Letter from Tim Cook to Apple Investors
apple.com
apple.com
Very interesting that Apple included this as someone who took advantage of a $29 battery replacement for my 6S just last month. The chain of decisions that took place for this to happen should be a lesson for more companies.
I imagine it went something like this:
- Feedback that iPhones were shutting down unexpectedly due to degraded and/or defective batteries.
- Instead of shouldering the battery replacement immediately, the product team decides to change the performance envelope of the phone.
- The root issue is not addressed.
- Betterygate™ inevitably happens.
- Apple heavily subsidizes battery replacements for everyone
- Some people decide that they'll stick with their phone a bit longer than they otherwise would have, reducing iPhone sales.
- Apple misses their earnings target, likely costing them more in value than it would have cost them to address the root issue in the first place.
Of course there are other factors addressed in the letter, but this issue was notable enough to be included.
>- Apple heavily subsidizes battery replacements for everyone
> - Some people decide that they'll stick with their phone a bit longer than they otherwise would have, reducing iPhone sales.
> - Apple misses their earnings target
This is a gross misrepresentation of the report which clearly states "Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline."
Battery replacements may have been notable, but it is incorrect to imply that they were the dominant factor.
OP is attempting to place causation on the battery problem for the earnings miss or the valuation loss.
That is not supported by the evidence, which clearly shows that the primary cause had nothing to do with the Western market at all.
It's fair criticism, OP is discussing 5% of the problem and presenting it as if it's 100%.
I think he forgets to mention lack of innovation. It was the first year that I wasn't surprised from the new iPhone at all and none of my friends did. At this point I don't see much difference in having an X model vs XS.
You'll tell me that they had S models in the past and worked fine for them, sure... its not the same market anymore. There are very strong competitors using android which has also evolved and its doing really well as an OS vs what it was in the past at way cheaper prices.
At the price tag those iPhones are coming at plus the lack of innovation, I only see a constant drop in sales.
Personally I upgraded from an iPhone 7 to XS Max, my wife has an iPhone X and I don't see any difference between them, only the size. That plus the fact that I got my hands on some new android phones and got to use them made me think that I might change to android when my next upgrade is due. The apple ecosystem seems to be okish but I can't really say that it will keep me from changing. And truth be told there are quite a few solutions out there for them to become innovative again like the new ipad pro... have it use OS instead of iOS, that will definitely make people switch over to that and what comes with its ecosystem e.g pairing your mobile phone etc. Also airpods 2, just make some airpods with water resistance etc maybe improve connectivity a bit. Its not like we are requesting crazy innovation here, just simple solutions that will make us stick with the apple ecosystem.
Disclaimer: I was an avid windows user and android phone user up till iphone 5s came out, I switched to 5s and the difference on iOS quality vs Android was massive. Due to work I also started working with a mac and so I joined the ecosystem and I can't say am very displeased apart from the price tag, but seeing how Android has progressed over the years and how stock Android can be even superior to iOS has made me thinking of changing back.
Which competitors are innovating better than Apple?
With AirPods, they mentioned yesterday that they were supply constrained throughout the holiday quarter. I'm not sure innovation on that product is an issue here if they can't keep the current version stocked enough to meet demand anyways.
https://theweek.com/speedreads/815565/data-reportedly-signal...
It would seem that this issue is far broader than simply Apple's strategy alone.
What phone you've got matters little as a result. So Apple doesn't enjoy its usual iOS-stickiness factor.
The root issue is that batteries degrade over time, for everyone, not just apple. iPhone’s did a good job hiding that away by degrading performance along with it.
The same thing still happens with new phones, but now apple just tells you when it happens. My X crashed in the cold and it said something like “your battery couldn’t provide peak power and your phone is now in degraded performance mode. Disable this setting in the settings app.”
I don't see this as any different than the thousands of other OS management decisions like how to manage memory of new tabs or apps when you have a dozen open. What if you want to keep the memory/bandwidth etc... going for one app and not the others? Where's the consent there? Same idea IMO
Your user experience will always degrade with battery age. This is an unavoidable consequence of using a rechargeable battery. It is physically impossible to run a Li-ion battery through hundreds of charge cycles and have it work just as well as it did the day it was new.
Without power management, the phone would turn off sooner, in some cases a lot sooner. That is also a bad user experience, especially if you need the phone to make an emergency call. This is one example of why using software code to prolong phone availability creates a better user experience, even if comes at the expense of peak performance.
As you state it is an issue of consent to this throttling, if it was communicated effectively this wouldn’t have been a ‘Gate’.
A good way described in a podcast (think it was Rene Ritchie on the talk show) would be to let the phone crash then pop up a message with an explanation of what’s happened, that the phone is now dialled down to prevent future crashes, you can turn it off in settings etc..
What a copout. There is no good reason. Your phone already does a 1000 things that you don't know about. Do you also want access to how many cores are used, which ones, what speed they are running at, which frequency your phone is using, how the GPS is getting its location, etc...
Batteries do not all degrade alike; not even close. There are huge differences in the rate of decay, and those are significantly impacted by the way the battery is used in the device (particularly maximum charging level, temperature, discharging level, power draw, charging rate) and the quality of the battery.
Apple did NOT do a good job of degrading performance along with it; because if they had, they could have degraded performance before the battery became damaged. As a ballpark, I'd expect a life extension for the iphones in question by at least a factor 10 would be technically fairly simple and affordable; i.e. this isn't peanuts that apple left on the table here. A 10 year life expectancy is totally doable.
