Apple's Investment Star Wanes As iPhone Its Only Growth AreaApple's Investment Star Wanes As iPhone Its Only Growth Area

For five straight years, Apple's stock price has performed magnificently as Steve Jobs' company has created a series of brilliant products. But a Wall Street Journal columnist argues that with declining revenue for both iPods and Mac computers, Apple must now pin all its hopes on the iPhone's ability to slug it out in an "industry of mutual assured destruction."Now, all you Apple zealots out there, please don't fire up your blow-torches and flamethrowers just yet, because WSJ columnist Brett Arends couldn't possibly be more respectful toward Jobs and Apple and their extraordinary achievements over the past five years. Rather, his point is that because the stock market has, over that time, rewarded Apple investors so appropriately and aggressively, that further significant appreciation is almost impossible.

On top of that, Arends says, come the slowdowns in two of Apple's three primary businesses: in the second quarter, Apple shipped 7% fewer iPods than it did in the first quarter; it shipped 4% more computers but because of falling prices generated 8% less revenue from those shipments; and, that leaves the iPhone as the company's sole growth business.

And Arends says that while Apple will probably achieve great success in the mobile-phone business, that is an industry where margins are slender and competition is savage:

"Apple stock is now a mobile phone stock. And that's a brutal business. Apple is competing with the likes of Research In Motion's BlackBerry, phones running Google's Android platform, and many others including Nokia, SonyEricsson and even Palm. Sure, Apple may even defeat them all. Few of them are that impressive. The wondrous thing about the iPhone is not how Apple did it, it's why Nokia or SonyEriccson or Palm didn't do it years earlier. But even if the iPhone defeats all takers, what will happen to profit margins? This is an industry of mutual assured destruction."

Arends saves his most-glowing admiration for CEO Jobs, but also notes the potential downside of one person having such a disproportionate impact on a company and its fortunes. Noting that "Steve Jobs can lay a plausible claim to the title of the world's most successful chief executive," Arends lays bare the extraordinary value Jobs brings to the company:

"Mr. Jobs isn't as important as he seems: He is more so. For ten years he has given Apple focus - the one thing that every organization desperately needs, and which very few executives provide. He has targeted Apple like a laser beam on a few brilliantly successful projects. Apple chief operating officer Tim Cook, who has been running the company in Mr. Jobs' absence, may turn out to be as brilliant as his predecessor. But it's highly unlikely."

Arends' excellent column is deeply thought-provoking on two levels: first about Apple itself, as he blends compelling arguments backed by a small but highly relevant number of supporting financial details to insightfully show where the company and its stock price are headed. And second as a broader reminder that no company, no matter how successful, can continue to grow and dominate without relentless innovation, superb new products and services, and a slavish devotion to customers.