Has Apple peaked? Yes and no. I think the company is still struggling somewhat to find its path following the death of Steve Jobs. But there’s still plenty happening and room for growth in Cupertino. So let’s start a discussion about what’s really going on there. I thought this might be possible in a single column, but looking down I see that’s impossible, so expect a second forward-looking Apple column tomorrow.
The catalyst for this particular column is word coming over the weekend from the Wall $treet Journal that Apple is cutting back component orders for the iPhone 5 signaling lower sales than expected. I’m not saying this story is wrong but I don’t completely buy it for a couple reasons.
It’s from a single unidentified source, which I always find suspect, and the publication makes the interpretation that the order changes are because of slow iPhone sales. How would they know?
“Wait,” you protest, “there are now lots of stories in many publications with lots of experts quoted.”
Not really. There are many reaction stories (called second day stories in the newspaper game) and the experts quoted aren’t for the most part revealing anything new, they are responding to highly specific questions like “If Apple is in fact scaling-back orders, what could it signify?” That’s not news.
Where people are quoted beyond this they are generally traders and traders love volatility. This extends right back to the Journal, I’d say, which also likes volatility.
Here’s what I believe. Apple has clearly opened up the iPhone 5 to anyone who will buy it. A friend bought his at Costco. Straight Talk Cellular (Walmart) now has them. Every carrier in America has or shortly will (T-Mobile) have iPhones, so that means the market is maturing. Remember the turnover in phones is twice as fast as it is in PCs so everyone has all new stuff within three years, tops.
We have to be careful about our terms here so while I doubt that iPhone sales have slowed I’d say that sales growth has undoubtedly slowed, which at Apple traditionally means it is time for a new product category — or would have been during the Steve Jobs era.
But this isn’t the Steve Jobs era and a characteristic of the Tim Cook era, I believe, will be building out existing franchises farther than Steve ever bothered to. This does not mean Apple won’t pioneer new categories, but that they want to milk the current categories for now.
A case in point is the rumored cheaper iPhone, which marketing chief Phil Schiller reportedly says isn’t happening. I’m not here to call Phil a liar, but I’m sure he’s dissembling (isn’t that a great word?).
Phil says “no cheap iPhone.” Well that’s BS. He’ll change his mind this spring or summer saying something like “We don’t make cheap anything — our products are packed with value — but now we’re introducing a less expensive iPhone.”
That’s exactly how Steve would do it, right?
Let’s throw in another data point — China. Last week Tim Cook was in China signing a huge iPhone deal with the dominant mobile carrier — the largest in the world. China is both proud and price-sensitive. What better way to blow open the Chinese market than with a less expensive iPhone?
Cook was quoted as saying that China will become Apple’s largest market. He’ll want to deliver on that sooner, rather than later, and larger numbers of a cheaper model could help do that.
It wouldn’t surprise me at all, in fact, to see Apple do a short term exclusive for the cheaper iPhone, limiting it to China — yet another excuse for Phil Schiller to say it isn’t happening… here in the USA.
The iPhone Mini (that’s what I’d call it and Apple will too) will be evolutionary, not revolutionary. It will have a smaller form factor because Samsung has already staked its claim to oversized smart phones. It will have a smaller, cheaper display, but still a Retina Display, along with all the guts of a 4S, further integrated and made cheaper. When the Mini is eventually offered outside of China it will become the low end phone replacing the current iPhone 4. They’ll keep the larger form factor 4S and the 5 until they launch the iPhone 6 at which point the 4S goes away except for the Mini.
It’s important here to understand the purpose of such an iPhone Mini, which is two-fold. The first reason is to hit the Chinese phone market with a big bang, knocking Samsung back on its heels somewhat by making chic the smaller form factor and selling 100 million or more of them in the first year. The second reason for doing an iPhone Mini is to kill feature phones altogether, expanding smart phones to the entire mobile market. This alone doubles the potential market size and will give Apple another two years of robust growth.
More about Apple’s likely trajectory (it’s not all positive) tomorrow.
