Anticipating Apple Strategy Shift with iPhone, with Warning From History

There are a bunch of stories that signal the timing for an Apple shift in strategy. Some numbers from Apple tell that the 'next iPhone' has not materialized (iPad, Apple Watch) and the old businesses have more-or-less peaked (Mac, iPod) and now we are possibly on the verge of 'Peak iPhone'. If the iPhone business also stops growing in unit sales - I do not mean grow market share in iPhones, that stopped several years ago (and this blog was the first to point it out) but I mean, actual UNIT sales of iPhone will ALSO peak at some point in the future (or may have just now peaked). That too is inevitable, only a question of time. The iPhone is a premium phone brand, it will not be sold to everybody with a phone: it is too expensive for that. It means, literally, that there will have to be a limit to annual unit sales, that the iPhone can achieve. And we are now close to that final limit. I personally don't think they've yet hit the absolute peak iPhone but they well might have. And even if they still manage to grow this year vs last, then very soon, possibly next year already they will stop growing and indeed, we would have reached peak iPhone. But even if Apple is able to magically create five years more of tiny growth per year vs last, they will hit their peak in the coming years. That is inevitable. Peak iPhone is imminent.

Then Apple needs one of four things. It needs to either grow the iPhone into where the market has grown (lower cost iPhones, that could cannibalize iPhone sales, revenues and profits); or invent a 'new iPhone' type of product category (I advocated for the iCamera to be that). Or they have to adjust their strategy from pursuing unit sales to pursuing higher revenues from the same sales (raising prices - this usually means lowered sales, however). Or fourth - they could change their strategy from pursuing unit sales, to pursuing increased profits. Make more profits per device sold. Then even as their overall market has stopped growing, they could still bring more value to shareholders, by delivering better profits. Bearing in mind, that Apple is already the most profitable company that has ever existed in human history, this would be quite a thing haha, but that is the fourth option. These are not 'mutually exclusive' options, Apple could try more than one of those simultaenously, of course.

Now the immediate next step from Apple seems to be breaking the $1,000 price barrier for the iPhone (ie option 3, raising revenues without increasing unit sales). Note, this also is a strategy that was first offered on this blog (at least, first that included any scientific analysis ie offering the current handset price pyramid, and ilustrating that strategically, it was possible for a premium handset maker like Apple, to raise their prices. In other words, that I felt there was a market segment of consumers who would be willing to pay up to $1,000 for a new iPhone, when new iPhones back then cost about $600 a piece - excluding the handset subsidy of a 2 year contract of course. All prices that I talk about on this blog are the real price, not the fake subsidised price distortion that is still in use in some countries like the USA). So yes, sorry about that, you can blame this blog for at least partly contributing to the direction that we suddenly got a few years ago, when top-end phones started to be priced at ever higher levels... So in terms of this 'strategy' of suddenly 'alarmingly' high prices for iPhones, yes, this blog argued that strategy first (at least first, when supported by current market data of handset prices). If Apple do now release an iPhone 8 at the 999 dollar or above price, then yes, this blog has once again, predicted correctly the direction of Apple's iPhone strategy's near future. So what are you thinking next, oh Sage Tomi? Haha. Lets take a lesson from history. A painful one.

WHEN YOU ONLY HAVE A HAMMER

So, first the warning. If the only tool you have is a hammer, you tend to see every problem as a nail. My background was strongly influenced by my last full-time employment at Nokia HQ (I left 16 years go) Yes, I've been a consultant, analyst and author ever since, and worked with almost every player in the industry but in some ways, you can see throughout my writing, that Nokia plays a disproportionate part in all of my analysis. I tend to see lessons from Nokia in various developments we have in the industry. So just a word of warning to start off, I will yes, make a Nokia analogy here, and it may just be that I am foolish about now having that hammer and seeing any problem as 'Nokia happening again'. But don't worry, this is not about Stephen Elop the most incompetent lunatic CEO ever to run any company (and to destroy it). This is about the decade that came before Elop. This is a lesson for Apple of how Nokia approached a very similar situation in the same industry.

