The headline may not make very much sense to most of you. After all, Apple is a first-class money-making machine, pulling in tens of billions of dollars every quarter. True, growth isn’t as fast as it used to be. If it was, Apple would, in a few more years, have more money than any country on the planet, so such levels cannot be sustained.
But that doesn’t mean growth isn’t quite impressive. Apple still manages to show year-over-year gains for the most part. But there have been singular misses on sales of some products, and you can argue whether financial analysts have come up with estimates that defy common sense. I wouldn’t suggest they emerge from a dark place.
On April 23, Apple will reveal details of sales for the March quarter, and financial pundits are already saying it won’t be terribly impressive. But that’s what Apple indicated in their own guidance for the period, ranging from $42 to $44 billion, compared to $43.6 billion last year.
- 2014 — The Year the Sky Didn’t Fall for Apple At the start of 2014, even the most diehard Apple fanatic might have wondered about the future prospects of their favorite fruit company. Sales didn't always meet Wall Street projections, and profits were flattening. The stock price was way down from historic highs. To no surprise, some members of the mainstream media were calling for CEO Tim Cook to take a hike. Could it be that Steve Jobs' handpicked successor was a monumental screw up, or was there a long-term plan in place that would set things right before long? Questions, questions. Many of the particulars are ably recorded in a no-holds barred editorial from Daniel Eran Dilger, a frequent guest on The Tech Night Owl LIVE, over at AppleInsider. So I will be brief about some of the details. Now understand that the perception that Apple was on the rocks was largely manufactured. When Steve Jobs introduced iterative upgrades to Apple gear, that was part of the standard upgrade cycle. When Tim Cook did the same, there must be something terribly wrong with Apple's mojo, and the company clearly lost its power to innovate. After all, Cook was the supply chain expert. What right did he have to operate a company known for its amazing innovation? You'd think that Apple was supposed to upend a market every year. The critics forget the years that passed between the first iPod, the first iPhone and the first iPad. Miracles don't come every day, but where were the trendsetting products from Tim Cook's Apple? This didn't stop iPhone sales from climbing, at a time when Samsung's sales began to falter. The claim that Samsung had it all over Apple when it came to high sales and meeting the needs of a variety of customers was shown to be shaky. Yes, Samsung still sold loads of mobile handsets, but far too many were cheap, with little profit. While Apple continued to make huge profits from iPhones, Samsung's margins continued to shrink. Tepid response to the latest Galaxy series didn't help. Apple moved far more iPhones. Amid rising sales, Apple's first maneuvers for 2014 were financial. Stock buybacks and the seven-to-one stock split pleased Wall Street. But was Apple just stalling, avoiding the question of what innovative products were in the pipeline? Yes, Apple made promises, but when were they going to deliver? WWDC came, as usual, in June. The critics said it was all about the software, but Apple added an amazing number of new features to iOS and OS X. The bill of particulars was far larger than what Google and Microsoft were promising. True, some suggested Apple bit off a little too much this time, but the bugs are being vanquished, and the end result presents many new opportunities for developers to make a profit and to benefit customers. For regular people, the real significant event came in September, with the introduction of the iPhone 6 and the iPhone 6 Plus, a phablet with a 5.5-inch display. The critics had been long clamoring for Apple to enter the larger smartphone space, but Apple, as usual, took its sweet time about developing the right product. Certainly the public embraced the new gear, with record sales the very first weekend and chronic shortages through most of the holiday season. But some people realized that the romantic ideal of the larger smartphone wasn't quite so compelling after you spent a little time with one. One-handed operation meant something, and the larger handsets could be difficult to fit in a smaller pocket or purse. And don't forget Apple Watch. An early production model was demonstrated, and delivery was promised in early 2015. October brought new iPads, but the flagship model, the iPad Air 2, thinner than its predecessor, was the lone compelling upgrade. The iPad mini 3 was little different from its predecessor aside