So a battery as old as the decaying iPhone batteries need not have decayed significantly, as should be obvious considering that not all phones (let alone other Li-On battery devices!) degrade to this extent. The fact that iPhones did decay like this is almost entirely due to choices that Apple made (even if they made those choices without considering the consequences). Apple is pretty competent, so I'm a little skeptical they didn't know they were pushing the edge of what's reasonable, but sure, maybe it was incompetence rather than intentional penny-pinching or planned obsolescence.
User choices can matter too, but given how locked down these devices are and how managed the environment and how technically nuanced the necessary user actions are to have an ameliorating effect it's unreasonable to assume users had any practical ability to avoid this outcome.
Apple is good about doing things so the user doesn’t have to think about it. The media just ran with that shit and made it out to be way worse than it was.
There's a fine line between that approach and the approach of actively disregarding the user's need to control their own device. Apple too often falls on the latter side of the line, and "Batterygate" was a prime example. I certainly appreciate it when I don't have to think about something, but when I eventually do have to think about it, I need to be able to do something about it.
I do give them some credit for fixing the issue by making the phone work the way it should have all along.
I'd have preferred to prevent the CPU throttle by replacing battery within the phone warranty period than having to know it(cpu throttling) afterwards, when my phone was already out of warranty.
Apple sacrificed battery capacity for size and weight. They built several generations of phone that had just barely enough capacity for a full day of use and could just barely deliver enough current for peak performance. Unlike their Android rivals, they failed to over-provision the battery to account for degradation over time.
The Xiaomi Mi 6 had a 3300mAh battery. The Samsung Galaxy S8 had a 3000mAh battery. The Huawei Mate 9 had a 4000mAh battery. The iPhone 8 has an 1800mAh battery. See the problem?
What? No.
First of all, battery degradation is a design parameter. You can easily verify from apple own pages that iPads are rated for twice the charging cycles of iPhones. Apple intentionally included a low rated battery to limit the product life.
> iPhone’s did a good job hiding that away by degrading performance along with it.
And no.
Apple did an awful job, lets not forget the phone where crashing before apple introduced massive throttling killing the device performances. Neither of which sounds like a "good job".
Here's what a good job would have looked like (since apple sells top of the line devices at peak pricing): from the processor minimum voltage and battery degradation metrics figure out a voltage margin that would satisfy the processor constraints after one or even better two years of degradation.
Or, second best, start of with a throttled processor to begin with, but that would have ruined marketing precious "x times faster than previous generation", so they decided to do the shady thing: selling something as fast and killing it's performance six month after purchase.
And of all this what amuse me most is people defending it.
The iPhone 6 became practically unusable due to throttling. They were not hiding the issue effectively. But they didn't tell people that the issue was the battery. Affected users complained on forums, and tried all kinds of things like factory resets and uninstalling certain apps but couldn't find out why there phone was unusably slow. And Apple support didn't help either. They just suggested to install the latest update.
Only after Batterygate became public did people find out that they needed to swap the battery to fix their phone. I bet a lot of people threw away their phones becUse they didn't know. (why bother replacing the battery when your phone has become unusably slow?)
I absolutely agree, Apple should have alerted the user when the throttling was enabled (and given the user a choice) from the day this feature was implemented.
However, I actually prefer my phone being slower and usable rather than fast but randomly shutting down. But somehow this does not seem the general consensus?
Temperature also effects the performance of the battery so if you're out in the snow it could handle less than being indoors in the heat.
That's why the CPU throttling worked. It kept the CPU from pulling too much power in one instant, and then the battery lasted fine all they way down to 1%
Similar story on the Mac side.
Current phone lineup (not just Apple) sucks IMO. An untouched SE with latest radio and faster CPU would be worth the upgrade for me.
Even if they nailed the form factor, how many people are really willing to switch? You see some people swearing off a brand (on the internet, anyway) when something egregious happens but there's definitely inertia that keeps most people firmly in one ecosystem or the other.
Does Apple report enough data for us to attempt to make correlations between average height (as a proxy for hand size) per country and purchasing decisions?
—more attractive screen
—faster
—much better camera, which is not a big thing for me, but always nice to have
—size in pocket is fine, but the size is annoying for on-screen reachability
—FaceID is better than TouchID in two particular ways: in-app authentications and unlocking the phone with wet fingers (which is common because of my work)
—the swipe down for Control Center is far less convenient on the XS because there's a much smaller target area for beginning the gesture
—the XS can't by default show the battery percentage, and for long-term device life I preserve my battery (I always run in low-power mode, even), so this is information I like visible at a glance
There's no doubt the XS is a more capable device than the 6S, but for how I use a smartphone the gains are not particularly beneficial. Maybe after I add the second phone line to increase the telecommunications divide between myself and my business I'll appreciate the XS more, but for now I am regularly reminded how much I enjoy the 6S when I pick it up to use it as an iPod.
However, when my MBP literally caught fire in my bed while I was asleep and melted the keyboard, apple refused to fix it as the warranty was two weeks out and they claimed that the "liquid sensors had been triggered at some point in the past - and while apple recognizes that the machine catching fire was a safety issue - they didnt find reason to justify fixing the machine. You can purchase a new MBP for $1,299 - or we can replace all the guts of your machine for $1,500"
Bullshit.