So you like Apple today? Biggest mobile company by revenues and profits. The most valuable company in its industry (actually, most valuable company of any time in any industry). Recently made a management change, its iconic CEO is now gone. The market share growth has stopped, stalled and turned into decline, but the company easily makes the biggest profits of any rival in its industry. Now consider Nokia only twelve years ago. Nokia was the world's largest mobile company by revenues and profits. It had the largest market share of all phones, but its market share had peaked. Its iconic CEO was scheduled to soon quit, and a successor was being groomed already. And Nokia announced that it will stop pursuing market share growth, it would shift to pursuing profit growth instead. And part of this shift, was to move from lower-cost 'featurephones' ie 'dumbphones' to the new highly-profitable 'smartphones'. Also Nokia wanted to sell its very low-profit networking unit (that part which today remains, as Nokia later was forced to sell its total handset business to Microsoft).

Initially Nokia's strategy worked well. For a few years. It continued to make incredible profits, and through two world recessions, Nokia was the only full-portfolio handset manufacturer that was profitable in its handset unit in ever quarter. Every other full-portfolio handset maker rival of Nokia at that time - from Motorola to SonyEricsson to LG to Siemens to Samsung - reported losses in their handset unit, at some point in those world recessions (I am ignoring what back then were tiny specialist smartphone makers like HTC, Blackberry and Apple). But not Nokia. Nokia was SAFELY the most profitable of its industry. And even as Apple would climb to take third ranking in smartphone sales (and fourth place overall in total handset sales), and Apple prodcued bigger total profits in handsets vs Nokia, even then compared to ALL of its MAJOR rivals (full portfolio handset makers, those who made mass market dumbphones as well as the new modest-scale premium smartphones) ie Motorola, SonyEricsson, Samsung, LG etc - Nokia towered over all those with its profits. Only Apple - which soon would become the most profitable company in ANY industry - only Apple made bigger profits in selling only smartphones. Even then, Nokia sold more than twice as many total smartphones as Apple sold iPhones. So yeah, Nokia in purely 'smartphones' when measured against Apple - had fallen to second place in profits - but vastly outsold Apple in total smartphone units. This is not 'failure' at Nokia. While yes, Apple was besting Nokia in profits.

But now consider how the strategy went, and how the investors took this strategy. Initially, the investors loved it. Yes, their favorite tech brand (before Apple, Nokia was THE tech brand in the mobile sector. The nearest thing to a 'guaranteed' investment. Time and again, the Nokia share was split, and Nokia value just kept climbing and climbing, until it became the most valuable company in mobile, as well as the most valuable company in Europe. And Nokia could do now wrong. It had a conservative management, that always gave the truth on whatever was happening, good or bad. And it always was cautious in reporting what was coming up. Then in its quarterly results, it would tend to match or slightly beat what was the expectation. And if you invested in Nokia in the late 1990s or early 2000s, you could not fail. Any mid-term or long term investment in Nokia, as long as you only eliminated the regular cyclical down-turns of the economy - then Nokia was the best investment of the major tech brands you COULD make, in mobile (until Apple).

So Nokia overtook Motorola to become the largest handset maker in 1998. Then Nokia went on to own a third of the handset market, and then it came close to 40%. And then Nokia CEO (Jorma Ollila) announced that Nokia would not pursue market share anymore, but would pursue profit instead. And what happened after that? For the rest of Ollila's career as CEO, and all through the next CEO Olli-Pekka Kallasvuo, Nokia continued to be profitable in its handset division - in EVERY SINGLE QUARTER. Where all of its major rivals stumbled. Nokia continued to produce the biggest profits vs any other 'global major' brand in handsets, ie a full portolio handset maker - and Nokia which still of course sold more dumbphones than smartphones - was making bigger profits than most PURE SMARTPHONE makers like HTC or Blackberry. Only Apple with its iPhone, grew to make more profits as a pure smartphone maker.

But now, as Nokia was focused on profits, "not market share" - what happened to market share? It started to decline. And then EVERY QUARTER the market share number was down. There could be a tiny blip, one quarter, where it might tick up a bit, but then it was again down. While total REVENUES grew, and Nokia reported the best profits of the (full portfolio) handset peers, the market share news was 'negative' every single time Nokia was in the news. And that - inspite of good profits EVERY TIME - and often Nokia RECORD profits time and again - the market PERCEPTION changed from Nokia being a winner, to Nokia being in trouble and a loser.

Before Jorma Ollila's announcement of focusing on profits, there was no end to Nokia's share price growth. After that announcement, shortly thereafter comes the Nokia price peak and then it never recovered. The share price started to tumble, and then it tumbled, and then it tumbled and then the new CEO was replaced with another new (idiot) CEO and the Nokia share price started to collapse and it collapsed further and further. After a decade of astonishing growth, came nearly a decade of ever worse decline.