from Touch ID, and it still cost $100 more. It wasn't such a great deal, and the jury is out how well tablets sold this holiday season. But the iPad Air 2 is, as my friends across the Atlantic are apt to say, a marvelous piece of kit. It will be hard for my wife to give up the one she is using when the Apple editorial loan expires in February. The other product intro in October, the iMac 5K, was simply stunning, particularly the picture and the technology that makes it happen for a price that even Dell couldn't match. Last I checked, Dell's 5K display is just about the same price as the 5K iMac, but Apple gives you the computer as part of the package. None of this means everything went perfect for Apple. Don't forget the missteps — or alleged missteps — depending on your point of view. So those celebrities whose nude photos, stored in iCloud, were hacked and circulated online have only themselves to blame for poor password choices. Why did they have those pictures there in the first place? But the iOS 8.0.1 update was the worst sort of failure, fixing most iPhones, but causing some to lose their cellular connections and Touch ID capability. Apple pulled the update in little over an hour, and released a fixed version the very next day, but the publicity fallout continues. Yes, Microsoft has done worse, far worse, but this is Apple. Please don't get me started about iTunes 12. The complaints haven't been stilled, and I wonder whether Apple needs to get back to the drawing board to sort things out. Some alleged scandals were just nonsense. An iPhone 6 Plus was no more prone to bending than other large mobile handsets. No, Apple didn't suddenly out of the blue sneak a security update onto Macs with OS X Mountain Lion, Mavericks and Yosemite. That particular update came using the App Store update mechanism, the successor to Software Update. Where there's an automatic install option, as there is in Yosemite, you can switch it off. Besides, the NTP security flaw, impacting the time syncing feature of OS X, Unix and even Linux distributions, could allow a remote attacker to gain control of your computer. Even the U.S. Department of Homeland Security got in the act to report the danger, so was it wrong for Apple to protect you in a way that did no harm? For 2015, we know the Apple Watch is coming, but there is no consistency on how well it'll do. And what about the fate of Apple TV? Is there an Apple TV set on the horizon? An iPad Pro, a version with a display that's 12 inches or more? Is there something out of the blue in store? And what will Apple do to flesh out the features for iOS 9 and OS X 10.11? And I will not speculate on the code name for the next Mac OS.
- Can You Live Without an Apple Watch? Apple seeded an Apple Watch with a number of specially selected tech journalists, and the first reviews are in. Even though I haven't yet considered whether to try one out at an Apple Store, I am intrigued by the possibilities. But it's definitely not a slam dunk. There are certainly lots of good parts. It's mostly fast, fluid and stable, though apps are sometimes slow to load, and it does the things Apple claims it does. Battery life, claimed to be 18 hours under normal use, appears to be on track. One review I read spoke of having the Apple Watch last longer than an iPhone during the test period. The only downside appears to be the charging pad, since it's just too easy to separate the two, and the fact that it takes up to two and a half hours to fully recharge. But the larger criticism is that the new scheme forces you to have yet another charging cable on hand when you travel. While it's clearly not as bad as one blogger — who had never tried an Apple Watch — claimed, there are some new skills to learn. So you'll need to get accustomed to Apple's new Force Touch feature, now also available on the 13-inch MacBook Pro with Retina display and the thin/light MacBook. It's mostly a matter of getting comfortable with pressing harder on the touchscreen for added functions. The only downside is that, once you are used to this routine, you'll accidentally press harder on touchscreens and touchpads on gear that doesn't have this feature yet. You'll also need to learn to use the digital crown for zooming and activating Siri, plus the second button for your contacts. None of this appears to be difficult. But when different gadgets offer different functions and different ways to access those functions, you can expect it'll take a few days to get accustomed to everything. Some might suggest Apple should have attempted to make the Apple Watch work more like an iPhone, but pinch and zoom on that tiny screen makes less sense. There have to be accommodations for its size, and Apple appears to have done things