So this means that 12 months ago I bought a 32GB SE for 100 pounds, sold my 16GB model for 95 pounds (SE prices seem to bottom out around there) and got a brand new model a year later for free. At an overall cost of five pounds I've gotten a phone (well, two phones) that's hopefully gonna last me a total of 3 years. Beyond the inconvenience of catering for a 320px wide phone in the app store, it's not hard to see why Apple felt the need to kill it.
No manufacturer gives free battery replacements to 3 year old, out of warranty phones.
And even if they did the issue would still be wide spread because most people wouldn't necessarily come in to have it replaced.
If you had brought your phone in to an Apple Store during that first year I'm sure they would have replaced it for you under warranty.
Repair shops have simply been victims of Apple's aggressive approach to security.
Furthermore, the root issue could have been addressed not just by offering free replacements (They weren't), instead of slowing down phones and having customers believe their devices were obsolete much earlier than anticipated, they could have been transparent about the issue like they are now.
Instead, I ended up with 1 free battery replacement, and 1 heavily subsidized replacement, which certainly factored into my delayed upgrade cycle. Apple experienced this enough to warn their investors about it in this letter.
The point I am making is that NO manufacturer replaces naturally degraded batteries for free. Defective sure. And not just phone manufacturers but I haven't heard of any manufacturer doing that. Batteries are a consumable item.
I do agree however that Apple should have been upfront about their measures they were taking to mitigate battery degradation.
They explicitly write about a sharp turndown in China.
The guidances drops from 89-93 to 84 (about 8%). From what they are writing that all can be accounted for by the drop of revenue in China. Since China accounts for around 1/5 of Apple's revenue - the drop must have been around 40%-50%.
Which is a lot for a single quarter.
Also notice the reaction in the forex market. That certainly indicates that this is a broader issue.
In the bigger picture Trump has decided that a trade war with China is a good idea, so of course there are going to be unpleasant consequences.
Cook's reign has been rather miserly - pay more for less. It's been an effective short-term strategy for investor returns, but it hasn't created a solid foundation for future expansion, and has also given users very little to be proud of.
Where does Apple want to be five years from now? iPhone XIIIS? MacBook Hydrogen? Mac Pro Gold Professional Edition? There's only so far you can push that boat before the lustre fades.
Apple market share can still grow in established markets (what percentage of laptops are macs, what percentage of phones are ios).
Emerging markets; China, India, Africa can still grow for Apple.
And then of course they can innovate; find new product categories, services ...
There is also a massive slowdown of the Chinese economy that doesn't seem to have anything to do with the trade war.
https://theweek.com/speedreads/815565/data-reportedly-signal...
You could get the exact same Apple Battery from China for about $7 including shipping. I would bet Apple have them for less than $5. Even at a reduced cost of $29, there is still $25 margin for Apple. Even if you subtract the operational cost involves, I doubt Apple ever subsidizes.
Also, a $7 battery from China is a gamble especially for something heavily used and physically next to your body a lot of the time. I'm sure you'd get a battery that had the same physical size and stated spec, but I'd be skeptical it'd have gone through the same QC. You could get one from a bum batch, or a relabeled one operating out of spec. You just don't know.
Not to mention Apple outsource a lot of these Battery replacement programme to Registered Third Parties.
A better Spec battery cost less than $7 from LG Chem. BOM cost on battery are not expensive at all, and it is not a secret.
I think the lesson should be to have your battery replacement prices be reasonable to start with and avoid inflating the market for your devices artificially.
It’s extremely obvious they weren’t ready for this quantity of repairs.
I'd rather use an external battery pack than change from my 6S.
iPhone 5c was a cheap and performant phone with a good ecosystem.
Apple made everything worse through updates, bloat, and price increases.
My phone became so impossibly slow that I bought the cheapest but also nicest walmart phone I could on a whim (LG Zone4).
It's been so amazingly performant for just $100 that I would never, ever consider buying an expensive phone again, ESPECIALLY not one from Apple!!
And that's not because of the battery, that's just because of the software updates. Like, the CPU didn't lose any MHz along the way.
If Android doesn't follow the same path then I will be good-- if they do, then onto the next idea!
And phones are not like cars, even in the post Moore’s Law world, silicone improves quite a bit.
Now someone at Apple thought instead of shutting the phone why not slow it down so that user can still make that urgent call. That's brilliant and all phones should emulate it. Apple's bad is the did it silently so user didn't know it was a battery problem, the blamed os updates, hardware, weather but not the battery, because degraded batteries never slowed down any phone including iPhone till now. So instead of getting battery replaced they bought a new phone which as a 'side-effect' was beneficial for Apple.
Now once people figured it out they were outraged, so as a PR measure Apple gave discounted battery replacement and once people did that phone was good enough again so delayed new phone purchase. Now as karma striking, all this news and discounted battery may have nudged users who otherwise chuck their phone every two years to get the battery replaced and the fact new device is costing 1000 fucking usd, some delayed for another year.
Except, no, it doesn't.
Unethical LPT: Always buy the extended 'protection plan' since this problem happens so reliably around the two year mark. Call complaining that your phone crashes when it's low on battery and get a new phone for like $100. Cheapest way to get 4-5 years out of a single phone purchase.
And since it's been two years since you bought the device they'll almost always give you a better phone as a replacement.
Because Apple shouldn’t offer something they don’t want people to use that phrase being very poorly chosen.
My wife's brother has a 6S Plus. My mother has 7. They work amazingly well and fast. To them X / XS / XS Max are basically "spend 1300 EUR to get a bezel-less phone and nothing else"... and in a way, they are correct. Many people don't care about FaceID or OLED screens.