I’d argue that an iPhone mini is a bigger disaster than a dropoff in iPhone sales. Either it has to be vastly overpriced or it cannibalizes the market of the high margin stuff.
Worse yet mini iPhones and iPads cement the (correct) assumption that phones and tablets are inexpensive and cheap is good enough. A game at which Android products are best suited to exploit. My present phone is an excellent Kyocera Rise which I got for $50 with no contract.
Steve Jobs used to say something to the effect of, “It’s better we cannibalize our own sales than have a competitor do it.”
And that’s been a winning strategy for Apple thus far.
I’m pretty sure that was Tim Cook, but I’m to lazy to Google it.
Too lazy to proof read…
http://appleinsider.com/articles/12/10/25/cook-apple-has-learned-not-to-worry-about-canibalization-of-our-own-product (in IE8 highlight & click “Google”)
“Remember the turnover in phones is twice as fast as it is in PCs so everyone has all new stuff within three years, tops.”
Why are these things so crappy that they need replacing so frequently? Isn’t this criminally wasteful? Didn’t we get rid of planned obsolescence? Or have we been stupid enough to allow these devices to be turned into fashion items?
The cost is hidden in the monthly payment for those who upgrade often. With a contract you’re paying for it anyway, so may as well accept the new one with the almost free price tag.
It’s not that they’re so crappy. First, a phone definitely sees more abuse day-to-day than a PC, so that contributes greatly to the turnover rate.
Also, phone tech is the ‘it’ thing right now, so a tremendous amount of innovation (money, R&D, etc.) is being poured into this space. This means that a new phone is far more shiny than an old phone. The perceived value of a new phone is higher in the consumer’s mind than a new PC. Combined with subsidies, people are more willing to get a new phone sooner.
In the electronics business, if you don’t eat your young, somebody else will.
I don’t know. I’m a tightwad but I found the features of the 4S compelling enough to choose it over the 4, although it cost twice as much. A cheaper iPhone mini might attract a lot of folks who’d prefer iPhone over Android but don’t have the scratch. Heck, I might find a smaller form factor tempting, although I don’t see me ditching my phone soon (too cheap!)
I’m not sure where you purchased your iPhone that the 4s costs twice as much as the 4. In the unlocked no contract market the price difference is much higher, when buying with a contract most of the cost is subsidized into your monthly bill meaning that up front cost is only a fraction of what you pay.
Yep. And the upfront cost of the 4S was twice the upfront cost of the 4. Sure, most of the cost is absorbed in the contract, so you could say it wasn’t really twice as much. Still, a hundred bucks is a hundred bucks.
Can’t cannibalize sales you never had. A “mini” that only ran on China Mobile’s proprietary network technology (there IS a difference boys and girls!), therefore, would (directly) cut into other sales by exactly zero units. Certainly not lose any US business.
So that’d be the best kind of cannibalization. Tens or hundreds of millions of new sales of an attractive product tailored for its target marketplace, with maybe a handful of sales lost for those who might have gone for chic over faster and more purpose-built.
why NOT put out a dPhone, too small, cheap, and stripped to be an iPhone, to blow away the (no)feature phone business? first, it gets the phone vendors out of the “supporting features that nobody buys” business, which by now looks to be a plus to the phone companies. second, everybody gets a data plan! winner at the deposit window for the phoners. third, tack when the others are about to get a crosswind and get beaned by their sails — the high-buck smartphone is slowing in the market. fourth, it’s Samsung’s game to put out 12 different ideas in phones every 3 months to find the one winner, and then multiply offerings based on that system until something else takes off. why should Apple NOT toss out something different?
Or maybe the reason is (from https://www.guardian.co.uk/technology/2013/jan/14/apple-shares-dip-iphone-5):
“Horace Dediu, who runs the Asymco consultancy, pointed out in November that Apple has made colossal capital investment amounting to tens of billions of dollars, recorded in its financial statements, on manufacturing facilities. That, he suggested, could mean that it has funded a display production facility owned by Sharp, which has been teetering on the edge of bankruptcy despite being a major supplier to Apple. That, too, might mean that it could cut orders from other suppliers. “They just won’t know what Apple’s inventory is, or what they need,” said Dediu. “A supplier there won’t have any visibility on demand, and Apple would never tell them.”
