Apple starts 2017 hoping things will change

It had a record-breaking fourth quarter (Q4) to the end of December 2016 (Apple calls this Q1, 2017 of its financial year) with (all figures in USD) $17.891 billion (B) in profits. But it missed its annual sales target of $223.6B coming in at $215.6B – and CEO Tim Cook had to take a 15% pay cut to $8.75 million (M). Note that for the calendar year 2015 its revenue was $233.7B so sales are down year-on-year (Y-o-Y).

In Q4 iPhone sales accounted for 78.29M units - 63% of Apple’s revenue – but that includes SE, 6S, 6S Plus and 7 and Plus. Unfortunately, Apple does not release a breakout of sales figures for iPhone models. Analysts report that sales were down by 3M compared to Year-ago-quarter (Y-a-Q).

The iPhone 7 and Plus public sales started on 16 September. The 7 Plus sold out globally during pre-order but the 7 was readily available in Q4 if the colour choice was not an issue so Q4 figures include these sales.

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Various app monitors cite a range of figures but it seems probable that 45M of these were iPhone 7/Plus (55% of total sales) and around 30% of these were iPhone 7 and 40% were Plus - up from 17% for 6S Plus. Demand for the larger screen size and the better camera was a major eye-opener for a company that used to say anything greater than 4” was too big.

But the naysayers may yet be proven right that that iPhone 7/Plus is just an incremental update on the 6S. Japanese newspaper Nikkei says sales of the 7 series will slow following launch (Q1+, 2017) because Apple Aficionados are waiting to see what the 10th anniversary “X” brings. Apple has reportedly cut its factory orders for iPhone 7 back by 10% in Q1 and 30% in Q2 – but that could reflect the unexpected popularity of the Plus.

Macs sold 5.4M units (up from 5.3M Y-a-Q) but not only were sales up a little – profit per unit was up a lot. This reflected the holding over of older models gaining Apple manufacturing economies – it is cheaper to continue to use older tech than to annually update to the latest generation chips etc.

iPad sales were 13.1M – down 19% from 16.1M to Y-a-Q but it still had 82% of tablet sales over $200 in the US. Average profit per sale was up – again reflecting longer manufacturing cycles.

Cook said Apple Watch 2 set a revenue record in Q4 but provided no details. According to Strategy Analytics, its sales estimates are 5.1M units or about 55% of the global smartwatch market down from 65.4% of the market Y-o-Y. That equates to 11.6M units in 2016 – down from 13.6M units of Apple Watch 1. Strategy Analytics say consumer preference is shifting from Apple to fitness trackers with crossover smart features.

Services business which includes Apple Music, Apple Pay, iOS and Mac App Stores increased 18% Y-o-Y to $7.2B

And it has $231B in overseas cash which may be repatriated to the US if a tax deal can be done. If not, it must be spent outside the US.

Analysts have had time to digest Apple’s last quarter and there are more brickbats than bouquets.

Bob Burrough, a former Apple engineer, sledged Tim Cook, saying that he's converted the company "from a dynamic change-maker into a boring operations company." He added that Apple's corporate culture has changed for the worse in the last five years Cook has been leading the company.

Serial entrepreneur Steve Blank has likened Cook's leadership to that of Microsoft's Steve Ballmer, who took over from Bill Gates and tripled Microsoft's sales. But under Ballmer, Microsoft missed major opportunities to retain its software dominance as companies like Apple, Google, Facebook and Amazon took the lead on mobile, search, social and cloud. Blanks take is an interesting “must read”.

Burrough said he endorses the comparison between Ballmer and Cook. He went on a tweet storm where he said Apple was no longer a "dynamic change-maker."

Burrough is an engineer and so his comments on that front about innovation may be right. But no one can argue that during Cook's time Apple has grown its revenue and cash coffers considerably

Comment

There is no argument that Apple is a well-run company and I wish, like Forrest Gump, I had the foresight to buy its shares once.

I think the real issue raised by Apple critics is that money making should not overshadow innovation – simply put its Jobs philosophy versus Cook. But hey – it is a vicious cycle for without money it is hard to innovate.

The ghost of Steve Jobs still haunts Apple Fan Boys who are channelling that Apple is boring. In part, the hesitance to go to a larger phone e.g. iPhone 6/Plus and the regurgitation of that model into the 6S and 7 does not help Apple’s innovation image. And ironically the 7 Plus now accounts for 40% of sales with the 7 at 30% - who would have thunk?

It has a chance with the next version and hopefully, the “iPhone X” will be spectacular. Don’t blow it – better to call it a 7S if it is more of the same. Please give me a product I want to buy over all others.

Apple needs to do some work on its image – it even lost the title of the world’s most valuable brand which it has held since 2011, to Google.

Perhaps Cook may do the following gutsy things

• Set the standards and set them high – don’t compete, dominate via great design and technology – I don’t want to hear “Woz” say Apple is doomed or uncool ever again.
• Brutally purge the app store of old, useless apps and make it a premium store and put the rest on a caveat emptor style “Crapple” store.
• Go AMOLED please on iPhone, iPad and why not touch on Mac too
• I have never understood why Apple never made a phone for the masses – if OPPO, Huawei and others can why not it?
• Set up assembly in America for Western markets. You know that the couple of dollars you spend now on Chinese labour can stand a few more to support US workers.
• Open up and be transparent – stop the crapple that Apple will not comment on anything. Yes, I know there are commercial secrets but tell us how many watches you really sold. Be the visionary.
• Lay out your plans for AR, VR, AI, vertical markets and more tech – paint a clear vision of life after the Chinese (and Google) destroy the iPhone market.
• Ditto for home automation and self-driving cars – we all want to know where you are heading and it is no shame not to get there.
• Bet the farm on that hot new product – just like the iPod and iPhone were must haves. Hint – Siri and a range of home products from TV’s to appliances to expand the ecosystem. I will buy a Siri toaster!
• Have the guts to bring back removable batteries and microSD slots
• Get someone to publicly channel Steve Jobs – Jonny Ives is past that. Let them be the inspirational voice and you the backroom guy.
• If not Apple needs to fire you because as an action hero, you are over it and apparently run out of tricks up your sleeve to save the day.