Smartphone market is nearly saturated. It's time for more realistic pricing. And I am saying this is a loyal Apple user.
I don’t care about new features such as Face ID. I do look with envy at the X camera though.
My next phone might be another 7 unless Apple drastically cuts prices or introduces an iPhone 9 with the X camera.
There is no justification for adding 50-100% to the monthly cost of a smartphone in 2019 when it’s the first time I don’t really need a faster phone!
Apple obviously realize that if they had a reasonably priced phone it would eat all their XR/XS sales, but the product strategy just looks like it risks losing customers to Huawei/Samsung.
Just before Christmas I bought an iPhone 6S for $99 from AT&T. That’s a very realistic price for a very nice phone!
Fine print: I had to pay $145 plus tax but $45 is credited to me for monthly charges. The phone is locked to AT&T for 3 months. After Christmas the price has gone back to $199.
But I could have been clearer: I meant the newest models.
The OLED screen is arguably a downgrade because it uses flickering PWM brightness control.
Is this intrinsic to oled, or will future versions be able to avoid this?
I know people who can easily buy 10x iPhones for their entire family and part of their relatives -- and they refuse. These are people who can spend $50k and almost wouldn't notice and even they think the modern iPhones have taken the price too far.
They did address this.
I chose an official Google phone because I wanted to be sure that I could get security updates and run the latest version of the OS. But it didn't take long before the phone's UI performance became extremely noticeable. Simple stuff like triggering the back action or switching between apps would take multiple seconds. Chrome sometimes took up to 20 seconds to load. I can't help but think that Android made some fundamentally bad decisions in their software stack given just how bad the experience can be. And 13 months into my Android phone experience, the phone started boot looping and basically turned into a brick. Called Google, who ducked out of any responsibility because their warranty only covered the first 12 months, despite the fact that they've known about this issue for more than 2 years and kept selling the phone anyways. Compare that to the way that Apple responded to batterygate and you can see the difference in customer service between them and Google is night and day.
Maybe it's just me, but I've also talked to others that have gone to Android and found only a world of hurt. With Apple making iPhone battery replacement very affordable, you'll get a far smoother experience sticking with an outdated iPhone models than you'll get with top-of-the-line Android phones. I hope for your sake that you have a more positive experience with Android than I did. But less than 18 months later and I'm back using an iPhone 8 and have no plans to ever consider Android again.
Well, that's when I found out how locked into the mac ecosystem I was. It was very painful to switch back to windows. Even my keyboard shortcut muscle memory was difficult to overcome.
The only exception is the Podcasts app. I hate that app with a burning passion.
I’m more interested in using the best product for what I want to do. While that is sure to be subjective it feels like Apple is the best to me.
That being said, I’m not able to stick to DDG. Every time I do a search and I don’t find what I’m looking for on DDG I think, “I bet Google would have found it”. However when I’m on Google and I don’t find what I’m looking for I think, “I just didn’t write a good query”. That mental hurdle is hard to get over.
Safari vs Chrome is another one where I choose Google. The web developer tools for the browser and the integration with Node/V8 seem so much better. If I were not a developer I imagine I could prefer Safari but it’s too hard to pretend when it’s what I do all day.
Same here. It doesn't help that 80% of the time I'm having the former issue, I copy the query to Google and the top hit is perfect, a hit which didn't even show up 30 results down on ddg.
I should try copying the other way, but Google does seem objectively better (doesn't stop me trying to use ddg and only go to Google manually as a fallback).
Google does a ton of personalization of search results, whereas DDG doesn't, so it's not really a fair comparison. I've found that, with my better queries, StartPage (anonymous Google results) isn't much better, so the difference is likely Google getting to know you better.
The last Google product I'm having trouble ditching is Drive. I like accessing spreadsheets everywhere, including my phone, and I find LibreOffice less intuitive, and self hosted LibreOffice Online sucks. I'm looking at OnlyOffice, but the resource requirements make hosting on a VPS expensive, so I'll have to get a machine set up locally if I want to do it (and all the headaches that brings with exposing it to the world through my ISP).
I'm also on Google Fi, but I'm not too attached to it. If the Librem 5 ends up being as awesome as they promise, I'll likely leave for something else, like Ting (I used them for a couple years).
I'm also considering switching from Android. I'd rather pay more and be the customer instead of the product.
https://prism-break.org/en/categories/android/ https://prism-break.org/en/categories/servers/
Android phone today is like living in a room full of CCTV cameras and mics and tons of sensors and trying to close the windows and doors while the control of those feeds are in the hands of Google.
Mozilla has lost my trust lately. I don't doubt the sincerity of the developers there. But they've grown into a large revenue generating organization now, and their principles appear compromised at the executive level. See this debacle over the recent Booking.com ad that finally made me dump Firefox [0]
[0] https://www.neowin.net/news/firefox-640-is-now-showing-a-boo...
As for headphone jacks. I haven’t used wired headphones with my iPhone for over 5 years. Dropping the jack has literally had no impact on me whatsoever. In fact it’s one less hole to fill with pocket lint. Before you go on a tirade of audiophile nonsense, I’ll remind you that most people listen to audio and video that is streamed over cellular data in a lossy format. All arguments are rendered moot. I am a content iPhone X user, so now you know of at least one.
Gmail has been hard to get away from though because of my account but I hope to take care of that soon.
