Is Apple in Trouble?
Michael Spencer
A.I. Writer, researcher and curator - full-time Newsletter publication manager.
The Apple reports are in and it's as we expected. Apple reported a 13% drop in its second quarter as sales of iPhones slipped. But this is Apple we are talking about, quarter sales of $50.56bn, down from $58bn last year. What's most remarkable perhaps is its the first fall in sales for the company since 2003, in 13 years!
The real story is how China has shut-out Apple, where sales fell 26%. All in all, it's significant, because Apples shares have fallen close to 20% over the last 12 months. China is interesting since they have also banned recently Apple Online books and movies, otherwise known as iTunes Movies and iBooks Stores services.
Some pundits believe the Apple Watch's first year was a flop, while others say that it actually performed better than iPhone's first year. Siri needs an upgrade, and the gadget needs a major price overhaul. I still believe voice search has a bright future. It's also likely the Apple Watch 2 will be a more independent device.
China will still become Apple's largest market, but how it goes about it will be important.
I can't help but thinking, is Apple just a status symbol? Like a luxury brand, a bubble that has to burst?
Let's not kid ourselves here though, the iPhone is still the most successful technology product in history. So 2016, marks the first time it is in decline. But nothing lasts forever, right? The smartphone boom likely already hit its peak, the market is saturated with devices. It would take a smart Apple car perhaps, which there are some rumors of. Quarterly profits are still $10.5bn, down from 13.5bn. What is the lesson they learned in China?
Apple's App store downloads, Apple Pay and Apple Music have been doing well, however. New Chinese legislation in March 2016, prohibits all content shown to Chinese citizens be from servers on mainland China. This resulted in the shutdown of iBooks and iTunes. It's not clear how that will be resolved.
Apple's run in with the FBI, was comical as it was a very peculiar standoff. Apple's refusing to comply with the government demands likely added a mystique to its brand. But this begs the question, what exactly is the shelf life of a global technology corporation? Are companies like Google, Apple and Facebook destined to influence decades into the future. If Google dominates artificial intelligence, what does that mean for competition? Meanwhile Yahoo and Twitter are in pathetic territory.
I think it's significant that Apple was able to sell twice as many watches as they sold iPhones in its first year. Do we really want to be holding these cluncky devices for the rest of our lives (smartphones)? No, it's not seamless, we'll have ear pieces, and more lightweight wearable devices that will be able to perform more interesting functions that a stupid smartphone game. In five or ten years, the idea of people walking with their head down tapping a screen will seem prehistoric.
While Apple doesn't publicly disclose sales numbers, most analytics estimate that about 12 million Watches were sold in year one. That's certainly not fantastic, but considering their price and limited utility, that's not terrible either. How the Apple Watch evolves will be important. With a poor man's iOS phone on the way, that's looking to be a smart decision.
The Q2 decline wasn't a shock, it was expected. Apple is still one of the most iconoclastic brands of our times. The products speak for themselves, with iPhone commercials nearly as good as FitBit adds. Listening to the Apple CEO Cook, you can't help but feel he's a bit cocky, this is his reply of the weakness in China:
The vast majority of the weakness in the greater China region sits in Hong Kong. We think it's because the HK dollar is pegged to the US dollar, which has driven down tourism and other things there over a year ago.
But in mainland China, we're down 11%, though only down 7% on constant currency basis. Keep in mind that we're down on a comp a year ago on a comp that was up 81%. I think China is not weak as has been talked about. I see it as maybe not giving us the wind at our backs as before but it's a lot more stable than the common view of it
However, the San Bernardino iPhone was hacked. One wonders then, how foolproof these devices are. The reviews of the new MacBook seem to me for the most part underwhelming. The fact that in 2015, Apple grabbed 94% of the world's global smartphone profits is the very definition of a global dominator, but nothing lasts forever. They will actually have to innovate, to keep it up.
What is your relationship with Apple products? Could you live without them?
