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IW 50 Best: Apple's Road to the Top

July 12, 2012
Dramatic growth isn't a new or unexpected phenomenon for Apple. Were it any other year for the company, these numbers might not be big news at all -- with its wild popularity both in the private and enterprise markets, at this point it's almost a given that Apple will break its own records year-after-year. But 2011 was no ordinary year for Apple.

The big surprise in last year's release of IndustryWeek's 50 Best U.S. Manufacturers wasn't that Western Digital Corp. (IW 500/109) took top honors -- the hard-disk manufacturer clearly did everything right in 2010 to vault its way to the top.

No, the real story last year was that the ever-dominating Apple (IW 500/9) somehow didn't.

Under Steve Jobs' deft, and notoriously unorthodox, leadership, he steered the company on a path of pure invention and pure innovation during his second reign, helping the company fundamentally reinvent and define new markets with every release -- something most leaders hope to do once in their careers. With that kind of momentum, second place seemed an anomaly in an otherwise unstoppable success story.

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After 2011's staggering growth and unprecedented sales, however, Apple definitively resolved that smudge on its record and took the crown as this year's best U.S. manufacturer.

Changing of the Guards

Driven by record performance in 2011, the company posted revenue of over $108 billion last year, which helped it secure its place at the top of the IW 50 list.

Dramatic growth isn't a new or unexpected phenomenon for Apple, however. Were it any other year for the company, these numbers might not be big news at all -- with its wild popularity both in the private and enterprise markets, at this point it's almost a given that Apple will break its own records year-after-year.

But 2011 was no ordinary year for Apple.

Last year, of course, Apple lost CEO Steve Jobs, the company's co-founder, savior and iconic leader. Without Jobs' tight grip on the vision and direction of the company, many thought Apple would flounder, drifting rudderless with the loss of such a charismatic chief.

However, Jobs' successor, Tim Cook, former COO and supply chain guru, has proven otherwise, as the performance numbers certainly reflect.

It might seem unlikely that Cook would help usher Apple to the top of a manufacturing list like the IW 50. It was Cook, after all, who pushed the company out of direct manufacturing in favor of contract manufacturers like Foxconn, where unsafe working conditions have put the company in a negative spotlight all year.

It has been Cook's direct handling of these situations, however, that is marking a new era for the company under his leadership.

"I admire Tim Cook because he's paying attention to something that Apple might not have paid attention to as quickly under Steve Jobs," says Apple analyst J. Gerry Purdy of MobileTrax, an IT market research firm. Under Jobs' reign, he says, issues like these were mostly pushed under the carpet.

"They weren't addressed then because they didn't need to be or nobody made an issue out of them," he says. "But Cook is looking at the entire ecosystem. He sees that they are too big, too important for those issues to exist. He wants to make sure all constituencies that touch Apple have a positive experience."

It is this attention to the whole manufacturing environment and issues arising across the supply chain that is already defining him as CEO, says Purdy.

"I think Cook may actually be a better CEO than Jobs from an overall standpoint because he has been able to take on and address these important issues instead of simply focusing on products," he says. "He is a magician on operational efficiency. I think that is what got him into this role and I think that is what will make him great."

"I still think they have a way to go," he added, "but these are some of the issues that have started to signal that Tim Cook is still focused on building insanely great products."

A Year of Improvement

Above all, it is this continued dedication to great products that defines the company and what has taken them to the top of U.S. manufacturing.

"Building really great products will be successful almost in any market if they meet customer needs and get into the emotions and hearts of people," notes Purdy. Apple, he says, is singularly dedicated to building great products that meet evolving customer needs and have a design factor that communicates strong emotional attachment to the buying process.

"As long as they continue to build great products that meet customer needs," he says, "they will continue to dominate that market."

Last year was a perfect example.

For Apple, 2011 was not a year for breakthroughs -- there were no game-changing hardware releases as in years past; the company didn't even fulfill broad expectations of a whole-number release of an updated iPhone. With the exception of a few pieces of software -- the iCloud, most notably -- the total product line offered by the company did not seem altogether different at the end of the year as in 2010.

2011 was a year of improvement, a year of reimagining existing technology in new forms with new features to improve the quality of the users' experience. It was a year of shifting and innovating for new and future growth.

In 2011, meeting these needs meant improvements to two key components of Apple's product line: the iPad 2 and the iPhone 4S.

Profit-Driving Products

Apple launched the iPad 2 in March 2011. This iteration of the original "magical device," as they call it, boasted a thinner and lighter form with faster processing and a few notable software upgrades. The machine was not new in any practical sense, but it had been vastly improved to meet overall market demands.

When the company released its third-quarter report that year, the effect of these improvements was obvious. With 9.25 million iPads sold -- representing a whopping 183% increase over 2010 -- the company posted record quarterly revenue of $28.57 billion and quarterly net profit of $7.31 billion, making it the all-time highest revenue and earnings report for any quarter in the company's history. But not for long.

With a handful of new features -- including a rare beta release of the Siri intelligent assistant -- and fairly significant software additions and improvements, the iPhone 4S release in October shattered those record-setting results all over again.

By the end of the first quarter in January 2012, Apple had sold over 37 million iPhones, representing 128% growth from the year before, which helped it post another record quarterly profit of $13.87 billion.

These releases were instrumental in Apple's climb to the top of the IW 50 list this year, translating into a 26% increase in inventory turnover -- one of the key metrics in the IW 50 rating system. They also give credence to Purdy's theory that as long as Apple continues to build great products that meet customer needs, they will continue to grow under most any circumstances.

The Future

Looking exclusively at the tablet market in the coming year, Purdy maintains that Apple is still very much on the rise.

According to his projections, by 2016 there will be 367 million tablets in the market, while today there are between 60 and 100 million. If Apple simply holds onto its current market share during this growth period, he says, it can double or triple its income just on the iPad in whatever form it takes.

Looking further ahead, he sees Apple potentially stepping out of the improvement business and once again into innovation.

"If there is another multibillion-dollar market, it's probably not another mobile device," he says. "The thing we're waiting on is how is Apple going to play out in the home -- specifically in the home theater market."

Apple, he explains, is uniquely positioned to take on this new market.

"Bringing a TV to market isn't revolutionary. Revolutionary would be integrating Apple's hardware, software and in particular the iCloud services and iTunes content," he says. If they manage that, Cook would have his first claim to world-changing innovation.

With these opportunities before them, one thing is clear, he says: "I don't think we have to worry about Apple hitting a plateau anytime soon."

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