst with ABI Research in the U.K. who follows mobile technology, said that despite the excitement leading up to its big product unveilings year, the hype is drying up among consumers as well.

"The major changes for these devices are form factor, and it's not really innovating," he said. "Granted, the iPhone 5 has a faster processing chip and wireless connection, however, the debacle over iOS maps has crushed all kudos for that."

There has been ongoing talk of a new Apple TV product in the wings, but don't count on that reviving the company's shares anytime soon, said Kristen Green, a consultant who specializes in Apple products based in Burlington, Ont.

"Personally, I find it hard to believe that Apple is going to get into the consumer television business when a set top box will likely allow them to offer any features and/or content that they wish without forcing customers to purchase a new flat screen," he said. "The fact is that it's the delivery of the content that is antiquated and in need of being remade."

This is a good point. The products that don't always get much visibility but which are key to Apple's long-term growth are its Apps Store (which recently passed the one million approved apps mark) and iTunes. Green noted that if Apple creates a similar Internet-based platform for serving television content, it could be disruptive to both cable and satellite companies. "And maybe neither as no one can reinvent something you already have quite the way that Apple can," he added.

What Apple may really need to do, though is convince the market that its success is not due to a series of flukes. It may be starting to look like a lumbering, entrenched enterprise, but its track record is of invading mature sectors (like phones) and delivering compelling design coupled with a vast array of software choices. That's the result of deep thinking, careful strategy and consistent execution. Stop looking for Apple's next trick, or doubting the company will come up with one. When you're really good at what you do, you don't need tricks.