Does this sound familiar? Is Apple now telling us, we won't worry about unit growth or market share (anymore) and we will rather raise our prices sky-high and pursue high profits instead? There is no 'next iPhone product' to save Apple. The new iToys like Apple Watch are in fact, failures. And now the only way forward is to make bigger profits.

PARALLELS ARE VERY CLOSE

Apple is the most profitable company in mobile, which previously built its size in an adjacent tech field (computers). Nokia was the most profitable company in mobile, which previously built its size on an adjacent field (telecoms networking hardware). Apple has seen its market share peak. Nokia saw its market share peak. Apple is seen as invincible and unbeatable. Nokia was seen as invincible and unbeatable. Apple seems to be now shifting its focus from caring about unit growth, to only focusing on profits (the news is that the first run iPhones made at Foxconn will be less than in previous years, only 5 million units - this suggests that Apple may try to squeeze maximum profits out of a shrinking market). Nokia openly announced it was shifting from a unit growth/market share strategy to profit strategy.

So first, it is quite possible that Apple is able to grow its unit sales for Christmas and raise its prices for the iPhone 8 and get gargantuan profits while doing so. It is also possible that Apple has some wonderful features or new tricks they've prepared in secret for us, on the iPhone 8, that it becomes a massive hit phone. So say it cures cancer, has teleportation and time travel. That kind of things. But if the iPhone 8 is 'just another iPhone' - it IS facing ever stronger competition. Samsung for once is not stumbling with explod-a-fones. Huawei IS gaining on Apple. An ever more dangerous field of powerful rivals from Vivo to Xiaomi is joining the usual gang of LGs and Lenovos. Even Nokia is making a noisy come-back. If the iPhone 8 is 'only a regular' update, and not something spectacular to celebrate the 10 year anniversary of the iPhone, then this Christmas season for the iPhone could be far more challenging than usual. And that is BEFORE we consider the raising of the price.

I said when I told you that iPhones could raise their prices, that the optimal time to make that jump was, when the iPhone would do its phablet models. Not now. Today, if Apple does not have something CLEARLY SUPERIOR in the next iPhone, then a big jump in the price would seem like price-gouging. Being greedy. Milking the iSheep. And Apple could face some backlash. I am not suggesting that Apple FANs would stop buying their next iToy, obviously. They are safely brainwashed into the iCult. I mean the undecided consumers, that will make the difference between an ok Christmas 2017 for Apple or a great Christmas.

So if the iPhone 8 is not 'revolutionary' and radical and supremely desirable, but it suddenly jumps the prices up massively - then all economists suggest that it should mean lower sales (increased price = lower sale; reduced price = increased sale. Basic Economics 101). Now if the rumors are true (Foxconn gets reduced early orders for iPhone 8 and iPhone 8 price jumped to about $1,000 and also the rumored specs of the iPhone are true (nothing exciting coming) - then we could see a 'disappointing' Christmas Quarter for the iPhone - followed by an EVEN MORE disappointing FIRST Quarter 2018 (January-March quarter, calendar quarter, I am not talking of Apple fiscal quarters). Because First Quarter (Jan-Mar) is driven by Chinese gift-giving season. If the Chinese feel that hey, the iPhone is a rip-off, and far better phones are available - including their beloved Nokia - then many who otherwise were buying iPhones in the recent past, will suddenly abandon the iPhone for Chinese New Year gifts, and the China sales in early 2018 will be ALSO DISAPPOINTING.

And suddenly, Apple would have TWO CONSECUTIVE bad quarters of press. The market share is in decline, the unit sales are in decline, the quarter AND ANNUAL sales of iPhones fell - against most analysts' early predictions - and this all would create an echo chamber that suddenly spells 'doom' to Apple. While it generates obscene profits (remember, Nokia generated record profits too). Now what if some other player (Google, Facebook, Amazon) suddenly reports exciting growing profits and becomes the 'new tech darling'? Apple COULD see the same kind of decade-long decay and decline like Nokia did, where soon the shareholders will demand Tim Cook be replaced (because he is no Steve Jobs) and they start to demand ever more 'new strategies' that eventually in Nokia's case led to the hiring of madman Stephen Elop and his suicidal Windows strategy for Nokia.

