Apple's 'halo effect' lives on

Apple’s latest numbers are in and they are a lot better than expected. There are couple of blemishes but overall the ‘House that Steve Jobs built’ is still on relatively stable ground.

Job’s successor Tim Cook has so far delivered on his promise of keeping Apple’s growth trajectory on target and maintaining the company’s so-called "halo effect" without rocking the boat too hard when it comes to product innovation.

Apple’s profit and revenue has topped analysts’ expectations, with the iPhone sales driving the bottom line. It’s a familiar tune with the iPhone making up 47.1 per cent of Apple's revenue this quarter and year-over-year growth is up 17 per cent. This time around there are also some statistics flowing through from the emerging markets, especially China where iPhone sales are up by 28 per cent.

The deal struck with China Mobile last December is starting to deliver some positive numbers. Apple has posted record revenue of $9.8 billion in Greater China, with the iPhone 5c starting to make inroads. According to Cook, overall iPhone sales are up 28 per cent and 62 per cent of those who picked an iPhone in China decided to make the switch from Android.

Given the size of the Chinese market, it’s still early days for Apple but it’s a good start. Combine the growth in China with the positivity in the emerging markets - record sales in BRIC (Brazil, Russia, India, China) markets, strong gains in Vietnam and Indonesia - and you can see why Apple reckons the iPhone can continue to deliver the numbers.

The bottom line for Apple is that as long as it can keep expanding globally and keep those carrier relationships in place the sales of iPhone should keep pace.

This is one of the reasons why the market has decided to give Apple the benefit of the doubt with regard to iPad sales, which really were not up to mark. Tablet sales were well below analyst expectations of 19.2 million units to come in at 16.35 million units.

So is the iPad’s growth starting to stall? Forrester Research analyst JP Gowender attributes the slip-up to a number of factors, namely that replacement rates for tablets are generally lower than expected and Apple’s iPad release cycle hasn’t helped.

According to Gowender, the pace at which people purchase smartphones is quicker than that of iPads. So, even among the Apple faithful the replacement rate is a problem.

“This means that Apple is seeking an ever expanding market -- people without tablets. For later adopters, who didn't see the big deal early on, price matters more than for earlier adopters,” Gowender says in his latest post.

He adds that the lack of the next big iPad product is also having an impact, with incremental improvements in display and form factor not proving to be compelling enough for users to make the switch.

“More innovation commands a higher price, provokes replacement behavior, and upends release cycles,” Gowender says.  And for now we will have to wait and see what Apple has it up its sleeves with regards to the next iterations of the iPad.

For now, Tim Cook’s emphasis on not the raw metrics of unit sale but rather on how deeply enmeshed the iPad is becoming as a computing tool in the enterprise and with the consumer. With Microsoft’s Office now available on iOS, the drop in iPad sales could be a temporary blip in Apple’s device strategy.

But achieving that will require Apple to keep the competition at bay, because just like the smartphone space the tablet segment is also seeing the influx of cheaper Android devices keen to take a bite out of Apple’s share.

Which brings us to the one key theme that tends to dominate all things Apple – what’s going to be next big thing to come out from the Cupertino-based giant?

Apple’s answer is always the same. Expect exciting innovation but just don’t hold your breath waiting for it.

The current innovation narrative for Apple reflects the state of play in the device market. Being first to the market doesn’t matter, it’s getting the product right that makes all the difference. That’s particularly true in Apple case, because it’s the eye to detail that allows it keep its margins up.

Apple will inevitably enter the wearable space (iWatch), jazz up its television offering (Apple TV) into something that  keeps Amazon, Google and the likes of Roku on their toes, and make a splash in the  mobile payments market.

It will because it can’t afford to sit on the sidelines forever, but Tim Cook is evidently in no hurry.