Check your facts. Costco hasn’t sold Apple products for a couple of years.
http://membershipwireless.com/index.cfm/go/shop/do/browsePhones/
My friend Clayton recently told me he bought an iPhone 5 at Costco for $127.
Unless it is a local wireless store inside a Costco selling them. I’ve gone by the wireless booth in my local Costco multiple numerous times and I’ve heard the guy behind the counter say: No we don’t sell any Apple products.
Dec 8, 2010, Seattle Times
Costco reports strong quarter; will phase out selling Apple products.
http://seattletimes.com/html/businesstechnology/2013631005_costco09.html
you mean “he bought an iPhone 5 BEHIND Costco for $127.”
joking of course… Walmart sells them, I don’t see why Costco wouldn’t.
https://www.inc.com/tech-blog/divorce-apple-and-costco-.html
That was the highly publicized Walmart price. Clayton may have been confused. Did you verify with the Costco in his city?
Perhaps Clayton “also likes volatility”? He is certainly mistaken. It would help your argument if you quoted sources more reliable than the WSJ.
… “than the WSJ did,” that is. Analysts > confused friends
Are you sure it wasn’t Walmart? My sons bought iPhone 5s there the week after Christmas for $127.
I want Apple to perfect the smartwatch as a device that can replace or at least substantially supplement the iphone. I don’t like having to get out a big, rigid rectangular phone from my pocket every time I want to check for messages or answer a phone call, I want the relationship with my phone to be a lot more low-key and discrete. If anyone gets the interface for this right, it will be Apple. It might be come combination of Siri, with a clever ios interface.
You may want to look at the Pebble watch, it already does all that and then some.
Ideally I would like to get rid of the phone altogether and just have a watch that doesn’t look too daggy for me to wear at a business meeting for example. Glancing at a watch to get information is so much more discreet than getting a phone out of your pocket and looking at it.
Coming in 2020: the Apple iMplant!
I don’t even own a phone other than the one on my desk that has wire going from it to the wall. It’s inexpensive, works during power outages, and the call quality is very, very good. But I start by digressing from the point I wanted to make.
Can someone please explain to me why there is so much talk about a cheap iPhone? I heard that the iPhones only cost about $8 each to manufacture in China. All they have to do is change the case or put a sticker on the current model and cut the price. They will still be making an unholy amount of profit per unit.
Your wrong. The bill of materials is closer to $200 for a new phone. The four cost $188 uo build in 2010. The processor and screen are each over $20
$8 of labor.
I think Apple, or anyone, should be working on the next big thing. Google may have it with project glass, maybe they don’t. Seems to me the smartphone/pad/tablet directions are peaking. Microsoft and Sony could have some cool stuff with the next generation of their game platforms.
Perhaps it is not hardware, at all. Maybe the next big thing will be awesome software/applications or an innovative use of what’s already available.
Sadly, for any of this to advance to the next level, something has to be done to deal with bandwidth caps and the high cost of network connectivity.
Jobs may have timed his exit perfectly. He revolutionized the music, phone and tablet industries but I think that will prove to be low hanging fruit compared to launching whole new product categories in the future. Another problem is that their signature products growing stale (thanks largely to their own product release schedules) and are facing stiffer competition. I like Apple’s phones but ended up getting the Galaxy IIIs when my contract was up. To my eyes the screen is superior to the iPhone5, the Android OS is fine and in some ways better (why doesn’t every phone have a Swype equivalent?) and the apps are just as plentiful as Apple’s. Making everything smaller, thinner, lighter and more powerful is only going to take them so far. I think 5 years from now both Google and Amazon will be bigger companies.
Jobs was a visionary, and his death was long anticipated. I think it’s likely that he and Cook and Ive laid out Apple’s course for years, Foundation style.