THIS IS THE CERTAIN PART

Some of this is warning from history. History doesn't repeat itself, but it rhymes. Apple could 'do a Nokia' and I don't mean the death-of-Nokia like Elop, I mean the 'loss of trust' Nokia that was the years of Olli-Pekka Kallasvuo. Even as Kallasvuo precided over every single year a profitable Nokia, only one QUARTER did he see a quarterly loss, and that was not in the handset unit, that was in the networking unit (after it had bought Motorola's loss-making networking unit, and this during the worst economic recession in our lifetimes). So Apple could shift into a period where every year, and most quarters, Apple reports declining iPhone Unit Sales (and market share) with no 'next iPhone' success in sight. And while Apple also reports concurrently astronomical profits, the investors become ever more gloomy and alarmed, that the iPhone is heading towards the dangerous 10% market share level. And then old Apple investors remember the Mac vs Windows wars, and how Apple was on the brink of bankruptcy in 1997 yes literally only 20 years ago. They say that which goes up, must come down. It is far more likely that an Apple share value peak is upon us (soon) than somehow Apple ignores all economic history and lives in an alternate economy and just keeps breaking all the rules. If Apple openly, or just by its actions, shifts its strategy from pursuing unit sales growth and holding market share, to a declining unit sales and plunging market share (in a market that is still growing, mind you!) then I think it is inevitable that at some points, Apple investors will revolt and say, I don't want you to go to selling one iPhone that costs 50 Billion dollars, per year, to one silly mega-billionaire. I want Apple to be viable in the future and must go back to growing market share.

And THAT will be the death-nail. Because being a profitable niche-player is incompatible with being a mass market leader. If the investors accept the Apple new strategy, then that is ok. But they will be hearing perennial bad news, every single quarter, how Apple is down to 13% market share. And then down to 12% market share, oh, and Huawei is now number 2 and Apple fallen to number 3. And then Apple is down to 11% market share, and someone else, like Vivo or Xiaomi or Gionnee is now chasing Apple for that number 3 slot, and then Apple is at 10% market share and so forth. That to me, sounds like the malaise that hit Nokia in the late 2000s decade. Remember, Apple will not be number 1 to begin with. SAMSUNG will easily be the biggest smartphone maker - and Sammy will also be profitable almost any quarter that it just doesn't deploy pocket explosives to its customers. Some investors will hark to the days when the iPhone was larger than Samsung's smartphone biz (has happened in 2 quarters in the past 6 years) and now they observe that Samsung is more than twice the size of Apple and even Huawei is 30% bigger.... Then Apple reports numbers where the iPhone market share is at 9%.... 

I don't think this is a strategy that is long-term sustainable. I think it will doom Tim Cook. Now, many MANY things can happen in the interim. Imagine a 'new iPhone' product like what initially the iPad looked like and what many hoped the Apple Watch would be. Maybe something like the iCamera. And its possible Apple shifts to a 'broad portfolio' premium smartphone strategy, especially as they eye India - releasing lower cost iPhone models to hold onto more market share. Even then, they are a premium brand. They cannot get back to 20% market share. Huawei has the reach, but a far broader portfolio - it is only a matter of time when Huawei passes Apple for second place. And when THAT happens, I think the alarm sets in. That 'oh my gosh, Apple is not invincible' and then - the hope and hype built into years of iHysteria would come out, and Apple could see years of unending value decline.

And on that note... what ELSE could Apple possibly do? They have by far the world's largest consumer segment ever to go for a niche premium-priced product. Steve Jobs promised 10 million annual sales of iPhones. That was laughed at by most insiders of the industry as utterly poppycock (not me, this blog calculated how they could achieve exactly that in their first year). But look at Apple's enormous success. They now do 20 TIMES that level of sales in a year. A level which was seen as ridiculous as a goal, set by Steve Jobs ten years ago. What else COULD Apple do now? They have nowhere else to go? They can't turn the premium iPhone into a discount brand to compete with say Samsung in scale. Their ONLY way is to now secure the maximum possible profits out of this level of customers. But if Apple iPhone sales have now peaked and they start to raise prices - that is it. There will be no more organic growth left for the iPhone and iOS. That is then acknowledged also at Apple, if not explicitly, then implicitly by their actions at least.

