Hacker News Reader

There seem to be many unique things to this year though:

* Apple announces it will no longer report unit sales. This is a clear shift in strategy.

* Orders have been cut not once, but twice.

* Suppliers have been slaughtered in earnings reports.

* Suppliers have cut staff and are trying to control costs.

I agree there is a "cry wolf" element to this, but sometimes the wolf really does show up.

Yes, totally true. Apple did face a relative drop in the iPhone 6s year (2015) because iPhone 6 demand was so insane. It's possible that this year's results will be soft.

Apple went on record as making their next environmental push for longer lived devices, now that they hit the 100% renewable energy goal. Given that goal and the performance boost that iOS 12 brought for older devices, lower unit sales are inevitable.

On the plus side, we might get a break from the annual IS APPLE DELIBERATELY MAKING IOS SLOW SO YOU'LL BUY A NEW PHONE??? stories, so it's a trade-off.

Their plan seems to be making it up on services and pushing app subscriptions over 1-time purchases.

> * Apple announces it will no longer report unit sales. This is a clear shift in strategy.

Yeah, this is interesting. I wonder if higher prices (to increase device ASP) for better devices (breaking the two year upgrade cycle) mean that we have now seen peak iPhone growth. For the first time in years, I have recommended old/used iPhones to multiple people over new phones.

On the other hand, Apple has increasingly emphasized services and complimentary devices in recent years. AirPods, Apple Watch, and Apple Music (to name a few) lock folks into the ecosystem and replace non-Apple alternatives.

https://stratechery.com/2017/apple-at-its-best/

Apple announces it will no longer report unit sales. This is a clear shift in strategy.

I thought that at first, too. Then I read that Apple was an outlier in reporting these figures. I'm OK with Apple not reporting these kinds of numbers if it allows the company to focus on quality of product instead of satiating the salivating stockholders (of which I am one).

Orders have been cut not once, but twice.

We don't actually know this as a fact. It is pure conjecture.

It is what a bunch of so-called supply chain "analysts" say, but they say it all the time, and are almost always wrong.

I wish I could be wrong as often as these Wall Street types and still keep my job.

The only people who whiff more often than Wall Street supply chain analysts are five-year-old softball players.

> I'm OK with Apple not reporting these kinds of numbers if it allows the company to focus on quality of product instead of satiating the salivating stockholders

There's no possibility of any kind that not reporting these numbers will do anything to the quality of the product.

They still are doing all the exact same amount of work to actually gather the numbers, since they internally need to know. They are only skipping the last step of putting that number in the report they give to investors. Nothing changes about how Apple is operating by not reporting that number.

That doesn't automatically mean it was a bad number, either, it could have just been a shift to avoid providing more information than necessary similar to the rest of their industry. But it's not going to do squat for anyone's day job at Apple, either. The people that would actually worry about that number still have that number.

The point is that by not reporting the number, they can let the number slip without pissing off investors. I am not sure how letting that number slip will lead to higher quality though.

Make iPhones last longer or battery replacements cheaper - sales go down, quality goes up.

My speculation is that Apple believes that people are lengthening their purchase interval on new phones not primarily because of cost but because they don't see the value. So, Apple is focusing on higher cost "1st year" phones which provide more differentiation on value to the old phones.

They also may stop just discounting the phones as they become "2nd year" phones, similar to the setup they have with the iPad and iPad Pros.

This both means more profit per phone to account for the decrease in sales due to lengthening time between phone purchases, and a bit more motivation to update to the next sexy 1st year phone rather than the cheaper models due to explicit feature differentiation.

Apple also missed their unit sale numbers virtually every quarter this fiscal year. I don't know why people don't acknowledge that.

Because that is simply not true and you just made this up?

What they does miss sometimes are Wall Street unreachable predictions. But Apple always reach they’re own guidance range for years now.

Which is exactly what I was talking about, and it is 100% true that they missed unit sales virtually every quarter this year. They weren't "unattainable numbers." They had beaten those numbers consistently over the years, but now somehow it's "unattainable." Ok. Despite what you think analysts don't pull these numbers out of thin air. They talk to insiders, they talk to suppliers.

Don't let EPS beats fool you, some of that comes from share buybacks or write-offs. Apple is/was buying $100B in shares back. For every share not in float, that raises EPS. Generally analysts account for this, but if a company has been aggressive one quarter on the buy back desk, they could get it wrong.

Apple is a great company, I don't get why people are so in denial that sales are slowing (that doesn't mean they aren't growing.) It's a natural part of the cycle. Get over it, it's something Microsoft went through too. There always reaches a point of market saturation. No need to fan boy over it.

It's not "their" numbers. Apple never provided unit sale guidance. Why is it their problem if analysts were bad at unit number forecasting? They beat EPS and Revenue projections 4 out of 4 quarters.

> Apple announces it will no longer report unit sales. This is a clear shift in strategy.

It's literally the shift every analyst has been clamoring for - revenue from something other than the iPhone. So while that is slowly happening, all anyone seems to look at is the top line iPhone unit number. A number that has become less and less meaningful over time because of the growing range of iPhone models.

Apple's guidance is always conservative, and their guidance next quarter is 89-93B in revenue. If you're keeping score at home, that would be another record quarter.

I completely agree with the sentiment.

I see this as a strategy from Apple. Unfortunately for their supplier's Apple's strategy to destroy Android seems to be somewhat counterintuitive, it involves selling fewer iPhones. It involves doubling down on premium and having these older phones last far longer. By definition that will mean a bigger used market which Apple seems to be embracing especially with the recent iOS update to actually, for probably the first time, make older phones faster for a change rather than slow them down. I think they have realized that their eco-system is far more valuable and having android owners switch to older iphones which seem to be holding up almost as well as new android devices not only does not cheapen their brand but brings in droves to the eco-system which is the thing with the real value at the end of the day.

