Apple has long relied on China and the iPhone for growth, and as those revenue sources continue to decline, the company must explore new regions and products to get back on track.
Plus, Apple's next big thing is a big device-based language model; iPad retail sales decline; Vision Pro sales lose momentum; and iOS 17.5 includes a change that could disrupt the App Store.
Apple (AAPL.O) is under attack from all sides. It is under scrutiny from regulators and lawmakers in multiple countries. It is playing catch-up in artificial intelligence. And, as the recent collapse of its car project shows, it is struggling to find new product categories.
Perhaps more worryingly, two of the company's traditionally reliable business units are struggling: the iPhone and sluggish sales in China.
After a brief recovery during the holiday season, iPhone sales are expected to fall again when Apple reports its latest earnings. This will drag overall revenue down by about 5%, the fifth decline in the past six quarters, according to Wall Street estimates. Unit sales are also falling, with IDC predicting a 10% drop in iPhone sales in the first three months of the year.
The good news for Apple is that current iPhone users in China are not replacing their phones in large numbers. The problem seems to be more about attracting new users to the Apple product ecosystem and getting existing users to upgrade as quickly as possible.
It’s no secret that iPhone upgrades have slowed in recent years. There are a number of reasons for this: a lack of old-school carrier subsidies, rising phone prices, a struggling economy, and a world still struggling to recover from the pandemic. But it’s also clear that Apple is giving consumers fewer reasons to upgrade.
Let's face it: Apple's flagship hasn't changed all that much since the release of the iPhone 12 in 2020. Prior to that, there hadn't been any major upgrades since 2017. Gone are the days of a major iPhone revamp every few years.
To make up for this, Apple has gone all-in on services and accessories. While iPhone users may not upgrade their smartphones every year or two, they still likely spend a few hundred dollars a year on services, apps, and AirPods. Maybe they even shell out for an Apple Watch. When users finally decide to buy a new iPhone, it's just the icing on the cake.
But even this strategy had reached its limits. Sales growth had stagnated, and it was clear that a change was needed.
What can Apple do? The most obvious answer is to launch a major new product category, but there won’t be any new products coming anytime soon. The company spent a decade and $10 billion developing a car that will never come out. It spent another eight years and billions of dollars to create the $3,500 Vision Pro, but that device won’t be a major moneymaker for years. Until Apple can make something lighter and cheaper, the Apple EarPods will remain a niche product.
But I do think there are ways to return to growth without creating an entirely new device. Apple's best course of action might be to develop a cheaper iPhone and re-enter emerging markets.
There have been calls for a cheaper model since the original iPhone hit the market. But it's not something Apple has actively pursued. Apple's first attempt to make the device more affordable was to slash the price of a year-old model by $100 when a new version came out. Apple followed that up with the iPhone 5c in 2013, but that model was mostly just the old version wrapped in colorful plastic, also with a $100 discount.
In 2016, Apple tried again with the iPhone SE. The $399 price tag was an improvement, a few hundred bucks cheaper than the higher-end models, but its design quickly became dated. Today’s SE costs $429, which isn’t exactly a bargain considering its lack of features.
Next year, Apple plans to upgrade the SE with an all-screen design that will make it look more like a modern smartphone, but with a faster chip and premium materials, it's a safe bet that it will cost much more than $400.
If Apple wants to take emerging markets seriously, it should develop an iPhone that costs around $250. That might not be something Steve Jobs would do, but a lower price might be what Apple needs right now.
Apple could cut costs by using an all-screen LCD display (rather than the more expensive OLED display on current iPhones) and reducing the number of cameras. The device would use an older but still capable chip and perhaps a plastic casing (still retaining Apple's industrial design). And the company would probably limit sales of the phone to emerging economies.
This will require a shift in thinking. Apple will have to forget its vaunted profit margins and just go for revenue and market share. The move could help build the company's brand in developing countries, and Apple could eventually upsell more expensive devices to those consumers. In the process, more and more people will get hooked on Apple's services and apps.
Apple has held off on that move for fear of diluting its premium brand. That, I’m told, is why discussions about selling a truly cheap iPhone haven’t progressed. “We don’t offer dumbed-down, crappy products,” Jobs said years ago, and Apple still lives by that philosophy today.
But the market is changing. Competitors have improved, and the stakes are higher. Apple also recently took a move that suggests it’s more open to new ideas: The company now sells a $699 M1 MacBook Air through Walmart but doesn’t advertise it on its own channels.
Billions of people in the world don't use Apple products, and that probably won't change without more affordable options. The biggest single opportunity may be India, where Apple is already expanding.
Advanced cellular network access is growing in India. India's middle class is growing, with more and more people buying smartphones every year. Apple has opened two stores in the region and plans to open at least three more. The country is also becoming a manufacturing hub. Apple is rapidly expanding iPhone assembly in the country and plans to eventually produce more devices there.
Neighboring markets such as Vietnam, Indonesia, Thailand and Malaysia are also attractive. Apple already has two stores in Thailand and is about to open its first store in Malaysia. Last year, the company launched an online store in Vietnam. This move usually foreshadows a larger push by Apple in a region. Like India, these markets are increasingly becoming final assembly bases for the company's products.
It was no surprise that Apple CEO Tim Cook visited Vietnam, Singapore and Indonesia in Southeast Asia last week and pledged to increase investment there, following a similar trip to China a few weeks earlier.