I still use Google Drive, Google Fi, and Gmail (moving to ProtonMail), but I've found awesome alternatives that improve on Google products:
- Orgzly - way better than Keep, and with Syncthing, I can edit task lists on my desktop with my preferred editor - Firefox - ad block on mobile is awesome, as is browser integration for Bitwarden - Signal - better than Hangouts for SMS, if only for the dark theme - andOTP - pin lock for second factor auth beats out Google's Authenticator app
I've been considering moving to NextCloud (tons of advantages over GSuite), but I'm having trouble replacing Google Sheets. Honestly, most of Google's products are mediocre, and it's really annoying switching to their flavor of the week (Google Talk -> Hangouts -> Allo -> Duo, Gmail redesign that runs like crap on Firefox, etc). I also wish there were compelling alternatives to YouTube (PeerTube looks interesting, but unlikely to get traction) and Android (Librem 5 might be good enough).
In trying to switch, I'm realizing how much better some options are once you get out of the Google ecosystem, but it's hard to kick the few strong products they have.
Personal anecdote: I broke my iPhone and have been using Android for a bit, and I must admit: at first I thought I'd switch back but nowadays Android is pretty good.
Hardware at a comparable price-point is solid, the UI is smooth and better-looking than it was before, the app ecosystem isn't quite as good, but is very very close, and there's features I would actually miss on iOS (a calendar widget on my homescreen, unlocking my device without touching the screen and Google's Night Sight).
I miss my to do app and my email app, both of which are not on Android (Things and Spark). But overall, I personally can't think of a single aspect where iOS "miles ahead" anymore, from an end-user perspective.
There's one place that iOS is miles behind though, and that's file handling. Having to go through a desktop and iTunes to receive music from a friend is a pain in the arse.
It's interesting you say that. I've been looking at de-googling myself and getting off Android, but I cannot find a decent replacement in the App store for my password manager of choice (KeePass2Android, cos I use KeePass everywhere).
Other Apple owning friends of mine say I should be using whatever it is that iPhone supplies by default, but the problem is I want to de-google myself, not move entirely into Apple land, so having something which only works on the phone isn't going to fly. I've got Windows and Linux machines all over the place that I want my password manager to sync with.
Edit - spelling.
This may be right, but have you used fdroid yet? There are a bunch of great free apps on there as well. NewPipe comes to mind.
I like Apple stance on privacy, but the price of iPhone XR is not serious.
I can at least trust iOs to provide software updates for my device until 5 years of age. But I find it hard to see that many people value this remotely close to the price difference.
Why spend $1,449 on an XS Max when you could have replaced the battery on your phone for $29?
- $200 no questions asked buy-back - Better camera - Larger screen in a just about the same size form factor
I expect to have this phone for ~4 years with probably a battery refresh in ~2ish.
I went 4S -> 6S -> XS. I hadn't upgraded an iPhone in years, Apple has made the process extremely slick and painless. I was seriously impressed at picking up the new phone and being "good to go" in ~45 min when my apps downloaded.
I'm sure I'm an outlier
I have used the latest models and don't see any improvements worth upgrading for. FaceID is cool, but not enough on its own to convince me to upgrade.
In previous cycles, my update from 3GS to 4S was a no-brainer (retina, massive speed improvement), as was the upgrade from 4S to 6S (lightning port, LTE, massive speed improvement, larger screen).
Once I got my battery swapped, the phone was as good as new.
And I still have a headphone jack.
> Why spend $1,449 on an XS Max?
Period.
This is the cost of what an entry level macbook was...
Just have to crack that digitally signed battery cable ;)
Jokes aside, Apple been deliberately reducing their products' repairability since at least iphone 3. I myself had a side business of selling factory refurbished phones when I was an exchange student in Singapore from 2007 to 2009. Malaysian refurbishers told me that in the middle of production run, Apple deliberately began gluing their front glass to the display with impossible to undo glue to nuke any chance of profitable refurbishment.
In contrast to "dumb" phones of Japanese brands, that were designed for extreme manufacturability, Apple's products are unique in that regard to be engineered with an opposite goal.
Funnily enough I got an email about availability of the new models for a discounted price "for a limited time only". Maybe their prices will be reviewed?
> US dollar strength-related price increases
A weaker dollar (due to inflation, etc.) is the reason that consumer prices increase. A stronger dollar in theory should make the prices decrease.
EDIT: I understand that a stronger dollar means the prices in other currencies will increase, but I was referring to specifically the price in US markets. Pretty sure the iPhone prices in the United States increased as well.
The issue here is entirely around Apple and China.
Sounds to me that it isn't just China. The new phones are even more expensive then the previous ones. It's kind of hard to imagine that those high prices have no impact on sales and I would have at least expected there to be a mention about pricing in the letter.
You could swap out Apple with pretty much anything and you'll be accurate. The person commenting on the internet all day isn't representative of the average person.
From looking at a few news articles, looks like revenue sharing increased from: $1B ('14) -> $3B ('17) -> $9B ('18) -> $12B ('19)
Example article: http://fortune.com/2018/09/29/google-apple-safari-search-eng...
Looking at the increase in Apple's services revenue ($8.5B, Q1 '18 -> $10.8B Q1 '19 -> $2.3B YoY increase) vs. increase in service revenue due to Google sharing ($9B - $3B = $6B / 4 quarters = $1.5B), we get that approximately 65% of Apple's incremental services revenue is due to increased revenue sharing from Google. IMO, this doesn't seem like a long term sustainable source of revenue growth for Apple.
