Apple lowers guidance for Q1 - your reactions?

22

I’ve been known to be wrong. I didn’t buy Apple in 1996 (or Walmart in’ 75).

I’m not surprised that XR activations were up. I can’t remember Apple ever running sales on iPhones like they did this past Christmas. Verizon even had a BOGO deal on them.

However, my opinion is based, in part, on comments from people I know and employees I supported (until a few months ago). Regular people are keeping their phones longer. And some who used to get a new iPhone every two years are buying used from Gazelle, etc. When I say “regular people” that includes six figure executives with a couple of kids in college, or a high maintenance spouse.

Then there are the people mourning the death of the SE. The ones who have small hands. Or those that don’t want a Pop-Tart in their pocket ruining the lines of an expensive suit. :slight_smile: It was very popular during its too short life.

Tim refuses to tell me, but the new 9.7 non-Pro iPad seems to be a major hit with the general public. It might have been created as a last ditch effort to salvage a piece of the education market but I expect it to stay in the line up. It will be interesting if they do the same with a entry level phone.

And if they don’t, feel free to tell me “I told you so”

23

Okay, but one-off stories do not a statistically reliable data-set make.

And I did buy Apple in 1996. :sunglasses:

I think you’re grasping a little here. You started off saying you ‘weren’t surprised’ because of pricing, and now you’re the defender of the tiny-handed. :roll_eyes:

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24

I recently read that the 6s is the best selling iPhone of all time.

I decided to replace the battery in mine rather than upgrade. The headphone jack comes in handy now that my AirPods only last about a hour.

25

Also relevant to this discussion, I think, is Gruber’s other post on this topic yesterday. He revisits something Ben Thompson wrote last year about how China is an anomaly when it comes to how the iPhone is perceived by consumers. In China, the ecosystem (Apple or otherwise) is not a meaningful differentiator because so many people use WeChat, which means the iPhone is just another piece of hardware on which to operate in WeChat’s ecosystem. iOS is a huge differentiator for Apple everywhere else. For consumers in China, it’s not.

26

Yes, I should have said the tiny handed and “the price conscious”.

Time to sign off before I start quoting Mark Twain . . . “Lies, damned lies, and statistics”. :smile:

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27

Lots of good thoughts on this one.

I think Apple’s “let’s see how much we can charge” experiment has been answered.

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28

Apple is now down 39% for its peak in October. That’s basically wiped out the last 2 years of gains in the stock.

29

I think the significant slowdown in the Chinese economy (and increasing Chinese consumer antipathy towards instantiates of America) is the experiment that’s been tested. Apple’s prices did not result in Ford’s or Tiffany’s or Canada Goose’s problems, as I referred to earlier.

Apple’s prices haven’t caused Chinese consumer confidence to drop, and they didn’t cause auto sales to fall 3%, the first decline in two decades, and they didn’t cause overall factory manufacturing in China to contract for the first time in 19 months

  1. https://www.nytimes.com/2019/01/03/business/china-consumer-economy-apple-iphone.html
  2. https://www.cnbc.com/2019/01/03/china-annual-auto-sales-fall-for-first-time-in-about-two-decades.html
  3. https://www.cnbc.com/2019/01/02/china-reports-december-caixin-manufacturing-purchasing-managers-index.html

I don’t think shoehorning in this Apple price-rise hypothesis explains what’s really going on. It’s Chinatown (economy), Jake.

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30

I think there is more at play than the economics. We need someone like Dan Ariely, the behavioral economist, to tell us what else is at play. (Maybe Tyler Cowen, podcast)

My two three thought fragments:

Apple used to be like Supreme, who could sell a $6 t-shirt for $300, or this. People don’t care, it’s what the cool kids have.

Or maybe they were like Mercedes, until Mercedes started building entry-level cars that were essentially a Dodge Neon. Affluent professionals didn’t want to drive a brand their assistants could afford, so they started going elsewhere.

Or perhaps Craftsman tools, until they were sold at K-Mart.

