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iFive: Amid the gloom, an innovative beacon Add to ...

Apple rolled out its iconic iPhone five years ago, just as Bear Stearns subprime hedge funds sounded the alarm about a systemic trauma. Financial woes often impede development. But the iPhone is proof that innovation can defy the odds and overcome hard times.

The advance of technology is hard to stop. R&D budgets do get slashed in downturns. The growth rate of patent filings has slowed during the recent crisis. But companies that don’t invest, or that do so poorly, can suffer. Research In Motion and Nokia learned the lesson all too well. Their market values have plummeted more than 90 per cent since mid-2007.

More importantly, desired products – whether new plastics in the 1930s or smartphones now – tend to thrive regardless of the economic climate. About 40 per cent of DuPont’s revenue in 1937 came from products introduced during the Great Depression. Almost 60 per cent of Apple’s sales are now generated by the iPhone. Apple’s focus on high-end customers hasn’t hurt. Even reduced disposable income at a certain level still leaves plenty for a new bauble. But the iPhone offers value for the considerably less affluent, too. It replaces digital cameras, personal organizers, guidebooks, dictionaries, satellite navigation systems and music players. That list isn’t inclusive and is bound to grow.

The contrast with the financial crisis is a stark one. Apple’s market value has increased by about $430-billion (U.S.) since the iPhone was introduced. The device represents a majority of the company’s sales and an even greater proportion of profit, and has contributed greatly to the popularity of the iPad. That makes it safe to ascribe a healthy amount of the gain to the iPhone.

By comparison, Apple’s increased capitalization isn’t far off the $470-billion that was required from the U.S. Treasury’s Troubled Asset Relief Program to bail out Citigroup, AIG, GM and others. Real estate crashes reverse themselves and debt hangovers get worked off. In the meantime, technology marches on and provides fresh stepping stones for the eventual recovery. That makes the iPhone a hopeful reminder for a world stewing in another five-year anniversary that isn’t much worth celebrating.

 

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