Apple has indeed accomplished many things since Jobs handed over the reins, but delivering a new, innovative compelling product line is not one of them. If they finally deliver on the Apple Car or some as yet unknown new product, they might finally fully move out of the shadow of Jobs' final tenure.
If not, they will find their existing product lines eaten away by relentless, industry commoditization. Having to bump profit margins on the iPhone X was their first serious stumble -- only to be rectified, if they can deliver a new, compelling product line in the next 1 to 2 years.
Usually when people complain that Apple hasn't delivered a great product since Jobs left, they are comparing to the iPhone. But it's important to remember that Jobs himself only delivered a product like the iPhone once! No other Apple product line, no Macs, no iPods, no iPad, nothing, ever came close to the impact of the iPhone.
If the iPhone is your bar of success for a new Apple product, I feel pretty confident that you're going to be disappointed. But Apple doesn't need another iPhone to grow very well for a long time.
What company has, though?
My observation is that, while technology evolves very quickly, revolutionary product lines appear about once per generation. iPhones came out in 2007, so we have at least another decade to go.
Dropping the SE - the one affordable iPhone - is starting to look like a really bad move for Apple.
And since everyone copies apple, get ready for massive slabs across the entire smartphone market.
Last Year they had $88.3B, this Year their lowest guidance were $89, so roughly the same. But Apple knew well ahead that they had new iPad, new MacBook Air, new Apple Watch for this quarter. They also changed their accounting to move revenue from Apple Maps and Siri to Services instead of bundled with their Products. So they knew Services were going to have a substantial increase.
In other words, they knew their Non-iPhone revenue were going to increase YoY.
They knew, nearly in real time their iPhone XS were doing well when launched, factored in the Q4 2018 quarter. That was what pushed the record Q4 quarter numbers, by those analytics over 30% of XS in total were sold during first two weeks, out of a total 14 weeks since launched.
In other words, to have made that initial guidance, Apple were expecting Xr to be a great seller. Everything from Non-iPhone and XS has been better than expectation, it was only the Xr that let them down. Xs Max has been doing better than possibly Apple has estimated likely pushing ASP even higher ( even though they may no longer release the number ) So 5% lower revenue is actually better that most would have expected.
All these leads to Xr. The Xr were targeting general buyers, but they were used to paying $749 for latest Smartphone, which the current $999/ $1099 are out of their bracket. Some have extended battery life that want their iPhone last longer. And more importantly in China, the price / performance gap between Chinese made Android Phone and Apple iPhone has never been greater. Huawei, Vivo, OnePlus and Mi.
If we assume the the ASP increase were roughly 15% compared to last year, we can estimate this year Apple had ~25% drop in unit sold. ~57.7M Compared to last year 77.3M.
Now more importantly, what will the guidance be for Apple on Q2?
Edit: I think this is the best thing happen to Post Steve Jobs Apple and I hope Q2 will be even worst and served as a Wake up Call. In my opinion for the past years Apple has been doing something wrong with their design and features decisions that add cost while brings little to no value to users. Touch Bar, Curved inside Bezel display, Butterfly Keyboard etc. While trying to nickel and dime on many areas, lack of fast charging, new lighting cable connector ( lower cost but higher resistance ) etc. Apple under Tim Cook has been far to concern about 20% Net Margin and other numbers.
1) China, obviously, if luxury perceived items like Apple products are slowing then that is a real indicator of the economy truly slowing regardless what the government states.
2) Having to full develop an in store trade in program pretty much is admission they priced themselves out of the market
A bunch of prominent economic figures out of China in the last month or two have pointed to a near-recession there. They're outright lying about 6.5% growth (if it's more than 1/4 that I'd be surprised), their economy is getting close to contracting. Their manufacturing sector is about to tip into recession [1] (guaranteed with the worst of the tariff hit just starting now) and their consumption tax numbers [2] have imploded at a historic rate. The iPhone sales drop in China aligns with the drop in the consumption figures there. Their credit impulse is deeply negative, which is a particularly bad thing to have happening with all the other negative numbers. Their new export orders PMI is in deep contraction.[3] They've got a lot of banks that need recapitalized soon with a central government intent on constraining the growth of further debt. In the cities you're seeing a painful wave of deflationary pressure hitting their housing market, with their world-leading vacancy rates on housing units (epic overbuilding) only making it worse.
[1] https://www.cnbc.com/2019/01/02/china-reports-december-caixi...
[2] https://www.bloomberg.com/opinion/articles/2018-12-31/china-...
[3] https://www.bloomberg.com/news/articles/2018-12-31/china-slo...
People chasing status symbol but they are not fools, and the local brands offer good enough quality with only 40% of the price, you know what to choose.
Here, Let me help you with that:
* Lack of a $0.05 headphone jack
* Lack of storage expansion
* Lack of USB-C
* Expensive 3d Touch that nobody uses intentionally
* Lack of a fingerprint reader
* Nerfing NFC for months on end
Despite that, there are things you are doing great:
* FaceID innovations
* Battery life improvements
* Performance improvements
* Taking a stand against predatory spying by Facebook and Google
It's like you're so close, then you shoot yourself in the foot.
The problem is the iPhone has been so good for a few iterations now. There is absolutely no reason to buy a new one unless you are gaming. I can’t tell the difference between the 7, the X or the XS in terms of day to day capability.
