A tribute to the classic iPod, which changed Apple’s fortunes forever
Almost 13 years after its introduction, Apple quietly retired the iPod classic yesterday by removing it from its iPod website and online store.
The iPod isn’t nearly the seller it once was—especially the non-touch-screen, spinning-disk-based iPod classic—so Apple’s timing is probably right. (The company is still selling the iPod touch, nano, and shuffle.)
But it’s worth recalling just how important this device was to Apple.
The iPod was Apple’s first consumer mega-hit. While Steve Jobs was already successfully rebuilding the Mac business by the time the iPod launched in 2001, the iPod catapulted Apple into becoming a massive consumer electronics company. Through this June, Apple has sold almost 400 million iPods. Sales peaked in the fourth quarter of 2008, when Apple sold 22.7 million iPods. Last quarter, it sold just 2.9 million.
The iPod led Apple’s resurgence, which was arguably the greatest comeback in business history. By today’s standards, its launch—125,000 units sold in two months—was small. But the iPod quickly became Apple’s growth driver. In the fourth quarter of 2005, it represented half of Apple’s overall revenue.
The iPod made the iPhone possible, which made Apple the biggest tech company in the world. There’s no way that Apple would have been able to create the iPhone if it hadn’t learned everything it did from the iPod—good and bad. And teaching millions of people to sync a device to iTunes surely helped, too.
The iPod’s iconic white earbuds were Apple’s first mainstream wearable devices. It’s fitting that Apple silently retired the iPod classic the same day it made a giant noise unveiling its new wearable gadget,the Apple Watch (which also features a spinning-wheel interface to control things on its screen).
Lastly, the iPod perfectly illustrates the formula that has made Apple successful over and over. The iPod was not the first MP3 player on the market. But it was the first that integrated great industrial design with functional, custom software. Its pitch—“1000 songs in your pocket”—was truly compelling. Combined with fun marketing and annual improvements to the product, Apple built a lasting hit. And it has used this pattern several times since.
Read this next: The Apple Watch’s future depends on how it inspires app developers
China seems doomed to repeat the mistakes that hobbled Japan’s economy for a decade
Though separated by a span of two or three decades, the similarities between Japan’s growth model and China’s are striking. As we recentlydiscussed in longform, present-day China shares with the Japan of the late 1980s a reliance on investment-driven growth, financial repression, cheap money, an enormous housing bubble, to name just a few similarities.
The question is, will the consequences be the same too? Will China be able to avoid the decade-plus of low growth that resulted from the excess of Japan’s model? It’s certainly possible, argue David Cui and Naoki Kamiyama, equity strategists at Bank of America/Merrill Lynch, in a note today. It comes down, they say, comes down to whether or when China recapitalizes its banks.
After Japan’s housing market began crashing in late 1989, Japanese businesses struggled to make money while paying down enormous debts on assets that were no longer worth very much. The result was a surge in bad loans, or in banking parlance, “non-performing loans” (NPLs). Unaware of—or unwilling to recognize—the volume of bad loans, the Japanese government for a decade failed to inject banks with the money that would let them write down the never-to-be-repaid loans without going broke.
While it dithered, the Japanese government fed “zombies,” keeping unprofitable companies afloat with new loans while making it impossible for new companies to compete. Its hesitation was costly; between 1992 and 2000, Japan implemented seven stimulus packages and one revitalization plan, totaling ¥110.8 trillion ($1.1 trillion in 2000 dollars). Japan’s GDP averaged 0.8% growth during that time.
Things only turned around, say Cui and Kamiyama, in 2002, when the Japanese government accepted that bad loans could affect the whole economy—not just the banking sector—and recapitalized banks.
China may be on the cusp of an even sharper asset-prices slump than it’s already seen, they argue, noting that there “are strong signs that both the property inflation and debt increases are buckling under pressure.” Though Chinese banks wrote down more bad debt in H1 2014 than in all of 2013, the official NPL percentage is still tiny.
But while it’s hard to know how many bad loans are in China’s financial system, Cui and Kamiyama think the volume will be much higher than Japan or post-2007 America had to face. The last time China had a big banking bailout—in the late 1990s, as state-owned banks prepared for public listings—two-fifths of loans were bad—and that was without a property bubble.
Even if China’s bad-debt ratio is only the 8% that Japan’s banks experienced, the sooner the government bails out the banks, the better, argue Cui and Kamiyama. The problem is that recognizing bad debt will hobble growth for a time—an unappealing choice for a new administration that’s been busy consolidating power. If that is what’s delayed Xi Jinping from fixing China’s debt woes, say the strategists, a bailout will probably have to wait until after the “political dust settles”—perhaps a year or two. And the longer China’s leaders delay, the bigger the bad-debt pile gets.
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