May sound far-fetched but every step they have taken lately points to this strategy, dont be surprised when they post more record profits.

I would be really surprised that Apple has any intent to destroy Android as they would quickly fall into antitrust regulations. Those would hit Apple really hard. They are much better off Google having most of the market share and having to deal with those issues

Intent to "destroy Android" is always rephrased in some form like "we want to provide value to customers" and "reach key demographics". I can guarantee you that everyone at Apple (for some convenient definition of "everyone") goes through mandatory training every year on how they should not talk about how they are going to destroy the competition.

That, and all the current big tech players spend equally big money on government lobbying, so absent a smoking gun, I don't think US antitrust action against any of the tech giants is likely in the next 10 years. Microsoft, you might recall, did not have government lobbyists and the lesson that everyone in industry took away was "monopolies are fine, but you'll get in trouble if you don't have any lobbyists".

So Apple's strategy is to make expensive, high-end phones and capture the bottom end with used phones and older generations. You can phrase this as "destroying Android" or you can phrase it as "providing good value to consumers". The strategy can be the same either way, just be careful when you write that email.

If Apple cared about destroying Android, they would simply release an affordable phone.

They have one of the most optimized supply chains in the industry, they have a massive cash war chest to use to subsidize R&D. Apple clearly chooses high margins and profit over "destroying Android".

Why don't they just make a cheaper phone that can compete with cheaper android phones, which make up the majority of phones in the (larger, fastest growing) 3rd world market? And only sell them in those markets so they don't dilute their profits in premium markets? How would they capture any revenue from a "used market?" Force people to sell their used phones through Apple, kind of like what they're doing to customer options to have their devices repaired?

Revenue generated from older devices would be in peripherals and services.

They don’t even need to sell devices to Android users. The diets of people that tend to use hand-me-down iPhones are quite likely to get an Android instead. If iPhones last longer, these people will stay in the iPhone ecosystem longer and there will be more of them.

One word: positioning.

Apple is a luxury product. It is the best. If they started selling not-the-best, it would tarnish their (well-earned, in my opinion) reputation for always making the best.

I use an Android phone and will freely admit that Apple phones are just better. They have better battery life, brighter and larger displays, better manufacturing (no seams, better materials), much better cameras, faster and better-engineered CPUs, a better app ecosystem, and a whole lot of other stuff (better buying experience, better advertising that contributes to the perception of quality, better post-sale support) that combine for a holistic experience of "better" for users.

The way they make money on used is their 30% cut of all app store revenue. You sell any sort of digital goods, whether Candy crush items, digital music, etc., Apple takes ONE THIRD of that. When you consider the size of Apple's installed base of devices, that ends up being a pretty big number.

Also, Google pays Apple a non-trivial amount of money (widely rumored to be hundreds of millions/year) to be the default search engine on iOS. This amount is so large, it's starting to drag down Google's operating margin (read about "traffic acquisition cost" for google). Yet more money from a bigger base of iPhones.

I think that hits the nail in the head.

A lot of people are asking why the got rid of the SE model and I think this is exactly why it doesn't actually help with their positioning.

A lot of people also refuse to acknowledge that SE is meant to stand for "special edition", in which the name itself implies it was an aberration on the product lineup.

The SE only existed because the SE wasn't difficult to design and had a high profit margin. Now the SE is gone because integrating the newer technology like Face ID is harder. Come a smaller camera assembly and reduced part costs, we could have another SE show up.

> Also, Google pays Apple a non-trivial amount of money (widely rumored to be hundreds of millions/year) to be the default search engine on iOS

I thought it was known to be $3B?

I think it's actually more than that, but regardless, it's interesting (and disingenuous) for Apple to market themselves to the public as being so privacy conscious, all while making quite a hefty profit by selling their customers data via GOOGLE search, albeit not directly. It's probably the most bang for the buck and most profitable thing in history. I mean, making $3-9B profit for literally a few minutes of work (a default setting in an existing app) is pretty lucrative. No RnD necessary. They are making a LOT money by selling their users data.

http://fortune.com/2018/09/29/google-apple-safari-search-eng...

That said, I have been an AAPL stock owner and watcher for a few years and have noticed a pattern.

Yup, it's what I told my wife when she asked, "something, something, decreased demand?" and I told her, "welcome to being an AAPL shareholder." We've owned AAPL for, I dunno, fifteen years and in at least the last ten the pattern continually repeats.

That said, there do seem to be convincing arguments this time. Then I go look at the 14.8 P/E, and go back to reading Hacker News.

Did Foxconn plan massive layoffs during the previous 'weak demand' annoucements?

Yes. Not the first time they did this. Just not in this scale.

I haven't been following Apples sales for as long or in much detail, but the last two years those predictions have basically come true, right? The thing saving AAPL is increased unit prices, which seems unlikely to be a good long term strategy.

I guess it depends on the meaning of "saving"? iPhone unit sales have been essentially flat but revenue has been rising because of unit prices and increases in services revenue. Six Colors has a great set of charts to show the trends: https://sixcolors.com/post/2018/11/reminder-apple-financial-...

I'm pretty sure "just keep raising prices" is not Apple's long term strategy. They'll keep releasing a mix of products, and push the high end with more refined features.

AAPL right now is at $172.82, giving it a PE ratio of 14.57. Apple is currently valued way below the S&P 500's PE ratio (21.58), so it's like people expect Apple's forward earnings to tank despite having had 20% revenue growth last quarter and 31% profit growth. It's not clear to me that Apple's future prospects are that bleak.

News articles happen every year, but not the stock price dip