I am not yet persuaded that Apple would go for a cheap phone, but they have lots of profit, vast economies of scale, design many of their own chips, and excellent hardware/software integration, so prices have room to drop. Maybe the iPhone 6 will be cheaper than the iPhone 5.
If you’re trying to be careful about verbiage, why do you dismiss Schiller’s statement?
Apple don’t do “cheap” anything. Less-expensive, yes.
The Porsche Boxster is supposed to be the “cheap” entry-level model. In many ways, it’s the equal of the 911 and its specs are carefully managed so as not to cannibalize sales of its larger brother.
It’s not as expensive, but cheap it’s not. And Porsche’s margins are the envy of its industry as much as Apple’s are.
You said “The second reason for doing an iPhone Mini is to kill feature phones altogether, expanding smart phones to the entire mobile market. “
My 80+ year old mother needs a new cell phone. I’ve been looking for one that is (1) simple, (2) has big well marked buttons, (3) has big text on its screen. There’s not much out there. I hope we don’t completely kill feature phones. There is still a real need for them.
My PC is smart but I’m not. So to me it’s a feature PC!
I think there will always be specialist phones. My wife recently bought a new mobile for her dad and got one specifically marketed as having big buttons, a clear screen and a nice loud speaker. Other than that we’re an all-iphone family but that particular phone was perfect for that particular person.
On the other hand, the iPhone is hugely popular among the blind due to it’s best-in-class accessibility features and a lot of specialist apps designed for them.
We use terms like ‘killing’ this or that, but really that just means ‘push into a small niche in the market’.
Personally I think they need to do an iPhone Max. A bigger version with larger screen to head off the likes of the Samsung Galaxy S III. If you look at the phones others like Sony and HTC have brought out for Android they’ve got larger screens than the iPhone 5. For some reason a 4.3″ screen looks much bigger than then 4″ screen on the iPhone 5.
Mini iPhone? I think the problem there is that all the apps are set up for a certain form factor, mainly the 3.5″ screen. So if there is a less expensive iPhone it probably has to stick to this, but use other factors to reduce cost. At the very least they must keep the aspect ratio of the 3.5 and not make the screen more square. Otherwise exisiting apps, which is one of Apple’s advantages, won’t look right.
The obvious next upgrade is for the iPad Mini to have a retina screen. Then it truely will be excellent.
Your point on a difference between Cook and Jobs is very interesting – that Cook is more likely to ‘milk’ a product deeper than Jobs would’ve done.
Whilst that makes more money for Apple, the danger is that Cook’s way could lead to a perception that Apple no longer leads innovation in the way it used to under Jobs.
I think Apple has just reached a point where selling previous years models no longer works for them.
I think they want to keep some features as high-end only. They’ll choose a few from a list such as LTE, high resolution cameras, HD video recording, HDR photography, Siri, the 4″ form factor on the 5, retina display and hold those back. Remember the reports that they had to use super-specialist manufacturing equipment and their own special steel alloy to form the rim of the iPhone 4 and 4s? Then there’s the expensive and heavy glass on the front and the back. The 5 is expensive to make too, with it’s super-custom formed and fitted aluminium shell. That makes no sense for a free-with-contract device.
I expected them to do this when they dropped the 3GS which was a perfect low-end iPhone. As free with contract devices the 4 and 4s are just too good and I wonder if they’re eating into the sales of the 5. As with the iPad mini this new device will be much cheaper than the flagship models, yet still command a premium price and margin compared to the competition.
I think you’re forgetting that any phone is a “free-with-contract device” whether it’s $0 or $200. The cost is built into the contract, at least in the US. The un-advertised secret is to just buy your phone without a contract and use prepaid. At the very least you should figure out your usage of data, texting, and voice minutes and do the math. OTOH, if you know you want a new phone every two years then get the contract since it includes the new phone whether you take it or not.
While I don’t doubt that Apple will make less expensive iphone, I just don’t see them making one with screen smaller than 4″, especially if they’re targeting Chinese market. Apple knows Samsung is eating a good chunk of their lunch because they underestimated consumer demand for larger screen. I doubt they will make the same mistake again.
