An analysis and prediction of the Cupertino giant.
Low China sales, battery blaming, and high prices. What will happen next to the trillion-dollar giant?
WHAT IS HAPPENING?
For context, a public letter from Apple CEO, Tim Cook, addressed investors on the 3rd of January, 2019. Aptly titled “Letter from Tim Cook to Apple investors”, it aimed to inform and explain to shareholders that the tech-gaint is experiencing decreased revenue – lower than expected – for the first time in at least 15 years.
Specifically, Cook firstly blames the selling time period of the predecessor iPhone X affecting current iPhone Xs and Xs Max sales, citing:
“Our top models, iPhone XS and iPhone XS Max, shipped in Q4’18… whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations.”
A background note: the iPhone X actually released on the 3rd of November, 2017; however, there was limited supply, hence the letter alluding to full availability globally at the beginning of 2018. The CEO also argued that a strong US dollar would create foreign exchange difficulties, ramping up the end-consumer product cost.
Furthermore, the letter explains that ‘an unprecedented number of new products’ from the Cupertino giant put supply constraints during Q1 2019, with sales of the Apple Watch Series 4; new iPad Pro’s; AirPods; and MacBook Air all falling down.
Most importantly, Cook specifically targets two more reasons: economic weakness in emerging markets, and fewer iPhone upgraders. The former states that emerging countries – particularly Greater China – has seen a sharp drop in sales with over 100 percent of year-over-year worldwide revenue decline. It substantiates:
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration… China’s economy began to slow in the second half of 2018… the economic environment in China has been further impacted by rising trade tensions with the United States… the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed…. the contraction in Greater China’s smartphone market has been particularly sharp.”
Cook highlights that a decrease in overall iPhone sales are primarily because of the Chinese market – after all, it is the largest populated country globally. Seemingly, Apple did not anticipate this decline in China as greatly. Why are Chinese consumers turning away from the iPhone? Well, it’ll be explained below.
The CEO believes that other factors including network carriers giving less subsidies, US dollar strength-related price increases, and the discount Apple battery replacement program occurring concurrently also contributed to dropping sales.
AN EXPLANATION
Now, that’s the recap of Cook’s partial letter. In reality, there are several particular reasons why iPhone’s are falling down:
BETTER (CHINESE) PHONES
Put simply, there are a deluge of new smartphones that are at parity – or sometimes superior – to Apple’s iPhone flagships at a significantly lower price. Specifically, emerging tech companies such as Huawei, Oppo and Vivo are dominating the market with fiercely competitive mid-range and premium phones at a cheaper price tag.
What these rebellious Apple rivals all have in common is that they all originate and are produced in Shenzhen, the widely acclaimed tech-capital of China. So, without any tariffs, economic nor export/import fees, these Chinese giants are able to deliver exceptional value smartphones at – most of the times – half the price of an iPhone.
Not even the supposedly ‘budget’ iPhone Xr can relieve Apple’s pain; it’s simply still priced in flagship territory. So it begs the question to Chinese consumers: why choose an iPhone when I can have a similarly spec’d Android smartphone for much, much less? If it’s brand cachet, then the iPhone would be the choice, but for the majority, it is not the pragmatic option.
But, this Chinese tech domination isn’t limited to China itself; these tech companies are branching into the global market, with the same notion of providing a quality, good value smartphone without the eye-souring price. Not only is Apple losing in China, an emerging market, it is also neglected in developed countries.
HIGH PRICES
It’s really a two-way street: Chinese vendors are increasingly selling comparable smartphones at a cheaper cost, while Apple continues to put their infamous ‘Apple tax’ on its products by ramping up the iPhone’s price tag with the latest Xr, Xs and Xs Max. Sure, Cook explains that this is mostly due to a ‘strong dollar’ and less carrier discounts, but there’s arguably some money-grabbing here to an extent.
Looking at China, you can buy the ‘cheapest’ latest iPhone Xr 64GB for ¥6,499 RMB, whereas the more superior specified Huawei Mate 20 Pro 128GB sells at only ¥5,399 RMB. That equates to a whopping ¥1,100 saving, around $160USD or $225AUD (for those Aussies) when converted at the current exchange rate. And don’t forget, the Huawei delivers better hardware and features – face unlocking, a near bezel-less screen with a notch, an iOS-like user interface, and all.
It’s unambiguous: Apple iPhone’s are simply overpriced.
