Alright, I’m dusting off the tech stock pundtrity cap for a proper thread re: the Apple news. I would blog this but Twitter is easier. Whatever. These incoming.
Apple is still one of the most valuable and most profitable companies in the world and this doesn’t change that. But this move to alter projections - a first since 2002 (which occurred during a particularly bad tech recession) — is a big deal.
Apple is historically one of the most cautious companies when it comes to quarterly projections — so conservative that that has hurt them over the years b/c street projections automatically add x% on top b/c the company always blows projections out of the water.
That’s why this matters. It’s a big adjustment and whatever the reasons, it may alter perceptions (fairly or not). Like @jsnell, I believe China's economic issues are at the heart of this. But I also think China has helped mask issues happening in other markets for many quarters.
It feels safe to say, without breakout sales data (RIP), that the XR hasn’t met expectations. I can’t speak specifically for China, but in the US this indicates a larger issue I’ve been commenting on for two years: the growing price to be in the Apple ecosystem.
Apple is a premium brand but has always excelled at attainable luxury (tm @gruber probably), but over the last 2 years and really the last year, that has started to change.
Putting aside the Mac and ATV and HomePod for a moment (Watch, AirPods, non-Pro iPad, and services are priced fine, I think), the iPhone has continued to go up in price. Part of that, as I argued on @_downloadfm is that ownership cycles have increased.
But part of it too is just a price increase. And some of that increase is hard to justify. In China, customers are not brand loyal - and Apple probably has the best loyalty rating out there, but I still bet it shift. In the US, Apple has brand loyalty, but we're starting to see
The impact of price. Smartphones are almost a commodity — Apple is the exception (Samsung to a lesser degree), but the market is saturated. Price does matter, especially if old phones surly work.
Tim Cook citing the impact on battery programs is notable, not just b/c it implies Apple's old policies incentivized upgrades, but b/c, I think, the knowledge of those programs helped customers know those low cost options were available.
In the past, you’d replace your battery if it lasted only an hour. Now, we learn it can also improve performance.
iOS and Apple's AX chips are efficient and ahead of the game. That’s awesome for boasting, but makes it hard to convince people they need to upgrade.
I said in another reply that I think for many users 6S was “peak iPhone” - camera was good enough (4K video, great photos), processor was fast enough, and the OS runs great. So if you got a 6S in 2015 or 2016, you might have paid $650 or so, depending on capacity.
In 2018 or 2019, to get the XR, your starting price is now $750. Now, that doesn’t feel massive, but consider that in 2015 you probably also had some option to have a subsidy. Whereas in 2018/2019, you pay upfront or on a payment/upgrade plan.
But also, the XR is seen as the “cheap” iPhone. It’s less than the XS or XS Max. It doesn’t matter how good the reviews are. Like the 5C, it is viewed as the shitty iPhone. And to get a XS, you have to pay $1000
In 2015, Apple made a 6S and 6S Plus. The X was an anomaly and for year one, plenty paid the massive premium in price b/c if was so good! But many regular users saw the X as “special” and still got an 8 or 8 Plus
The problem with the XR is it is seen as less than. And to get the highest end phone that used to cost $650, now costs $1000. Or $1100 if you want the big screen. $1100 for a phone is a lot of money, even if phones are the new laptop.
Anecdotally, I paid the same for my XS Max 256 and apple care as I did for a Matebook X Pro laptop. It’s a lot of money for phones. And I think Apple's story on how the phones differ is muddled and also they are priced is wrong.
I’ve been on record saying the XR is mispriced — and I think it is. Take the margin hit and sell it at iPhone 7 prices. But I’m starting to think the new $1k price might not work either, at least if apple wants to sell devices in the quantity’s it has. Of course, if no longer
Reports phone sales. So that’s good. I guess. But I do wonder if this era of $1000 phones is sustainable. It’s a mental thing for many. And I don’t know if you sell in volume needed to achieve such spectacular rev guidance at this price point.
I don’t have a solution. But pricing is clearly a problem, even without China's struggles
And one more note on China: China's growth has helped hide problems in many company's supply chains for the last half decade. This correction won’t just impact Apple — but it should make us all cautious of any business that is so predicated on the success of one volatile market
But the bottom line is that for phone sales to take off again, prices either need to be lower or we need killer apps/experiences that force an upgrade. Many have bet on VR/AR for that. But that needs a killer app. And this plateau impacts all hardware makers, not just Apple. /Fin