in a sensible way. To allow you to make and receive phone calls on an Apple Watch, which uses your iPhone to do the heavy lifting, there's a built in mic and speaker. But it appears the speaker system may not deliver loud enough sound for noisy surroundings. A Bluetooth headset would be the best solution for frequent calls. Well, unless you don't like having those things in your ear. I get all the new fitness functionality, and the clever combination of features that let you access the information you want with a casual glance rather than an extended session. That helps keep battery life as high as possible, and it also makes Apple Watch more convenient for busy people who hope to free themselves from at least some long sessions with mobile gear. So is Apple Watch a potential replacement for the iPhone, the true iPhone killer? Not until it's powerful enough to exist by itself without tethering, and that might take a few years to happen. The taptic features, such as getting subtle reminders when seated to get up and exercise your legs, is a real plus. I can grok this since I've been undergoing treatments lately for a chronic back problem and exercise does help. The reviews suggest Apple's own apps are the most compelling out of the starting gate, and it will be a while for the killer apps to emerge for the platform. To be sure, you don't expect the Apple Watch to do all its tricks with a version 1.0 operating system and version 1.0 apps. That will come in time. As smartwatches go, it appears Apple has made its case for being leader of the pack, and certainly the leader when it comes to the highest prices. I also expect demand at the start to be high, and there are indications supplies will be quite short. Apple will only allow you to buy just one during your shopping session, with no indication whether there will be fast delivery or you'll have to wait. Apple also requires that you reserve the Apple Watch you want or place your order online. There won't be lines snaking around an Apple Store with customers hoping for instant gratification when it goes on sale on April 24th. In addition, Apple won't be including Apple Watch sales figures in its financials as a separate line item, though I suppose something will be said if demand is extremely high. Sales and profits for the March quarter will be revealed on Monday, April 27th. Coincidentally, that will be right after the Apple Watch's first weekend on sale, so I'm sure the tech media and financial analysts will be paying really close attention to see what might be revealed. Even if Apple says nothing, I expect the question will be asked by one of the analysts present at the quarterly the conference call. How Apple responds will say a lot. But after the initial demand is satisfied, will customers find the Apple Watch to be an indispensable wearable? Or will they opt to save their money and rely on their iPhone? Will some people buy iPhones just to be able to use an Apple Watch? The impression I get from the reviews is that, once you're past the learning curve, you may indeed wonder how you lived without one. Maybe, but it's not near as indispensable as a smartphone. That's also the question I will ponder as I decide what I can afford, and whether an Apple Watch will meet my needs. It's not a question that I can easily answer.
- Apple’s Record Quarter: But Don’t Count the… Predictably many of the stories about Apple's record fourth fiscal quarter concentrated on diminishing iPad sales. It wasn't so bad this time, some 12.3 million sales. Consider what the competition is doing, and it's not pretty. But compared to last year's results of 14.08 million, it didn't look so well. During the quarterly call with the financial community, Tim Cook boasted of sales conquests in education and the enterprise, claiming sales were what they expected. He also said that channel inventory was drawn down in the September quarter ahead of the launch of new models. That puts a positive spin on the matter. Certainly Apple delivered a credible iPad update last week. I expect the critics will find it insufficient, but Apple plays the long game. The new deal with IBM is clearly intended to move both iPhones and iPads, but it'll take time before the impact is known. Meantime, Apple is clearly not panicking over short-term sales shortfalls. Indeed, Cook calls the current sales slump a "speed bump," promising that things will get better moving forward. In response to claims that the tablet market is saturated, Cook said, "we don't see that." He pointed to high first time buyer sales rates, but added that people hold onto tablets longer than smartphones. So Apple doesn't know what the upgrade pace is yet. The tablet market for them is just too young to have a consistent