APPLE LOYALTY & SUPPORT
In the letter to shareholders, the CEO stipulated that less customer’s are upgrading their iPhone’s. It’s been well known that Apple themselves give better support to its devices. Most notably, the latest iOS 12 operating system can still be updated on a six-year-old iPhone 5s, providing better performance and new features.
This offsets the end-consumer’s mindset in that they need a physical phone upgrade as their current device is still being supported and updated regularly due to Apple’s customer loyalty. Do note that the company’s loyalty is applauded by me, not condemned – but this is a glaring factor into less iPhone sales nonetheless.
In contrast, Android phones are supported with major software updates for only a paltry two years, with some minor security updates after that – if you’re lucky that is. But what about the more recent iPhone owner’s?
Well, while there are flagship iPhone’s released on an annually basis, the added features aren’t – subjectively – enough to justify a proper upgrade. There’s a smartphone bottleneck where hardware isn’t significantly improving. For example, the latest iPhone Xs only added a larger ‘Max’ model, imperceptibly improved the OLED display, a gold colour, improved performance with a new processor (imperceptible yet again), and made the camera better as the biggest change in contrast to the predecessor iPhone X. Oh, and before I forget, it also jacked-up prices in selected markets.
For most, each new iPhone released just isn’t enough of a proper ‘upgrade’. As a result, some iPhone loyalists are increasingly looking at different alternatives from Android-powered rivals.
BATTERY CONTROVERSY
During the end of 2017, a Reddit user, Geekbench developer John Poole, published his own revelations that his iPhone 6s and iPhone 7 performance was throttled with Apple’s iOS 10.2.1 and 11.2.0 updates. iOS 10.2.1 was released to prevent random shutdown problems that was plaguing iPhone 6 and 6s models in early 2017. However, the developer uncovered that the iOS 11.2.0 update to his iPhone 7 also introduced a similar slow-down method with reduced central processing unit (CPU) power being outputted. In response, other Reddit users found that replacing their batteries actually sped up their older iPhone’s.
This sparked outrage on a global scale; the Cupertino giant eventually conceded that they deliberately limited older iPhone’s performance – for years – to ensure that there aren’t any unexpected shutdowns. Due to lithium-ion batteries degrading in capacity overtime, Apple intentionally limited the processor to prevent even more battery loss. The tech-giant addressed this in an iOS 11.3 update a few months after in 2018 to allow users to check their battery health (in a percentage) and even stop the CPU throttling manually if it is enabled, despite warnings that the battery will age even further and experience random shutdowns.
To add, Apple also started an iPhone battery replacement program, allowing users to restore their smartphone’s performance at a reduced cost from $79USD ($119AUD) to $29USD ($39AUD) throughout the course of 2018 for all iPhone 6 or newer devices.
According to Cook, this hampered sales and revenue of the company due to this controversy and quasi ‘apology’ for not being transparent beforehand. It’s not surprising given this battery discount program was widely used with over 11 million iPhone batteries being replaced, according to Apple insider, John Gruber. He also noted that Cook expected 10 million fewer customers to upgrade their batteries – a significant blindside for Apple. It’s worth noting that Apple continues to throttle performance – even on its 2017 released iPhone 8, 8 Plus, and X smartphones.
WHAT MAY HAPPEN NEXT?
Apple and Cook must heed its Chinese competitors and rethink their iPhone model line up. Meeting the criteria of a flagship-like spec’d iPhone at an affordable price is vital – not some dumbed cheap version, unlike the previous iPhone SE, allowing the fruity company to reach into the hands of more emerging market individuals. A review of its flagship phone prices should be considered, along with bringing new stand-out features worth the money.
Additionally, there should be an overhaul of its iOS operating system for iPhone’s and iPad’s, truly listening to our needs to bring new features such as split-screen multitasking, more customisable home screen, and a revamped user interface.
Will Cook stand down as CEO? Probably not; his leadership is quite stable, not really questioned by shareholders, and isn’t likely that he will leave his eight year role, unless he resigns for personal circumstances.
But, Apple needs to change their state-of-mind or ‘game plan’. In a recent interview with CNBC addressing low sales, Cook teased that there would be new services coming this year in 2019. What kind of service remains to be seen.
THE BOTTOM LINE
Is Apple at breaking point? Well, it is definitely borderline. This result of dropping iPhone sales serves as an epiphany and turning point for the Cupertino tech-giant.
This means that we should see the company deliver better and more affordable products, introduce new services, and listen to consumers more readily. Basically, it’s a good result for us in 2019 and onwards. Without change, Apple will become a niche premium tech brand and will not succeed and prosper in the long-term.
The Connected by Henry Man 