The Lower-than-Original Edition Thursday, January 3, 2019

Letter From Tim Cook To Apple Investors, by Apple

Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.


Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline. [...] While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

Here's Tim Cook's Memo To Employees About iPhone Sales Slowdown, by Mark Gurman, Bloomberg

In a memo obtained by Bloomberg News, Cook expressed his disappointment after Apple cut its revenue outlook for the first time in almost two decades. That arose from “a number of factors — some macroeconomic, and some specific to Apple and the smartphone industry.” But the CEO added that the company would set record revenues for its services, wearables and Mac businesses.

Apple Lowers Guidance On Q1 Results, Cites China Trade Tensions, by Brian Heater, TechCrunch

“While China may have played a big role in the revenue miss the reality is nearly all smartphone markets are seeing a lengthening in replacement cycles and we should expect this to be the new normal,” Ben Bajarin of Creative Strategies, tells TechCrunch. “While price is what is being mentioned, I believe there would have still been softer iPhone sales even if prices were not raised due to consumers being content with their current phones and not as interested in the premium features coming out in the latest models.”


Analyst Patrick Moorhead says the downturn is neither unexpected, nor a reason for investors to panic. “The company is growing its services and ‘other’ categories, just not enough to drive overall revenue growth,” he told TechCrunch. “I am not concerned for the company, but it’s likely investors will not see the company value it was at until it can see a likely path to double-digit revenue growth.”

The Big Picture

The Silver Lining In Apple’s Very Bad iPhone News, by Brian Barrett, Wired

An iPhone that lasts longer keeps customers in the iOS ecosystem longer. That becomes even more important as the company places greater emphasis not on hardware, but on services like Apple Music. It also offers an important point of differentiation from Android, whose fragmented ecosystem means even flagship devices rarely get fully supported beyond two years.

“In reality, the big picture is still very good for Apple,” says BayStreet’s Maldonado. Compared with Android, “Apple’s in a better spot, because the phones last longer.”

Steve Jobs And Apple’s Last Previous Earnings Warning, by John Gruber, Daring Fireball

What people took away from Cook’s letter and TV appearance today is that the iPhone laid a turd last quarter. Properly delivered, the takeaway should have been that China is crazy but the iPhone is still kicking the shit out of the entire rest of the handset industry and is only pulling further ahead.

The $1,000 Barrier

Sorry That I Took So Long To Upgrade, Apple, by Ron Miller, TechCrunch

So, sorry Apple, but it appears that there is a tipping point when it comes to the cost of a new phone. As essential as these devices have become in our lives, it’s just too hard for many consumers around the world to justify spending more than $1000 for a new phone, and you just have to realize that.

Apple Dramatically Reduces Guidance: What You Need To Know, by Evan Niu, Motley Fool

Apple also strangely says that consumers are still "adapting to a world with fewer carrier subsidies," even as the industry started shifting away from the subsidy model many years ago. Implicitly, that also suggests that iPhone price increases have expectedly hurt demand, while lofty prices ironically exacerbate the problem of slowing upgrade cycles.

On top of all of that, Apple has been forced to raise prices even higher in some international markets due to the U.S. dollar strengthening against local currencies.

Apple Cuts Q1 2019 Earnings Estimates, Blames Everyone But Itself, by Jason Cross, Macworld

If Apple’s excuses are indeed true—that economic forces beyond its control led to unusually low sales—then it is going to have to develop a product line that is more resilient to these factors in the future. That means more new products at a range of prices, including brand new iPhones that start at prices lower than a whopping $749 and new Mac laptops that get back below the $1,000 barrier.

Juice iPhone Sales

Apple's Cook Faces Toughest Test Yet Navigating iPhone Slowdown, by Mark Gurman, Bloomberg

“It’s a two-fold challenge: they need to prove that this is a blip, not a trend,” Gartenberg said. “We’ll see a lot of efforts from Apple from marketing and PR to show that. For Tim, the other part is: How does Apple juice iPhone sales?”