Now just to remember. There was a time when TomTom was unassailable in GPS. Or when GoPro was the huge success in camera tech. Or when the iPod was the music player that could not be defeated. Microsoft, gosh Windows, was supposed to be such a powerful digital powerhouse it would never be toppled, yet Android took the (pocket) computer market as easily from MIcrosoft, as taking candy from a baby. (Granted, Steve Ballmer is a big baby). But just because RECENTLY Apple seems to be doing nothing wrong.. that is EXACTLY the same feeling we had of Nokia 12 years ago. And just 20 years ago, Apple was on the brink of bankruptcy. If Apple can sustain a passionate fan-base of iSheep who buy every iToy and stand in line for the whole night to get their next iFix, all is good. If Apple starts to push silly iFailures at those consumers (Apple Watch? Seriously?) how long will that passion remain? It will certainly stop GROWING. and if Apple's only response then, is to resort to ever more expensive iToys to keep profits growing - that means at some point, most sensible people will abandon the iTax and go to normally-priced better-value sensible products. But if the GROWTH ends, then magic of Apple seems to have burst, and that will be blamed on Tim Cook (and probably also on the price-gouging strategy too, especially if there are other devices coming like Apple Watch that seem only to be made to milk profits from iSheep). 

I am not an investment advice blog .But for this blog article, I will be very 'liberal' in allowing discussions of profits and shareholder expectations into the comments (usually those topics are forbidden). Please readers, don't take advantage of this in today's evaluation talks. Limit your views to 'long term' investment views, not today's market status, ok?

Because of the lesson of Nokia, shifting from 'market share strategy' to 'profit maximising strategy' in this VERY same handset industry. And because of Apple apparently getting ready to try that same shift, I wanted to write this blog as a warning. I do think that would be short-termism and foolish and not sustainable. But I also think Apple will do that next. The signs strongly suggest it is what is coming from Apple in the coming months. What do you think? Lets talk in the comments.

Comments

[Tomi T Ahonen]

Hi Asko

I deleted your post and you know why. I'll be happy to discuss the issue but don't link to trolling sites

Tomi Ahonen :-)

[E.Casais]

The comparative evaluation is interesting, but remains speculative till Apple officially unveils its forthcoming products.

As for peak Apple, I will just remind a comment I put here (http://communities-dominate.blogs.com/brands/2014/05/lets-do-the-big-mobile-numbers-blog-where-are-we-in-mobile-stats-in-2014the-mobile-subscription-rate-is-at-or-very-very-nea.html?cid=6a00e0097e337c883301a3fd092ad3970b#comment-6a00e0097e337c883301a3fd092ad3970b) more than three years ago:

"I have always stated that Apple will remain safe and hugely profitable till the medium-term, and that the point where it may start to decline (but not collapse) is when its employees move to the new fancy headquarters."

No elaborate analysis, just applying an empirical observation made by others regarding a variety of large corporations.

Apple employees started moving to the new fancy headquarters in April 2017; accordingly, peak Apple should be upon us.

[Tomi T Ahonen]

Hi E

LOL, so it was you who made that very interesting observation of connecting the move to new corp HQ to the peak in their position. I remember the original comment. I was reminded of it a few weeks ago when the news broke that Apple employees are unhappy at their new HQ. And I was reminded of your comment (but didn't remember who it was here on the blog). haha, yes VERY astute observation indeed and it may well turn out to be the perfect canary in the coal mine, to pinpoint the start of the peak...

Tomi Ahonen :-)

[Greg]

We know more about this iPhone announcement than any previous due to the accidental HomePod firmware release (with debugging enabled and only intended for Apple employee beta-testing).

Apple is again splitting a product line into consumer and pro as with their desktops (iMac vs Mac Pro), laptops (MacBook vs MacBook Pro), and now iPads (iPad and iPad Pro). iPhone Pro, anyone? Apple has been doing this ever since Jobs returned 20 years ago and slashed the number of products offered. Ever since, Apple has been careful when adding and transitioning products (such as MacBook Air effectively replacing MacBook).

iPad Pro has allowed Apple to lower the price of iPad. Will be interesting to see if iPhone drops from its $649 price with the introduction of a higher price tier. The iPhone Pro also allows Apple to introduce premium technology earlier in manufacturing without requiring a 200 million component order.

