Mac Attack: How the iPhone redefined sustainable finance? Investigating the keys to Apple's triumphant rise

On June 7, 2010, Apple founder Steve Jobs unveiled Apple's newest family member: the iPhone 4. Part phone, part phenom, the predictable set of features, which includes a slimmer handset, sharper picture quality, and on-board video chat, left some fans struggling to stay attuned. As investors, should we be concerned about the lack of hype regarding the iPhone's introduction? Has Apple's market capitalization peaked? More importantly, has Apple taken enough steps to insulate itself from the growing cast of rivals (such as Google) anxious to break apart is market? Thankfully, the initial answers to these questions are very promising. Apple has embraced simplicity, listened to its customers, and remained focused, all while investing in products that have been shown to provide substantial financial returns. These moves have enabled Apple to minimize financial risk, maximize market capitalization, and develop a sustainable financial model that should be attractive in the short term to even the most cautious investor.

In the last year, Apple has been a hungry competitor, gobbling up market capitalization as its stock rose over 20 percent. Recently, Apple overtook Microsoft Corp to become the world's most valuable technology company. In the last quarter, Apple sold a record 8.75 million iPhones. This product accounted for 40 percent of its revenue. With margins estimated at 60 percent, the iPhone continues to be Apple's primary growth driver, helping drive profit margins to a record 41.7 percent in the most recent quarter. Yet, while the iPhone succeeds, it is the success of the other products around the iPhone which contribute to Apple's reputation as a sustainable financial brand. The iPad for example, which went on sale in early April, has sold over 2 million units, and continues to be in high demand. The iPad presently supports over 200,000 iPhone apps as well as 8,500 native apps. Importantly, for any doubters wondering whether iPad's iBookstore could compete with Amazon.com's Kindle, initial reports indicate that Apple's iBookstore has taken a 22% share of the e-books market in just two months. This is startling, considering that recent improvements to iBooks, the iPad's e-reader application, which include added control to the bookmark page, ability to view and read PDF files and the ability to make notes, will further increase Apple's share in this sector.

Despite this, questions continue to surface regarding Apple's financial sustainability, financial risk, and market capitalization potential. Over the past decade, Microsoft, a key competitor has acquired nearly 10 times as many companies as Apple, making 104 acquisitions compared with Apple's 11. Furthermore, Microsoft has spent nearly $71 billion on research and development, compared to Apple's $8 billion. For many investors, this disparity in R&D investment continues to raise questions. Has Apple under invested in itself? Will Microsoft's significant investments enable the company to outpace Apple in the near future? While it does seem plausible to expect that the correlation between R&D investment and market success should exist, tragically, this has not been the case. Over the last 3 years, Microsoft has found itself carrying more financial risk, and a large, yet slow growing market capitalization. Why has this happened? Well, for one, Apple has gained share due to their unrelenting commitment to customer needs. This commitment, and refusal to let market noise become a distraction, continues to pay significant dividends for the Apple. History has shown us that when organizations focus on user needs, financial risk is usually minimized and long term returns on investment are typically higher. In Apple's case, its wealth has come from ignoring the temptation to dabble in expensive merger and acquisition markets; instead, focusing on finding ways to identifying and satisfy unmet customer needs.

Additionally, Apple has worked hard to lure consumers with intuitive, easy-to-use products that naturally integrate into every aspect of their home and work life. They have refused to add excessive features to products. Instead, Apple has embraced simplicity, tailoring products to customers preferences. Finally, Apple's management has resisted (at least to this point), getting caught up in the hubris and arrogance that a top market capitalization position brings. They continue to take advantage of available technologies, packaging them in new, innovate ways that customers love. This unwavering resolve has carried Apple to a market cap of $223 billion, $4 billion higher than Microsoft's current market cap.

In looking toward the future, Apple's success is likely to continue as long as they remain committed to the values that brought them here. Competition within their products categories is set to increase, and customer feedback is critical in ensuring Apple makes the decisions that minimize their financial risk and maximize success. On the immediate horizon, one of the biggest threats appears to be Google's Android, an open source architecture that is currently being used by Motorola, HTC, Samsung, and Dell. Furthermore, Apple has consciously created barriers for itself which may disrupt future growth. For example, the iPhone and iPad cannot currently display Adobe Flash, a technology used on a large number of websites. This strategic move has increased adoption of Apple's own applications, yet frustrated many users who want to remain embedded in the mainstream while dabbling in Apple's hip product communities. Finally, to remain sustainable and minimize financial risk, Apple must remain focused. Steve Jobs has shown an acute understanding of the trade-offs present in today's business, and proved that he understands the basic reality that one company or brand cannot be everything to every customer. Mr. Jobs and his management team must remain committed to this mantra, staying focused on activities and investments that maximize return and maintain market capitalization. If Apple can continue to improve while staying focused, they will succeed in a technology market increasingly filled with questions, rather than answers.