picture of the replacement cycle. He continued to emphasize attempts to sell to the enterprise. There's also cannibalization, as Cook said that some of those who might have considered an iPad bought a Mac or an iPhone instead. I expect the latter is more true with the arrival of the iPhone 6 Plus phablet, the perfect all-in-one mobile gadget for some. In short, he remains bullish on future success of the iPad. The rest of the quarterly numbers were off the charts. Revenue for Apple's fourth quarter was $42.1 billion with a net profit of $8.5 billon, or $1.42 per diluted share. Revenue for the year-ago quarter was $37.5 billon, with a net profit of $7.5 billion, or $1.18 per diluted hare. Gross margins increased from 37 percent to 38 percent. So Apple returned to the "beat the street" mode, beating financial analysts, who predicted $39.85 billion revenue with $1.30 earnings per share, by a substantial and surprising margin. After Cook announced that iPhone sales were off the charts last week, one might have expected the new smartphones to be the main stars of the lineup. But not quite. So sales were 39.3 million, compared to 33.8 million last year. Analysts expected 37.5 million. But Cook reminded the assembled financial analysts that Apple remains way behind in supplying enough product, that Apple is working to boost supplies and meet demand. Right now, he remarked, "We're not even on the same planet." This leads one to wonder just what iPhone sales might have been if Apple had a few million more to sell before the quarter ended. Moving on, Mac sales really shined as Apple's personal computers again continued to grow ahead of the PC market. So, some 5.5 million were sold, with the most success reported in the portable line. Last year's Mac sales were 4.57 million for the comparable quarter, and analysts estimated 4.8 million. All this despite very modest refreshes for Macs this year aside from the brand new 5K Retina iMac. Meanwhile, PC sales continue to suffer, and it's a big question mark whether Windows 10, expected in the second half of 2015, will help. But Mac sales seem to be growing especially fast, reportedly achieving the highest industry market share since 1995. I do wonder, in passing, whether the Windows 8 debacle is making it easier for Apple to persuade people to switch to the Mac. As to the Apple Watch, it appears that sales numbers will be merged with the iPod, Apple TV and accessory sales, such as Beats headphones, in a new category that will be called "Other," when the company reports sales for the first quarter of 2015. So don't expect that Apple Watch sales will be reported separately unless they are high. Meantime, Cook declined to estimate potential sales for Apple Watch, which goes on sale next year, saying he didn't want to offer competitors any meat and potatoes to consider. But I wonder if Apple is emphasizing low expectations right now because nobody really knows the potential for a smartwatch. Clearly the current products haven't done terribly well beyond a core clientele of geeks and so-called power users. The Apple Watch may seem superficially similar to the others, but Apple clearly wants them to become not just smart gadgets but fashion statements. That's the reasoning behind persuading fashion magazines to cover Apple, and why journalists from the fashion industry were present at the September media event where the Apple Watch was demonstrated. For the December quarter, Apple is estimating revenue of between $63.5 billion and $66.5 billion. The Wall Street analyst community expected $63.5 billion, which means the stock price should be just soaring in the days to come. You can find more of Apple's numbers posted online. In any case, the attending financial people, as usual, shied away from the hard questions. Nobody asked, as a key example, about Apple's reaction to a bankruptcy filing by GT Advanced Technologies, the company that built a sapphire production plant in Mesa with Apple funding. As it stands, hundreds of employees will end up unemployed as the plant winds down operations. It's not known if GT ever produced a usable supply of sapphire for Apple's needs. Now when you look at lower-than-expected revenue reported by Google and Samsung of late, and Microsoft's ongoing troubles staying relevant, it almost seems as if Apple has a pretty clear path for growth. Maybe some third-party company will have products and solutions that Apple can't match. I'd be surprised if there wasn't a startup somewhere with the potential to build the true killer products to compete with some of Apple's offerings. But they won't be the phantom iPad and iPhone killers that the media fantasizes about year after year. Meantime, Apple is again firing on all cylinders.