It used to be there was a good reason to upgrade every year. Now you can easily go 2-3 years without missing much.
To me ditching Lightning for USB-C 3.x (Thunderbolt 3) would send a very powerful message from Apple. I really hope they do it in 2019.
> Apple boss Tim Cook has blamed the US-China trade war as he warned of lower than expected quarterly sales for the iPhone maker.
Seems like the US-China trade war is taking its toll on Chinese economy, particularly on the high end.
[1] https://news.sky.com/story/apple-cuts-sales-forecast-as-chin...
I’m hoping for a refreshed SE. I like the button. I like the headphone jack. I don’t like FaceId.
An iPhone that's Slightly fatter (fill the space with a larger battery), headphone jack, and a "smaller" screen. Of course, have all of the latest hardware (camera, soc, etc.).
Or, a MacBook Pro, again slightly fatter (larger battery), with a great keyboard, actual ports (no dongles), and no touch bar. Give us the option for a matte screen to totally blow our socks off.
I'd buy those two devices tomorrow if Apple introduced them.
But it ain't gonna happen.
The surprise is that they didn't expect that raising the price by 20% wouldn't have an impact like this
That sounds like Huawei fallout.
How would fallout from Huawei have anything to do with fewer people walking into Apple stores and buying a new Apple product? Have the prices risen or something? Are people afraid of being kidnapped if they walk into an Apple store?
To me, it is just a lame hyperpolitical straw man excuse as to why they aren't selling more products. It has zero to do with China, imo. It has to do with people not NEEDING a new device, so they are upgrading (a lot) less frequently. Personally, I'm on about a 5 year upgrade cycle now. Apple will have a harder time going forward having increasing records year after year, because they mostly rely on new hardware sales. I think we're kind of coming to a Moores law type effect in terms of hardware perception (not design/capability). There just isn't enough of a perceivable or revolutionary innovative difference for the average person to justify purchasing a new multi $k machine year after year. For most people (non power users), they get no actual tangible benefit. An iPhone X will perform just as well for the vast majority of an average users applications as an iphone 8.
> ... AirPods and MacBook Air were also constrained.
(emphasis mine) Interesting that Apple still can't manage to make AirPods, a 2 year old product, fast enough. I wonder why that is.
Tim Cook is one of the finest CEOs of his generation, but he cannot walk on water, and neither can his company. They do some things well, and on others, their reach exceeds their grasp.
But I'd like a better camera so I took a look:
The other thing that isn't helping apple is the went from a simple system to understand iphone 6, 7 8 (s for the bigger models (edit: whoops I meant plus.). To so iPhone Xr, X, Xs.. I can't tell it the iPhone 8 is the end of the line for the numbered iPhones with a front button. Basically I'll have to do some research.
They made a page to help, but when comparing phones, price is an important factor to compare...
I asked each one of them if patriotism or the recent Huawei/US kerfuffle influenced their decision. They all resoundingly said no. When I asked why they chose Huawei after being in the Apple ecosystem for a decade, all of them said "camera". They said camera quality isn't about DXO scores or 4k60 but being able to take "beautiful" photos out of the box for some definition of beautiful. To them, iPhoneXS is the same if not worse than a 6, because the iPhone camera doesn't take more "beautiful" photos, only more "realistic" ones.
Obviously anecdotes are meaningless and all that, but I want to note that China is a very homogeneous society given its population, so even a brief first-person glimpse into people's everyday lives can be pretty telling. I would not be comfortable making similar conclusions about any other cluster of 1.3B people.
TL,DR: I don't buy that the economic downturn in China and the Huawei/US situation are the sole perpetrators of Apple's problem in China. Apple is missing opportunities due not innovating in certain crucial areas.
I hear this all the time from friends and family. Such and such camera is so much better.
Most of the time the images really aren't. The brightness is just cranked up or something, the image doesn't look that great. I'm not sure why the iPhone doesn't have better low-light settings, even my 8 Plus doesn't take very good pictures indoors if I don't use a different camera app.
By "beautiful," do they mean those auto-Photoshopped images that are popular in China; where they eyes are made bigger, chin pointier, and skin lighter?
https://www.businessinsider.com/samsung-huawei-smartphone-be...
> Popular smartphones like the Samsung Galaxy S8, the Galaxy S7, the Huawei P9, and many others often feature something called "Beauty" or "Beauty mode" when you turn on the front camera to take a selfie.
> Theoretically, it does what it says on the tin: airbrushing magic to make you look prettier in photos. Usually, it makes your skin look smoother and your eyes brighter.
US Dollar crisis coming to a market near you
- No home button
- no Touch ID... I can no longer quickly unlock phone with thumb .. Face ID is no good and can be dangerous in certain situations we all can relate but don’t admit (i.e. in stand stil traffic)
- it’s too big.. I can’t one handed text
Hoping some of the above is addressed and brought back in the 2019 models.
I might be wrong but it's happened several times before where companies were trying to drum up some support by suddenly being extremely "woke" just before having to come out with some bad news.
https://www.theverge.com/2018/10/24/18017842/tim-cook-data-p...
PS. They did the same thing with Google, after "Operation Aurora" happened. That was the moment that Google left China.
I hate that we're in this in-between land that requires 3 or 4 different subscriptions to the same company whereas these things in my mind would just be bundled together.
Translation: We tried to charge $1,500 for a phone, but not even our core demographic is this gullible.