Global Business Transformation and Project / Programme Manager (contract)
8 年I completely agree that one of Apples problems is a lack of innovation. Of the 'new' products that have come to market recently, what is genuinely new, and not just an upgrade or new variant to the current product line? There is certainly no issue with cash flow, and I think that calling the situation our as a company that is now 'in trouble' is a tad tabloid, but it is a worrying sign that Tim Cook, for all of his über confidence should be seriously mindful of. The huge fear after Steve Jobs passed was that the vision had died also. That innovation would falter. It seem to be that this may be what is starting. I am an Apple fan and own many of their products, but there are only so many products a person needs. I don't need another iphone or iPad. What I want is innovation. What genuinely 'new' product can come from the depths of Cupertino? If there's a case of 'writers block' here, fine - go and buy a company that can offer the much needed fresh air, and move forward from there.
Freelance Web Designer/MS Excel Developer
8 年To the opening question, "Is Apple in Trouble?" Well, on the basis of their recent earnings report, no. A company that generates nearly $51B in revenue and a bit more than $10B in earnings in just a single quarter and is worth more than a half a trillion bucks (over $200B of which is in cash) is not exactly a prime candidate for the "In Trouble" list. That being said, Apple most certainly is facing challenges on a number of fronts: Ridiculous dependence on the iPhone: Apple generated 65% of total revenues from the iPhone alone last quarter (68% in the quarter before that). That is an astonishingly absurd dependence on a single product. Challenging economic environment: The weakening Chinese market is a big problem because this increasingly wealthy, status-obsessed populace is a perfect growth market in which Apple can sell its highly overpriced hardware. The strong U.S. Dollar and mediocre economic performance across the globe didn't help. Inability to build anything interesting: Apple has recently been throwing a lot of spaghetti at the wall in an attempt to get something big to stick so that they can begin to reduce their dependence on the iPhone. Everything they introduced in the last year was, to say the least, lackluster. The Watch massively under-performed Wall Street (and probably Apple's own) expectations. This isn't surprising given how un-Apple like the device is (horribly ugly, clunky OS, very slow apps, unimpressive battery life, no compelling use cases) except for the pricing which was outrageous even by Apple's lofty standards. Sales of the Watch are expected to contract this year. The iPad Pro presumably was a shot at Microsoft's Surface Pro in the enterprise. Apparently someone at Apple thought they could take on a full-blown Windows 10 powered tablet in the enterprise with a gigantic iPad running a mobile OS. Um, no (the iPP was DOA). The iPhone SE was literally Apple phoning it in: A regurgitated iPhone 5S with updated internals. They didn't even pretend to try hard with this one (and, if it succeeds, it'll crush margins). Macbooks? They're thinner. Yep, thinner. Rose gold is an option too. (Insert yawn here.) Lack of innovative thinking: With all the available opportunities to get creative in VR/AR, cloud services, broadband services, in-home concierge services, etc., Apple has instead decided to spend its time working on a homely smartwatch, more iPads than you can shake a stick at, yet another streaming music service, rose gold everything, and, wait for it, possibly a car. (Insert eye roll here.) Apple has plenty of cash on hand to buy some actually innovative companies so perhaps that's what they should be concentrating on now until they can rekindle their own ability to build interesting things once again.
Management Accountant at Altium Capital
8 年Michael, i found a stat that says in 2012 America had an average of 1.6 apple products per household. couldn't find reliable statistic since but I'm terribly curious now, too. it's certainly higher. On the issue of whether apple sucks or rawks, I think smartphones are tools. A person can be skilled in one or both and may need a different one based on what they are doing and who they are. I use both. Funny to hear people say they hate them but never owned one ??
Management Accountant at Altium Capital
8 年This is not clickbait, it is strict business content and 57 people are discussing it appropriately.
Head of Engineering, Core Engineering, Atlassian
8 年Oh FFS. This kind of tabloid click-bait journalism needs to be called out for what it is