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  • Apple, Tim Cook and Losing Credibility

    January 29th, 2014

    So you know that, in response to the insistence from the media that Apple has lost its way, Tim Cook gave reasons why some portions of the company’s fiscal first quarter financials seemed underwhelming. When it comes to the iPhone, as a main example, one reason why “only” 51 million were sold is that the product mix was off, which meant that there was difficulty filling product demand.

    Specifically, the iPhone 5c was expected to do better. In fact, it has been deemed an abject failure by the tech media even though sales are apparently higher than last year’s “cheap” iPhone, the 4s. So Cook said that more customers than expected wanted the more expensive iPhone 5s, with the Touch ID and the 64-bit processor. This is understandable, but it should be a good thing, since it boosted the average selling price for the iPhone.

    But does it really mean Apple might have sold a few million more if the iPhone 5s was more plentiful? If there truly was unfulfilled demand, what did the disappointed customers do? Did they choose to wait? Apparently not, since this quarter’s guidance projects lower sales. Did they buy an iPhone 5c? Apparently not in large enough quantities. So what about someone else’s smartphone instead? Good question, but one that the questioners during Apple’s conference call with financial analysts didn’t touch.

    It’s fair to say that financial analysts aren’t journalists, and don’t do so well with the follow up questions. There was a lot left unsaid.

    Certainly Wall Street was very unimpressed. Despite record sales for the iPhone and the iPad, and surprisingly robust sales for Macs, Apple’s stock price nose-dived on Tuesday. Is that just a knee-jerk reaction, or will it signal yet another trend? Did the lower-than-expected guidance contribute to renewed concerns about Apple?

    Well, outspoken investor Carl Icahn has made it clear that he, at least, has confidence in Apple, since he invested yet another $500 million into the company. Or maybe he was taking advantage of what he perceived to be a bargain price for shares.

    Now when it comes to Tim Cook, do his responses about Apple’s perceived sales and revenue shortcomings ring true?

    The explanation about getting the demand mix wrong for the iPhone 5c and iPhone 5s makes sense. It took a while for quantities of the iPhone 5s to meet demand and for backorders to be filled. But that’s not necessarily a new phenomenon, since new iPhones are almost always in short supply. Of course, getting an iPhone 5c was easy from Day One, so perhaps it’s true that Apple made too many of them. Or maybe it was just easier to flood the market with the cheaper iPhone since production issues with plastic are less daunting.

    Does this mean the iPhone 5c is destined for the closeout racks when the iPhone 6–or whatever it’s called–arrives? Again, I stick with my theory that, if sales ended up being higher than what a plain iPhone 5 would have brought, or even the same, there’s no reason to discontinue the product other than to respond to media perceptions that it was a failure.

    When it comes to Macs, Cook didn’t have to make excuses, though he might have said something about the curious figures produced by IDC indicating lower sales, whereas Gartner said, correctly, they were higher. Maybe he doesn’t wish to offend.

    But remember that the seasoned corporate executive will almost always sugarcoat the bad news. The reasons may be true, they may be excuses, or some combination in between. Think of Microsoft, which earned just a fraction of Apple’s revenue on tablets. Media coverage of Microsoft’s financials focused on the claim that sales of the Surface doubled from the previous quarter. Doesn’t matter. They were still quite unimpressive. The iPad continues to rule, and Microsoft’s tablet strategy was wrong yesterday, wrong today, and will be wrong tomorrow unless things change.

    One area that is sounding like a broken record, though, is Cook’s insistence that Apple’s ability to innovate remains intact, that there will be great products going forward this year, including some in new categories.

    That would seem quite encouraging, other than the fact that he’s said it again and again. But last fall’s product refreshes were pretty impressive nonetheless. Not just Touch ID and 64-bit for the iPhone 5s, but the stunning Mac Pro.

    But Apple will face even greater pressure this year to produce something truly unique. There’s still some chatter about the rumored iWatch, though it’s largely focused on alleged production problems. Stories about the TV space mostly concentrate on reports that a new Apple TV box is in the works. Beyond that, who knows?

    But Apple TV isn’t a new category; an Apple connected TV would be, as would an iWatch.

    Does Apple have something else to introduce? You see, just product refreshes for 2014 will do nothing to vindicate Cook’s claim, no matter how good they are.

    In the scheme of things, Apple did pretty well last quarter. But it wasn’t enough, and I sometimes wonder what Apple has to do to persuade the investor community that they are still innovating at full bore.

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