For other people reasons for this is clear. Apple is making slightly improved phones, with the extreme price tag. The pain threshold has been exceeded.
Almost all innovations now are from Asian manufacturers. Notch is not progress, it's a deffect. OLED? It was innovation 8 years ago, with Samsung Galaxy S. A phone as fragile as an egg, with back glass replacement costing $599 (versus $99 for Samsung Galaxy S9+). In my opinion, the only real advantage of iPhones is iOS, without apps slowing down OS, tons of bloatware, and lack of privacy even on the system level. But this not justify
And lastly, batterygate, that weakened trust to the brand, also didn't help here.
As a naive person on the outside looking in, why are there no suggested changes to the clearly incorrect estimation approach, especially in volatile markets? If the numbers are not as expected why not look at expectation generation along with other factors instead of ignoring it? Or are they saying in so many words that they can't be blamed due to macroeconomic conditions? Sounds like such a volatile environment would require caution on these short term forecasts. Again I'm naive, I just didn't see it addressed.
Apple has a tonne of money. It can solve shareholder disappointment by using it to buy back stock or pay dividends or something.
I don't look to Tim Cook for innovation right now.
Declaration of Interest: disappointed touchbar MacBook owner
Wonder why they never break out these products in these sales forecasts.
BMW, Audi (WW premium brand) and Mercedes all committed to gigantic investments into growing their presence here in last hew years, and so now has Apple.
In the past, American companies were some of the most passive players in China. It seems that they finally started to notice that China is a no joke market.
Say what you will about lack of innovation (which I don’t agree with), but the constant skepticism about cost ignores what consumers actually do in the real world. China is probably not going to be a reliable market for Apple because as Ben Thompson points out, smartphones are much more of a commodity there because consumers don’t value Apple software as highly as consumers elsewhere. If that’s indeed the case there’s not much Apple can do about it because they sell the entire package at a high price point. If people don’t value the hardware and software it’s probably not a market that is going to be good for Apple. Apple wants no part of a race to the bottom commodity market where cost is the sole differentiator. It’s a tough pill to swallow but what we’re talking about is consumer preferences in different markets around the world.
Apple should be worried about customers flocking to cross platform messaging apps in the US, though. Right now US consumers won’t part with Apple largely due to iMessage. What happens if people slowly transition to WhatsApp or FB messenger? I could see this as a real threat if FB continues to innovate in messaging.
Apple can reduce pricing by 10-15% or give credits so that people can use it for accessories and apps.
Until it gets price right, market like India can never grow for Apple.
This is a recent product…
(And note that Moore’s Law being dead just means density doesn’t double on schedule. I am not suggestion there is zero progress in semiconductor technology.)
also thinking that if nobody had noticed the battery longevity performance degradation “feature” would Apple be sailing more smoothly right now? maybe they depended too much on crafty ways of trying to get people to upgrade and it didn’t pan out so here we are
I haven’t replaced the battery yet. I probably will this year. I’d rather just replace my battery for 60 bucks than buy a new phone for 800...
You can't survive in a competitive world with just 10% of the market share since interconnectedness is crucial for the dominance of any platform and that's why you need cheaper macs and phones without losing the appeal of high end products for those who have the money in times of economic duress like the ones to come.
I've heard from Youtubers who have maxed out the RAM on their Mac Pros that its absolute garbage at even handling mundane video editing tasks. This was two years ago.
Nonetheless, I won't switch to Android only because of the privacy promises Apple has made & doubled down on. Whereas Google doesn't seem to care so much. The forced auto-login into Chrome browser (desktop) when you login to your Gmail on the browser, was the last straw for me.
However I just don't get just why Apple doesn't loosen those purse strings and spend massively on re-capturing the imagination of the user like it once did.
Is it Tim Cook and the board?
Does the ROI simply not exist in this space anymore no matter the capital spend?
Where - if at all - does Apple see a justifiable spend in the near future - tvs? cars?
I just bought her the latest 64GB iPad on sale for $249.
When the iPhone 4 16GB was released, it was $499 unsubsidized.
Something isn’t right.
>China
pick one
Remember, China is the second largest economy in the world. There was a HN article awhile back arguing that China is taxed as an emerging market (low tax), but is dollar size of a mature market. So, two questions:
Is China considered a maturing market?
Is China considered a mature market?
I don’t think just positive growth counts as maturing (even the US still grows), so I think the answers have to be mutually exclusive. Maybe you could argue the rate of growth makes it maturing, but I would love to compare it to the rate of US growth from 1950's-60's (was the considered US maturing or mature during that period?).
There's an unrelated question as to whether OECD and non-OECD countries should be treated differently.
America is on another hand is a developed country on average, but double digit of population is officially below the official poverty line....
Which one is better you think? In reality, that is Apples to Oranges comparison. China is not a market economy to begin with...
Isn't that ridiculously high for the margin and kinda small for the rate?
This product line was born organically within them. What you think Apple should do next? They have patented a headset so maybe that is next for them.
That sounds like a slightly roundabout way to throw some of the blame at Trump and his trade policies. Not the only reason, but one of them, as the letter mentions.
Stop charging $1,000 for a phone. Stop gouging us for storage. Bring back a $999 MacBook.
I just cannot understand how an increasingly risk-averse, profit-driven company will summon the chutzpah to again create category-creating products once more.
Good luck trying to excise people's money through "Services" when everyone jumps ship after realizing they ship dumbed down products without any regard for people's need for workstations and not expensive toys that break trivially.