I’m sure Dan Ariely could connect these fragments :slight_smile:

31

Sorry, Gruber doesn’t know squat. His critique is on Cook’s delivery of the message versus how Jobs did it. OK fine, but Jobs made his comments on that particular set of economic factors 16 years ago! Compared to today, it was totally different. AAPL was not even part of the Dow Jones at the time (they were added in 2015), it had nowhere near the market cap it has today, and the Chinese market was a quarter of what it is today. Making comparisons like Gruber does is like comparing apples and ball bearings – there is no comparison. Given Apple’s position in the marketplace, there’s no way Cook could get away with saying what Jobs did back then, not even close.

Again: Don’t listen to tech bloggers making comments on economic and business matters. They don’t know jack and are wrong most of the time.

:roll_eyes:

32

I think you will be disappointed.

I dunno man, if you had to buy one computer today, not knowing when you would be able to buy the next one, which would it be?

Prices may be high, but the devices last longer than others, no? That you have the option to buy the 6s and it still works great speaks to the value you say is missing.

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33

Gruber wrote, “Even if Jobs were still around I don’t think Apple could get away with a message so short with today’s news.” IOW, he acknowledged a different environment today.

Nevertheless, his main point was that Jobs focused on a tight message that explained things better than he believes Cook did the other day, and that Cook made some mistakes in his appearances as well in discussing the battery replacement issue (“Apple should be proud that you can get two or three extra years of great performance from an older iPhone with a relatively inexpensive battery replacement, not pointing fingers at the program as a reason for slower sales this quarter.”), something I also agree could have been handled more adroitly.

34

Gruber goes to some length to describe how Apple today is different from the company Jobs led when Apple last had a spectacular earnings miss in 2012.

35

Apple makes nice devices. Developers do cool things with those machines. I own a lot of them. I am also an outlier.

For the market overall, I believe, the marginal utility of Apple’s phones and iPads has steadily declined while the marginal cost has rapidly increased. You can fool some of the consumers much of the time, but in the long run they will wise up to your game.

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36

Despite the warn in lower revenue, Apple is still guiding 38% margin for the December quarter - totally in line with its original guidance of 38%-38.5%. That does not support your contention. Also, it ignores the numerous macroeconomic problems in the Chinese economy discussed above. Please remember Cook wrote, “most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China”

So I can’t buy the speculation that Apple is trying to “fool” consumers with a “game.”

It’s not a game that Macs were always more expensive than PCs, but were built to different standards with unique and daresay superior operating system. More, there’s a very good reason Apple hired Angela Ahrendts in 2014 from Burberry - Apple is focusing more on being a provider of higher priced, higher quality, affordable luxury hardware, software and services in many areas, and is using a high-end reputation in places to provide a halo effect to less expensive devices and accessories.

Apple was never interested in the “overall market” where low-margin cutthroat pricing and races to the bottom exist. Apple still retains the majority of smartphone profit, which steals oxygen from competitors. It’s Mac sales continue to grow while the PC market contracts.

38

“Marginal cost” and “margin” are two very different concepts. The first is grounded in microeconomics, the latter in accounting. From a consumer’s perspective, whatever Apple’s accounting margin is is irrelevant. “Marginal utility” vs. “marginal cost” is essentially the individual thinking “does what I gain from this new thing offset the increase in cost over the last purchase.” When a critical mass of consumers perceive that marginal utility from Apple’s products is less than the marginal cost (for them), then a downturn can occur. It is not the only cause of a downturn, of course, and a single data point does not necessary indicate the beginning of a trend.

(From a game theory perspective, price is always a strategy in a game. Price too high, game lost. That’s how capitalism works.)

39

… is reflected by sales. My point is that - China aside - Apple’s numbers are in line with projections. So ‘the masses are finally wising up to Apple’s dastardly game’ hypothesis is not supported.

This will be the grimmest second best quarter in Apple’s history.

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40

It is not really true, and depends heavily on what level of quality, comfort and support you expect from your devices.