"All prices that I talk about on this blog are the real price, not the fake subsidised price distortion that is still in use in some countries like the USA" - while it may still be possible to buy a phone on 2-year contract here in the US, we're now mostly buying phones in installments without risk of a costly Early Termination Fee. We're now paying less and getting more (unlimited, though T-Mobile and others throttle video). Federal Reserve Chairman Janet Yellen even noted how this has been a significant effect on inflation:

"Twice, she mentioned factors that seem to be temporarily depressing inflation measures. A pricing war among mobile phone service providers has led to falling prices for cellphone plans, and prescription drug prices have made what appears to be a one-time drop." - https://www.nytimes.com/2017/06/14/upshot/janet-yellen-and-the-case-of-the-missing-inflation.html

[John F]

@ Tomi

Tomi, comparing Apple with Nokia, whom even in their peak and best times were not even close to Apple and coming back to the Camera tells me that like many before you, many more that have passionately argued Apple doom, there is a gap in properly understanding Apple.

Apple's net cash and free cash flow is bigger than that of Amazon, Alphabet and Facebook combined.

Close to 850 billion in value and with cash in had above 150 billion, you are talking a trillion dollars, it's simply unimaginable

I would strongly recommend you to read Horace Dediu's post and insightful closing comment.

http://www.asymco.com/2017/07/14/other-products/

Now, I have to give you thumbs up for this temporary decision to let finance into play, when discussing Apple it is necessary as there is no separation possible, later, I will come back with more thoughts.

[Tomi T Ahonen]

Hi Greg and John

Greg - great points and yeah, clearly I'm no Apple Analyst haha. I don't have the bandwidth to try to follow everything Apple does, so yes, the moment I read your words it made sense, this is typical Apple (of recent years) and yes, this signals a split into the consumer product line and the pro product line. (haha, isn't that AGAIN just like Nokia with E-Series for enterprise and N-series for consumer smartphones...).

You're right in that this type of split introduces for Apple the chance to 'put more daylight' between the product tiers. The pro line can go higher, and the consumer line prices can be lowered, and these should be relatively safely insulated not to destroy one another... Top features appear mostly on the pro line first, then later brought into the consumer ('discount product') line. All makes sense. And haha, wasn't it THIS blog who argued for such a split in Apple iPhone product line to BEGIN WITH at the start of this decade and that I've repeatedly said, Apple doesn't have enough distinction between the price tiers (the 'nano' discount iPhone is still priced too high).

I'd like to see the low end prices of the entry-level iPhone lowered, while the top end is raised. I am afraid that Apple will barely do that at the low end while massively jacking up the high end. But we'll see soon enough.

On the gradual end to handset subsidies, yeah, that is a good trend but I've been calling for it for my whole professional life, so it will have been a VERY long time coming, when it finally is completed...

John - haha, so you seem to suggest initially in your first response, that just because Apple's numbers are bigger than anyone before, therefore they are immune to the rules of economy that applied to all before it. I'll await your detailed response but if you only go by 'look how big those numbers are now' - that is a sure recipe for disaster to follow. As to the Asymco blog, it is a must-read on anything Horace writes, thanks. Yeah, already read that...

On predicting doom for Apple - I have done no such thing. I said repeatedly for 10 YEARS that Apple is SAFE to be profitable serving its iSheep and nobody will take them or their loyalty. EVERY year, EVERY quarter, I say Apple is safe. They are making the biggest profits of the smartphone industry and IN THIS BLOG I clearly said that would continue to as close as forever, as can possibly be reasonably argued into the future. I never once said Apple was doomed. So don't lump me with the idiots who proclaim that. I have NEVER ONCE said Apple was doomed on this site. Not in its existence of 12 years. Not in any of my books written before this blog was up, either. I love Apple. Apple will be there and profitable. I just think the INVESTORS who have recently been fed a pack of lies, THEY are about to be fleeced... I never once said Apple was doomed. Where have I said that, ever? Even when I wrote the bombshell blog that Apple market share had peaked - I said Apple cannot lose this war, they will only lose the peak level of the market share. That as long as Apple serves those of its fans who love Apple then Apple can - into perpetuity - make hugely profitable business out of the iSheep. That has been EXACTLY the same story on this blog for the full 10 years of the existence of the iPhone, at every single news from Antennagate to Galaxy's Explod-a-pants.

So feel free to frown upon the clueless idiots who proclaim Apple's doom. But I've never said that anywhere.

