A fistful of dollars/for a few barrels more
Everyone wants a strong dollar, right? In the U.S., politicians will pay lip service to the notion of a strong dollar – i.e., in their minds, a dollar that trades more evenly against the other major world currencies (sterling, euro, yen) – because A) it sounds good; B) it feels good for American travelers who travel to Europe and Japan and realize that their greenbacks go pretty far.
When I visited Italy in 2008, I remember that the USD-EUR exchange rate was unfavorable to me (I’m American) and accordingly I felt the pinch of 50 EUR cab rides and 14 EUR gelato cones in Florence. At the same time, I remember fuel being expensive that entire year, with it peaking at near $150 per barrel that summer when Russia invaded Georgia.
That all feels like a 1000 years ago now. The dollar has strengthened mightily against the euro and oil trading for less than one-third of what it did the summer before Barack Obama was first elected. King Abdullah bin Abdulaziz al Saud of Saudi Arabia, whom George W. Bush begged that same year to increase oil production as energy costs skyrocketed in the run-up to the Lehman collapse, is dead. Bush himself is reduced to speaking at events in the Cayman Islands, an unmentionable even among his own party. Russia, though still ruled with vim by Vladimir Putin, is in economic and diplomatic free-fall.
But the strong dollar isn’t everyone’s friend. For starters, it is burden on corporations that sell goods around the world. Tech analyst Ben Thompson recently framed the problem in stunning terms, in ridiculing the widespread perception that Apple is always on the verge of catastrophe:
“It’s difficult to overstate just how absurd this is, but here’s my best attempt: last quarter Apple’s revenue was downright decimated by the strengthening U.S. dollar; currency fluctuations reduced Apple’s revenue by 5% — a cool $3.73 billion dollars. That, though, is more than Google made in profit last quarter ($2.83 billion). Apple lost more money to currency fluctuations than Google makes in a quarter. And yet it’s Google that is feared, and Apple that is feared for.”
I have been trying to wrap my head around this all day. All those seemingly minor variations in currency trading, piled up over and entire quarter at the scale of Apple’s business, ended up taking a cut out of Apple larger than Google’s entire quarterly profit – and Apple still managed the best quarter of all time, with $18 billion in profit.
Apple’s turnaround over the past 18 years is probably the greatest business story of all time. if you look at a chart of all the biggest quarterly results in history, it’s dominated by oil companies (Gazprom, Royal Dutch Shell, etc.) and Apple and no one else. It’s a neat coincidence that Apple keeps outdoing itself at a time when oil – seemingly its only competitor in terms of product profitability – is taking a nosedive.
Growing up in the 1990s, this is all so surreal. For a kid growing up in rural America, at the peak of Windows (I had just turned 9 when Windows 95 was released) era, when every class at school was built largely around writing things in MS Works/Word and saving it to a floppy, Apple was nowhere to be seen. I remember reading about Macs when playing some Sierra On-Line games that were built for both PC and Mac, but I never even used one until 1999, in a school in Gallipolis, Ohio. Apple was on the margins.
Not anymore. To quote almost any stat about Apple anymore is to send the mind fruitlessly in search of anything else like it. The company’s iPhone business alone – just the iPhone, without even taking the iPad, Mac, iPod and iTunes into account – brought in more revenue than Google and Microsoft combined in the most recent quarter. Each quarter, it makes more profit than Amazon has ever made. It has enough cash to buy IBM outright at IBM’s current market cap – and still have tens of billions left over.
Paradoxically, the vast complexities of Apple’s supply chains as well as the efficiency of its manufacturing and marketing processes have ensured that simplicity wins out. The iPhone and its brethren feel natural and easy to use (despite mounting software issues, which is a topic for another conversation), reinforcing what I have always thought: that one significant part of the success of iOS in particular is that it eliminates the paradox of choice that is so paralyzing with Android or almost any other computing platform. It’s a good design, like John Gruber recently noted:
“Who knows how long Apple’s ride at the top will last, but this is a moment worth savoring. A toast to the value of good design.”