This article makes a lot of sense. I think an iPhone mini that is largely a thinner 4s but with an edge-to-edge display would crush it.
It’ll probably look a lot like the current nano, but larger (and more “hip”, less “cute”.)
I’m not sure Apple’s margins would be hurt as badly by going to an iPhone mini in China. They are not forgetting revenue from the app store, I’m sure.
BTW, Bob, I’d love to see an article from you on how the Dreamliner’s working out for Boing. Management basically outsourced their planes and decamped to Chicago, and now we’re seeing how that worked out for them.
These guys keep wrecking companies and making bigger bonuses, yet all anyone talks about is stupid lazy American workers.
I’m getting a bit tired of it, at this point.
Boeing, sorry.
[…] Yes, Phil, there is an iPhone Mini […]
I think a low cost device that is similar to the 4S, but with LTE would be a huge hit in the US if its free, maybe even for $50, with a 2 year contract. I’ve read that the carriers don’t want anything new without LTE.
This would have a huge impact on the Windows 8 and other phones that have price as their only feature.
Apple should have bought sprint and made iphone exclusive to sprint and work to expand the network to compete with verizon/att.
To stay on top, Apple needs to innovate and avoid recycling old ideas in my opinion. The much talked about Apple TV has been a no show, now it would be a good time to launch something new on the market, something that will awe the competition and ensure sales growth for the next couple of years.
Apple, Microsoft, and others have no shortage of ideas and potential products. The problem is the content providers and middle men like the networks are afraid of loosing control of their content and the way it is consumed: https://www.theverge.com/2013/1/14/3874682/exclusive-cbs-forced-cnet-editors-to-recast-vote-after-hopper-win . TiVo and the ancient one-way cable card still exist thanks to legislation forcing the cable companies to support them. They are ever vigilant to prevent any more progress.
A mini touchscreen phone won’t work in China. The reason Samsung larger form factor took off, especially in China it it’s easier to see and use Chinese characters on the larger screen. A mini touch screen in China is a bust.
Here’s an idea: an iPod with a broadband contract. Perfect for kids. Gives them the ability to text without the voice option. I think this would be a big hit. Most kids don’t need having voice ability. Just text and data. Can’t believe no one has thought of this.
I suspect they thought of it but SMS is different than instant messaging. SMS uses the phone number whereas instant messaging uses one of several competing apps so the kids need to agree on one. Also SMS has a save-for-future delivery feature and I’m not sure IM can do the same: https://www.pcworld.com/article/248142/email_vs_im_vs_sms_choosing_the_right_one.html?page=0 . Also, it’s not necessarily cheaper. My pre-paid gophone service cost me only $30/mo. to maintain, carrying over previously purchased blocks of data, unlimited texting, and lots of voice minutes. My Sprint data modem is paid for on a plan that costs $50/mo. Even AT&T’s prepaid data plans cost $50/mo.
I got one Mini Iphone, Its really a cool Gadget from Apple.
Small iPhone? Sure. Cheap iPhone? No. Apple needs to drive prices up, not begin dumpster diving. How? By “lifecycling” its iOS devices, offering to take used and broken units on trade in. Presently Gazelle will purchase my used or broken iPhone, ‘cus the components have material value. Strikes me that means Apple should be doing this good work, and driving a giant wedge between itself and the over 4,000 mostly cheap models of Android phones and tablets that will fill junkyards worldwide. Even if Apple makes a smaller, less expensive iPhone, it must be recyclable for all our sakes. Where Apple leads, others follow. See my petition: http://cl.ly/0A302L3Y0c0r. A Cringely signature would be gold. Just saying.
http://whitepeopleproblems.us/default-form/
Weren’t last years iTV rumors enough for everyone? Can’t anyone see Apple stock rise and fall on fan’s fantasies? And won’t the relative flop (I know, scale) of Apple TV further discourage the introduction of ANYTHING reasonably priced? The next thing you know Mercedes Benz will offer “entry level” autos. Oh, they do?
And…. Would the new IPod Nano sell better as an IPod Touch Mini?
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