PS on 'not understanding Apple' - can you point to one instance John, where I said 'Apple has to do this' and Apple hasn't also done it? There are MANY things I have WISHED Apple did (from QWERTY keyboards to microSD to removable batteries to the iCamera) but EVERY time I said 'Apple has to do this' from adding 3G and MMS support to the original iPhone, to now phablets, increased prices to $1,000 and NFC support - every thing I said Apple has to do, it has done. So where am I somehow 'not understanding Apple'?

I even correctly called the NEED for an iPhone before anyone had seen it - and the exact REASON that Apple gave for the iPhone (iPod market share threatened by Sony Walkman type musicphones). So literally, LONGER than the iPhone has existed as a product, I have given CORRECT iPhone analysis on this blog. The REST of Apple, well, I am not an Apple analyst, I am a mobile industry analyst. So while yes we can talk about the profits and economic viability of the whole company here now in this thread, I really don't care one iota about how much cash Apple is sitting on. I WOULD think that some investors might be worried, that why is Apple not doing anything with all that cash it has squirrelled away, but that is honestly not my concern. Nokia once stood on the largest pile of cash ever accumulated in the mobile industry - and look what good that did to them? Much of that cash was still at hand when the Elop collapse started. It did no good then either..

But that is then the realm of the Wall Street analyst types, who like to do that kind of technical analysis, and like I said, I'll allow it in this thread. But history tells us John, history tells us that the previous guy who sat on the LARGEST PILE OF CASH in this industry that had EVER BEEN COLLECTED BY ANYONE. That company was Nokia and exactly the time scale that I discussed in the above. Your example only UNDERLINES my point. There is a threat that Apple is going to experience the same reaction by its investors as Nokia saw from 2005 to 2015..

I'm awaiting your longer detailed analysis John, and all, pls keep the comments coming. This is a good start for us :-)

Tomi Ahonen :-)

[Tester]

Well, it seems the iFans are again suffering from comprehension failure, not that this surprises me.

I agree that the biggest threat in all this is not that declining sales would harm Apple's bottom line.
The real threat is that the investors might perceive an inevitable realignment as a sign of failure (as most of these people are too stupid to do real business, it sometimes looks.)

But what will happen if the stock price falls? This will inevitably attract some scavenger 'investors' which are not interested in keeping it alive, but instead draining it of its assets (remember the large pile of cash Apple sits on?) This has ruined more than one otherwise healthy company in the past and ended more than one CEO's career.

Apple's biggest problem is exactly that 'they cannot do wrong' attitude perpetuated by its supporters. That will inevitably lead to unrealistic expectations and once those are not met, all bets at the stock market will be off.

[Johnnie Hougaard Nielsen]

A risk with Apple going after increasing profits on a dwindling market share is coming to a point where app makers treat iOS as a secondary platform, delaying launches and updates, and carefully weighting whether their market is people who view high price as an attractive feature.

Apple already struggles for market share in most of south/central America, Africa, and large asian countries like Indonesia (3.09%), India (2.61%) and Pakistan (3.85%). Being strongest in USA, Canada, northern Europe, Australia and Japan reveals a low penetration in lots of emerging and already quite strong markets. The status of being an aspirational brand cracks real fast if locally important apps are not present on a minor platform. The US echo chamber is becoming less and less important in the world economy.

[tz]

And then there's antitrust. The EU fined Google over 2 billion Euros IIRC.
In the USA, because of their getting politcal - basically throwing Trump supporters off their platforms - conservatives are calling for Anti-Trust investigations. Google dominates search and Ads. Facebook with social. But Apple is the other half of the Duopoly with Android/Google.
They seem to both hate free speech and Trump. Bad idea even if true, or at least lay low. Instead I expect the DoJ Anti-Trust division to do to Google, Apple, Facebook what they did to IBM in the 1970's and Microsoft with their browser when they specifically targeted Netscape.
Apple may be broken up or ordered to add alternatives to iTunesAppStore.
Between Apple and Google, they control over 95% of the market. Apple might be the premium alternative, but they are even more exclusionary.
Somehow a billion in lobbying has less effect when they are publically calling on Trump to be impeached if not assassinated constantly and publicly.

Then there's the Tech bubble, often known as FANG or FAANG (facebook Apple Amazon Netflix Google) which is over-valued and when that collpses, shareholders will start asking questions, but not financial ones. They will demand management changes if only for that reason. 1999 valuations were not sustainable - Microsoft was a very profitable company too, but it collapsed over 50%.