For windows machines Microsoft happily gives all the reasons to switch to mac, even considered that the new macs are less of workhorse than previous generation. The level of problems I observe by my colleagues, all working on MS Surface and various Lenovo laptops is mind-blowing. There is everything: bluescreens, network problems, problems with peripherals, update problems. Have in mind, that those are corporate machines, where updates are more tested and in general 1 year behind a plan. I guess, a “normal” win10 installation must be a living hell. Most of them told me they will switch to mac by the next occasion (we ran a 3-year cycle on you machines). These are pretty basic problems, not some luxury stuff relevant to us, nerds, like “windows is meh, because there are less to none automation tools”. Also, windows 10 heavily lacks in data protection, which is a topic here, in continental Europe.

For phones, the picture is different and heavily depends on what you expect. If you go for low-level devices, apple offers you nothing good. If you go for high-quality devices, apple devices may be a good offer, since android devices are getting obsolete pretty fast due to lack of updates. If you have to buy 2 devices on the level of Samsung Galaxy S* within 3 years the TCO gets pretty high. Also, in high-price segment other considerations play a role - data security (hello, google) and the quality of software, crapware from android vendors and so on. I’ve had a talk on it with a friend of mine yesterday, where he had 3 android phones in a row all having different problems - with IPv6, LTE connections, calls dropping after 29 min 50 sec and so on. This is, of course, only anecdotical evidence - he may just have a bad luck. But judged on my own android time, how these devices work is certainly a problem.

iPad is simply without any comparable competition, as AW.

I would say, the problem for Apple is that the biggest argument for their products is just how crappy the competition is as a whole. There are huge problems with windows and android everywhere. Should they really get better Apple, as slow as it is these days, may be in trouble. On the other side, judged by the history of google and MS products quality, I don’t see a big danger coming from this side. Also, apple could earn maybe a quarter of what they earn today and still be a very, very profitable company. The problem is not Apple, but just how mad and profit-driven the financial market in US is in last decades.

41

Gruber has been arguing for a while that it’s not that the issue isn’t that Apple’s prices are higher (Apple’s margins have been around the same 38% rate for the last 5 years, and they were at 44% in 2012!), but that overall Apple (as indicated by its margins) has chosen to build products that are more expensive to produce. (If they were deriving higher profits from higher prices, they’d show up as higher margins, duh.) So it seems the numbers are on his side here.

It appears that Services are responsible for ‘margin enhancement’ compared to hardware, too. Jefferies & Co analysts predict the gross margin on Apple services will be 60-66% over 5 years, compared with the consensus analyst estimate of 56%. (Apple’s App Store sales have a gross margin of about 90%, according to estimates from Macquarie Securities analyst Ben Schachter. Overall, he estimates the rest of Apple’s services have a gross margin of 65%.)

As part of its changes to financial disclosures announced in November, Apple will disclose gross margins for its services in its next earnings report, so we’ll know for sure then.

But right now it all suggests that hardware margins are therefore somewhat lower than that 38% average… again indicating that Apple is simply making more expensive products, not gouging customers for higher margins.

42

@Yaphet, I’m fairly certain I will be disappointed - though there is some light at the end of the tunnel.

The new Air kept touchID (useful) but dumped the Touchbar (useless for most) taking a chunk of cost out of manufacturing and allowing lower prices.

Dongle hell will ultimately come to an end when everything else migrates to USB C. While more slots would be better, 2 is probably enough (one to charge and one for connections albeit via a hub).

Apple patented a magsafe adaptor for USB C (though I won’t hold my breath on that one either) https://www.digitaltrends.com/computing/apple-usb-type-c-magsafe-adapter-patent/

The latest variant of the shallow keyboard might allow people to eat a sandwich within ‘crumbs fall’ of the laptop…

When my current (6 yr old) mac dies I will almost certainly buy another Apple. That said, strategy/design choices of the last few years meant that Apple lost out on an upgrade (I have wanted a new machine for 3 years) and the services revenue that would have come from whoever got my old machine in that time has been lost.

I’m not a shareholder but decisions whose outcome reduces/limits the number of people in the ecosystem is probably a bad idea in the long term if the future prosperity of the business relies on selling services to those self same users.

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