There are other opportunities outside of Asia, including parts of Eastern Europe and Latin America. Further afield, Apple could even make a big push into Africa. There are still limitations in terms of infrastructure, but Apple is clearly studying the prospect. It expanded some of its services in the region a few years ago. Last year, the company hired a new general manager for Nigeria, its second in three years.
Apple's next big thing: large-scale language models on-device. As I've discussed before, the company is exploring a number of "next big thing" projects, including augmented reality glasses and personal robots. But later this year, it will make a bigger push into more advanced artificial intelligence. In this area, Apple is playing catch-up to companies like OpenAI and Alphabet's (GOOGL.O) Google, and its initial AI capabilities may not be superior to those of its competitors. But the way it implements the technology could still be a game-changer.
Apple has been developing a large language model — the algorithm that underpins its generative AI capabilities — and all signs indicate that it will be implemented entirely on-device. That means the technology is driven by the processor inside the iPhone, not in the cloud. The result? In some cases, Apple's AI tools may be slightly less powerful and less knowledgeable (the company can fill in the gaps by partnering with Google and other AI vendors), but the approach will be much faster to respond. And it'll be easier for Apple to maintain privacy, too.
Apple will also be taking a somewhat different marketing message. Rather than hyping up the power of chatbots and other generative AI tools, Apple plans to show how the technology can help people in their daily lives. We should learn the full details at the company's Worldwide Developers Conference in June, when it will unveil its AI strategy.
iPad retail supply dwindles ahead of May refresh. As I reported a few weeks ago, Apple plans to launch the iPad in early May, when it will update the Air model and equip the Pro version with a snazzy new OLED screen. Now, we've got more clues that Apple is about to launch a new iPad. When Apple is preparing to launch a new model, it usually cuts shipments of the existing product line, and that's exactly what we're seeing. Sources at multiple retail stores say that stocks of several iPad Air models have begun to dwindle.
We haven't seen that happen with the iPad Pro, which remains in ample stock. This could mean Apple has a lot of inventory to work through (a possible scenario) or that the company plans to keep existing models around after launching new ones. The second scenario could be a challenge from a marketing perspective: Who would want an older, lower-end iPad that's supposed to be a premium product? But it would make sense if the new models were priced significantly higher.
Remember VisionPro? It feels like VisionPro is going the same way as all the VR headsets that came before it. After an exciting launch period, with sales surging and customers flocking to stores for demos, interest has waned.
Here's what I heard from Apple's retail stores: Demo demand has dropped significantly. Appointments are often not showing up, and at least in some stores, sales have dropped from a few units a day to just a few a week. Apple has also had to step up its marketing on its online homepage. There's a huge blurb about VisionPro at the top of the site, the most aggressive promotion of the device since it went on sale in early February.
A big question is whether existing VisionPro users have stopped using the headset regularly—a problem that has plagued previous VR systems. Let me talk about my own experience. In the first few months that I owned VisionPro, I used it every day (sometimes multiple times a day). Now, I use it once or twice a week.
Initially, I reached for the Vision Pro whenever I was watching a movie or YouTube, or just wanted a more immersive screen on my Mac at home. Now, as the initial hype has worn off, it seems clear that the Vision Pro is too cumbersome for everyday use. The process of connecting the battery, booting up, and navigating the interface often doesn't feel worth it. And there hasn't been a killer app that's made me choose it.
The Vision Pro also disconnected me from the real world, which made it difficult to use in front of family or colleagues. It’s only when you’re alone, like on a long flight or working from home, that you can enjoy it better.
Apple has ironed out several bugs that initially plagued VisionOS, the device's operating system, but hasn't done much to improve the experience. The Vision Pro is still missing two "environments" (visual backgrounds that display nature and other scenes), and many of Apple's apps aren't optimized for the platform. The device's App Store remains mediocre, too.
On the bright side, Apple did recently add a spatial character feature that lets you feel like you're in the same virtual room as other VisionPro users. But this is best done if you know other VisionPro users, and there aren't many to be found right now.
The iOS 17.5 beta adds an EU-mandated feature that poses a threat to the App Store. The EU's Digital Markets Act came into effect last month, requiring devices such as the iPhone to install apps directly from the Internet. The goal is to make smartphones more like personal computers, making installing software from the Internet second nature. But this is a big change for Apple and has the potential to shake up its App Store business, especially if the practice spreads beyond Europe.
Apple is content with separate but related EU demands to allow third-party app stores. These marketplaces are cumbersome to set up and operate, so it seems unlikely that many will get off the ground. The consumer experience is unlikely to be pleasant either. Users first have to launch the store, sign up for an account, and then search for what they want in an unfamiliar environment. Downloading from the web, by contrast, is simple: just visit the developer's website or find a download link via Google.
But even if Apple is reluctant to offer web downloads, the feature is now here. It appears in the second beta version of iOS 17.5, which was launched last week. Right now, there are still some obstacles to downloading apps. The software needs to be notarized with an active developer account, and the iPhone will show a permission screen before the app can be installed. In addition, developers will need to pay a fee of half a euro (about 53 cents) for every installation above 1 million per year. Apparently, Apple is not welcoming of this new approach.
The article is forwarded from: Jinshi Data