Which is another unrecognized problem with Apple. If the share price collapses by 50% just because of the market and nothing that Apple did or did not do, they are sitting on 250 BILLION in cash. There WILL be demans to use that cash to buy back stock or otherwise prop up the share price, not to do R&D or make products better. That will bail out shareholders, who then might take the profits and run, leaving a low share price without that cash cushion.

[john F.]

@Tester

But what will happen if the stock price falls?

You should be more informed before saying such things, it makes it clear that you do not follow the company and its market performance and you are just talking nonsense

Fom 97 to 56

From 134 to 91 ....

Those 2 brutal falls happened in the last 4 years, apply % and see the number.

Luckily for you, financial data is available, it's factual and you will be able to educate yourself so next time
you say something, do it using facts and figures, you might have room to maneuver when discussing if iOS
or android is better or not for your needs.

There is no room when commenting apple's financial results, as you can see there have been 2 huge falls, so the question you asked shows you have no clue.

[Winter]

Remember, the stock price is the discounted value of all future profits, corrected for risks.

Apple share prices depend on investors expecting a certain growth in profits at low risks. If either expectation changes for the bad, the stock price can fall very fast.

Reports of decreasing unit sales infallibly increase the risks of a decline in future incomes, even if the profits grow as expected. This results solely from the fact that the income growth has to come from fewer consumers, which is necessarily more volatile.

I expect that, when stock prices fall, Tim Cook will be replace by an ex MS manager "to turn Apple around".

[Tester]

I see that some people still believe in magic when it comes to Apple's economic future.
And that's precisely the problem here - if that magic's results are priced into the stock, the realization that there is no magic will inevitably make it take a deep plunge.

[Abdul Muis]

@Jim Glue

Apple buying it's own stock can have many reason... It could also means that apple don't want their share price going down, or converting the short time investor with long time (https://www.fool.com/investing/2017/09/06/apple-inc-just-raised-5-billion-more-in-debt.aspx).

[Abdul Muis]

@Tomi

I think your prediction on Apple doomsday scenario is not "brave" enough. Microsoft can survive now because it's monopoly and considered De Facto in OS. Apple iPhone is NOT monopoly.

But I think as a company Apple will not die (or in zombie state) like blackberry. Because Apple have multiple good product (unlike BB).

The problem of peak iPhone will be investor rage over management, and there will be office political war & shake up.

[bjarneh]

Interesting read. I love how you manage to cram in that "Elop is the worst CEO of all time" into most of your writing :-)

Following Jobs is not easy though; but that watch never made much sense, a pulse/smart watch that requires charging every night; with a touch screen to small to be useful..

Obviously you will fail in the long run if market share keeps dropping; these are technology products after all. "Being cool" does not matter to much if developers stop targeting your platform, which they might if market share gets small enough; just look at BlackBerry

[Winter]

@LongAAPL etc.
I am sorry. I should have added the [humor] quotes. My bad.

[Winter]

@Jim Glue
" Apple came, Apple saw, Apple conquered."

In the end, mighty invincible Cesar was emperor for only 5 years.

[SDS]

Apple should increase the price of its iPhones. Your typical iPhone buyers have proven to be extremely resilient when it comes to tolerating higher and higher prices for the iPhone. In fact, chances are that they will welcome such a step, for it will make the iPhone feel a little bit more exclusive and special.

[Winter]

@Jim Glue
"It's always been $650, marketed as $199 with contract. The price in US dollars hadn't changed in all this time."

With the prices of handsets falling, Apple went from 50% more than the average price of an Android handset in 2010 to 200% more (1.5 times to 3 times the price).

http://fortune.com/2016/02/15/apple-android-asps/

https://www.statista.com/statistics/510668/smartphone-average-selling-price-worldwide/

"During that time the memory included at that price has increased."

Which is customary US marketing nonsense. With fixed memory, it should have been massively cheaper now as memory prices have fallen by an order of magnitude, from $80 for 1GB in 2007 to $50 for 16GB in 2016.

http://www.jcmit.net/memoryprice.htm

[Olivier Barthelemy]

Another way for Apple to grow sales i,n spite of a flat iPhone and w/o rising iPhone prices is to rise ancillary revenues. If I were an iPhone users, I'd be getting prepared to be milked relentlessly via ever more proprietary peripherals, app, content, and via rising prices for those.