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TheStreet Open House

Morici: What Ails Apple? The Simple March of History

NEW YORK ( TheStreet) -- Since October the price of Apple (AAPL - Get Report) shares have fallen from $700 to about $425. No one should be surprised -- the company has been misstepping for a long time.

Without the genius of Steve Jobs for neat, wholly new products, it is going to take tougher managemen, and a change in the company's core business strategy -- something always difficult to accomplish -- to match its past record of profitability.

Apple's remarkable success was premised on being first and better with a succession of new products, dating back to the earliest computers to smartphones and tablets. It was greatly aided by a superior operating system, which provided a more elegant and user friendly experience than rival Microsoft (MSFT) offerings, and the fact Apple both wrote the software and designed it products.

Apple customers amalgamated into an elite cult. Apple products became the choice of a large segment of high-income consumers and more moderate folks whose iPhones were an expression of everyday luxury that the BMW they could not afford did not provide.

Those permitted Apple to be both high-priced and ubiquitous, yielding big margins and its huge cash horde. However, along the way, Apple made mistakes only its market dominance at the high end would permit a firm to tolerate.

It offshored and outsourced too much manufacturing, separating in critical ways product design and manufacturing. That slowed and screened the feedback from the latter to the former, causing troublesome glitches in new products such as iPads that overheat and iPhones with inadequate antennas.

Those are the sorts of issues that are better avoided by keeping the manufacturing of critical components and product assembly under more direct control.

Also, Apple became a high cost producer of computers and handheld devices, and vulnerable to competitors that could offer a comparable consumer experience at a lower price. For years, Apple avoided that fate, because it competed with the likes of Dell (DELL), Honeywell (HON) and IBM (IBM), which were either not much interested in cutting-edge design or whose bureaucracies and other business interests made them less nimble afoot.

Apple led, and other computer manufacturers followed with cheaper mass-appeal products. However, equally important, Apple's competitors depended on operating systems designed by Microsoft, whose numerous problems with antitrust authorities indicate, was more interested in stifling competition within the mass appeal software market than providing elegant and trouble-free customer experiences.

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