Apple: The next chapter

Tim Cook’s promotion to CEO comes at an interesting time for Apple.

First, the company continues to refocus itself around iOS, its platform for the future. And second, it continues to grow at an amazing pace.

These two factors create an exciting but challenging job for Cook, concerning both Apple’s strategy and its logistics.

For example, now that iOS — the iPhone, iPad, and iPod touch — represent more than two-thirds of Apple’s revenue, and now that the iPad is a bigger business than the Mac, Cook will have to make some strategic decisions:

• How to prioritize Mac OS X development vs. iOS development. (Should Apple have put more resources into iOS 5 this year to get it out sooner, and fewer into OS X Lion?)
• When to start phasing out the non-iOS iPods and what to do with the iPod brand. (Apple is already removing the “iPod” name from iOS, changing the app to “Music”.)
• When — if ever — to merge Mac OS X and iOS and what to do with the Mac product line. (Does the iMac ever get a touchscreen?)
• How to organize the company’s leadership and org structure given the focus on iOS.

These aren’t the sorts of things that necessarily need immediate action. But they are important decisions to get right in the long run.

One of Apple’s great traits is its patience — its ability to develop products slowly and incrementally. But another is its foresight — its movement into markets ahead of its competitors, and its decisions to support or cut loose various technologies. Balancing the two is an art form, and it will be interesting to see how Cook handles some of these moves.

But perhaps Cook’s biggest challenge — and the one that makes his particular experience so valuable, and a major reason he’s the right man for the CEO job — will be to continue scaling Apple as it experiences rapid growth.

The shift toward iOS and cheaper, portable computers — and Apple’s huge success there so far — means creating and selling an ever-increasing number of devices each year. Cook must not only drive exciting product development, but must also continue Apple’s logistics revolution.

Consider the total number of devices Apple must now create and ship per year. This year, including all iPhones, iPods, iPads, and Macs, Apple could end up shipping more than 175 million gadgets — some 50 million more than it did last year, representing roughly 40% growth.

Compare that to a few years ago, when Apple was shipping 50-90 million devices per year, adding capacity at a rate of roughly 10-15 million units per year. Apple must now grow at 3-5 times that unit rate every year. (Now you can see why Apple struggled to ramp up iPad 2 production fast enough earlier this year.)

And next year, Apple is expected to pass 200 million units for the first time, shipping around 215 million devices, or another 40 million more than this year. And so on.

It wouldn’t be insane for Apple to have to ship 500 million units per year by the end of the decade. So Tim Cook will have to figure out how to become the type of company that can ship 500 million gadgets per year — from product design to iCloud server infrastructure to the supply chain to manufacturing and sales.

Meanwhile, one thing that Apple definitely doesn’t want is a reputation for not being able to build enough devices, or ramp manufacturing fast enough. Beyond the lousy image, it could create an opportunity for competitors. So scaling Apple’s production is a huge and important focus for Cook.

(If you’d like to hear more about this, check out this episode of the podcast The Critical Path, featuring Asymco author Horace Dediu. It’s a great show.)

Tim Cook’s transition to CEO has already been smooth and orderly. The company is in great shape and great hands. But it’s not on cruise control.

As Apple enters its next chapter, Cook’s biggest challenges will be scaling production, deciding how to prioritize its existing businesses, and figuring out which new businesses to enter. The next big updates: Apple’s holiday product launch event and its September quarter earnings call, both expected by mid-October.

Related: The only question about Tim Cook: Will he be as good as Steve at saying “no”?