Gartenberg said Apple may try to highlight its other products and reduce the attention on the iPhone “since the next major model isn’t expected until September. We’ll see Apple try to position the iPhone as more affordable.”

Tim Cook To Investors: People Bought Fewer New iPhones Because They Repaired Their Old Ones, by Jason Koebler, Motherboard

Right to repair advocates have long argued that Apple customers would be able to get a lot more out of their devices if Apple gave them the ability to repair them, but say the company doesn't want to do that because it will hurt its bottom line. Here is evidence that they might be right.

Here We Are

Tim Cook Denies That There's An Apple Boycott In China, by Tal Axelrod, The Hill

“Well, certainly apple has not been targeted by the government so let me take away any kind of doubt of that right up top. There are reports, sort of sporadic reports, about somebody talking about not buying our products because we’re American, maybe a little bit on social media, maybe a guy standing in front of a store or something. My personal sense is that this is small,” Cook said on CNBC.

“Keep in mind that China’s not monolithic. Just like America’s not monolithic. You have people with different views and different ideas. And so do I think anybody elected not to buy because of that? I’m sure some people did. But my sense is the much larger issue is the slowing of the economy and then this -- the trade tension that’s further pressured,” he added.

Is Apple Making China A Scapegoat?, by Virginia Harrison, BBC

"Post iPhone 8, the technology advances begun to plateau thus consumers' incentive to purchase a new iPhone has declined," Taipei-based technology analyst Sam Reynolds said.

He said Apple's surprise revenue warning is "simply a sign of the times for Apple".

Apple’s China Problem, by John Gruber, Daring Fireaball

By Thompson’s logic the iPhone X should have done well in China, because it looked new, and the XS/XR would disappoint in China because they didn’t. And, well, here we are.

Is Already Bad

Five Ways To Look At Apple’s Surprise Bad News, by Alexis C. Madrigal, The Atlantic

And here we are in early 2019 and it’s clear that the Chinese economic slowdown is already bad. Today’s news makes it clear that the slowdown might be very bad, and worsening at a pace that took even Apple by complete surprise.

The other Asian economies are already seeing the damage. And that’s before the trade war tariffs snap into place come March

Apple’s Glum China News Sends Global Stocks Lower, by Carlos Tejada, New York Times

Markets across Asia fell slightly but broadly on Thursday, as investors shed technology stocks in particular following the iPhone maker’s announcement to shareholders on Wednesday that its smartphone sales in China had been disappointing. European markets opened lower as well.

And Now For Something Completely Different

Leave The Phone At Home And Put News On Your Wrist, by Frank Chimero, Nieman Lab

Tiny screens, small snatches of time, clear endpoints, limited engagement, information-dense, and obvious pathways for more context. If the watch can become people’s primary device, it may provide the opportunity to switch the media paradigm from an endless stream to a concentrated dispatch.

New Apple Pencil Sandpapered To Look And Feel Like A Real Pencil, by Joe Rossignol, MacRumors

A variety of skins are available for customizing the design of the Apple Pencil, but Reddit user Cedric Chase decided to take the do-it-yourself route with some sandpaper, synthetic fabric dye, and paint, transforming his second-generation Apple Pencil into one that closely resembles a No. 2 graphite pencil.

Why Do Film People Care So Much About Frame Rates?, by Mike Pearl, The Outline

But according to YouTuber John Hess, a guru of movie frame rates, 24 frames-per-second is the end-all-be-all of frame rates, and that’s never going to change:

"Maybe I'm just an old fogey clinging onto my nostalgia goggles. Maybe I’m just not hip to what’s it. I used to be, but then they changed what ‘it’ was, and now what’s ‘it’ seems weird and scary to me. It’ll happen to you too. But on the topic of frame rate, I’m not going to be diplomatic. I’m not going to say ‘It’ll be interesting to see!’ or some meaningless cop-out. No, 24 is going to be with us for as long as there exists a cinematic medium.”

Bottom of the Page

Customer behaviors and habits are so different in U.S. and in China, I think, that it will always be difficult to push the same product to the two vastly-different countries.


Thanks for reading.