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Apple

All eyes on Apple Inc.

By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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April 23, 2014, 10:34 AM ET
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FORTUNE — On Tuesday, Re/code’s Walt Mossberg joined the parade of Apple (AAPL) watchers wondering whether the company has lost its innovative magic.

To Mossberg’s credit, he points out that there was a six-year gap between the iPod and the iPhone, and that it’s only been four years since Steve Jobs — knowing his end was near — pushed out the iPad.

Still, the operative metaphor of Mossberg’s piece is that Apple is increasingly like Hollywood.

“Studios release blockbuster franchise movies every few years,” he writes in Why Apple Is like a Movie Studio, “and then try to live off a series of sequels until the next big, successful franchise.”

Some have speculated that Tim Cook this evening might try to brighten what is expected to be a ho-hum March quarter earnings report and disappointing June quarter guidance with some kind of bauble — a new piece of hardware, perhaps, or a big stock buyback.

The latter is possible. The former most unlikely. Quarterly earnings reports are not the venue for a new Apple product release.

Mossberg believes Apple does have new game-changing devices in the pipeline — not just iterations on the old franchises — and he rattles off the usual suspects: A TV, a wearable health monitor, a mobile-payment system.

But he adds that the clock is ticking.

“Sequel time is almost up,” he writes. “It’s time for a new franchise. And it had better be desirable, logical and elegant.”

In a note to clients issued the same day, BCG’s Colin Gillis offered a more sophisticated take on why Apple needs a new franchise.

“While we respect Apple’s choice to continue its focus on the high-end market (where the profits historically have been),” he writes, “Apple has lost its ubiquity.”

He points out that the broader smartphone market grew at 38% in 2013 according to IDC, while iPhones units grew 13.4%. Similarly, iPad unit sales grew 12.9% compared with industry growth of 51.6%.

Gillis is focused on what he calls the service layer, which is where Apple competes with the likes of Google (GOOG), Facebook (FB) and Amazon (AMZN). Although the company probably sold close to 60 million devices last quarter, he sees cracks in the iOS platform:

  • Weak advertising revenue. The company lacks the ability to trade profits in its hardware offering by increasing its ad revenue. One can argue that Apple does not need to do this, but again we mention this leaves Apple as high end play.
  • Media and Music are shifting to subscription streams from digital ownership, in our view. Digital track sales declined 5.7% in 2013 according to Nielsen Soundscan, the first decline since iTunes launched. Apple lags in the subscription streaming space.
  • iBeacons are exciting, but the platform is less effective if the company keeps growing unit sales below market rates. And why shouldn’t Apple sell a $25 credit card reader to extend its payment platform and knock out Square?
  • With the average selling price (ASP) for smartphones dropping to $337, a 13% decline from 2012, Apple is not only likely to lose market share with its current pricing, it may also lose the monetization edge for application developers.
  • Apple could strengthen its services layer by a) acquiring a handful of the top applications every year such as Evernote, and b) consider acquiring content. Acquiring CBS with a market value of $35B, or Time-Warner with a $58B market value could offer some interesting possibilities, particularly if the current TV landscape is disrupted by the Aereo Supreme Court decision expected soon.

I don’t expect any answers this afternoon from Apple, but the issues Gillis raises are good ones to keep in mind if you, like me, are monitoring the earnings call with analysts.

It’s scheduled to start at 5 p.m. EST, 2 p.m. PST and — for me — 11 p.m. Central European Time.

Here’s the link: Listen to the Webcast.

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