- About Terminating iTunes with Extreme Prejudice So iTunes hasn't exactly received the love in recent years. Some say it's bloated, although technically that's not quite true. Others are just overwhelmed by all the features that are regularly added, without taking steps to simplify the interface so the power of the app is at your beck and call. Others fret over stability and reliability issues, and reports that music databases may be borked with iTunes 12.2 and Apple Music only make matters worse. Now my history with iTunes goes back to its origins as SoundJam and later SoundJam MP Plus from a now-defunct publisher known as Casady & Greene. In 2000, Apple made the smart decision to buy the product, and bring along its developers, including Jeffrey Robbin, now a VP of consumer applications at Apple. In addition to being lead developer of iTunes, Robbin is credited with helping to create the software for the iPod, and was, several years ago, reported to be a part of the development project to create an Apple TV set. Of course, that project appears to have been discontinued, but it's notable how Apple has put Robbin in charge of significant projects. I've known him for years, and he's a real talented guy and deserving of his success. But something's gone real wrong with iTunes, and it's in need of serious repair, or Apple needs to start over and rethink the app. Before I go on, don't assume that starting over is anything new with Apple. Ask users of Final Cut Pro, for example. Although the new and far cheaper version, Final Cut Pro X, got a whole lot better over time, some loyal users chafed at the changed interface and lost features, and went elsewhere. Still, Apple is not shy about changing thingsy, and it's high time that iTunes go under the knife. The latest version, 12.2, was released to introduce Apple Music. It's otherwise substantially the same as the previous cluttered version, only it's more cluttered. It only adds new layers of inconsistency and unpredictable behavior to an app that was already breaking at the seams. A major change of version 12 was the use of a context-sensitive navigation bar that totally confounds muscle memory. So when you move from Music to Podcasts or to Movies, the options and the width of the nav bar labels changes. This may make sense from a logical point of view, but it means that you have to stop and think before you click. Apple Music merely adds extra labels for the Music section. There's no Apple Music icon, since the feature integrates with existing music features. All right, that's part of it, and I suppose most of you have gotten used to the poor implementation of this feature. There's more, however. With Apple Music, context menus usually don't work, and the ellipses that are usually placed next to the titles of albums and tracks don't deliver consistent context results. Select an album in the For You page and the ellipse will only allow you to share the album. When you click on the album to open its playlist, you have additional options to share an album, but none to tell Apple Music you want that thing off your list post haste. To make matters worse — and more confusing — if you tap and hold an album title in the For You list in Music for iOS 8.4 (and now the 9.0 beta), you not only have extra choices, but one entitled "I Don't Like This Suggestion." Why isn't that readily available with iTunes? Tell us Mr. Robbin! I realize that iTunes is very much a browser, meaning that the content you access can be instantly altered. I suppose that adding more context options is something that could be done on-the-fly without updating the app, and maybe it'll be fleshed out over time as the service is refined. For now, however, the interface and the layout are poorly designed, as if it was perhaps thrown together to meet a deadline with the hope it'll be fixed later. Kirk McElhearn, Macworld's "iTunes Guy," and my go-to expert on such matters, suggests that Apple's marketing people are being given too much power to drive the look and feel of iTunes. It's more about turning visitors into paying customers, but it doesn't even succeed on that level. If they hope you'll buy a track you're enjoying in Apple Music, the process is definitely not easy. Or perhaps Apple really does believe that we are all destined to rent music, and this is only guiding you into that direction. Remember, when you rent music, you own nothing other than the tracks you've previously purchased. Anything you've downloaded from Apple Music stops playing when you stop paying. If you decide one month you have other priorities, and you've spent days fine-tuning your custom playlists, will Apple allow you to suspend your membership for a while, and allow you to pick up where you left off a month or two later? Just asking. The reason I suggest Apple should kill iTunes and try over is that the app has moved in the wrong direction. It doesn't mean it should be split up into separate media apps, as is done in iOS. Having a single place to get play and acquire content on a Mac or PC is probably the more efficient idea. But that shouldn't keep Apple from starting over and devising a better way. It's not that there is better competition out there, particularly if you are accustomed to the Apple ecosystem. But how long will Apple allow this messy situation to continue before taking action?
- Do You Really Want to Drive an Apple Car? Recently I spent several hours fiddling with the audio settings on my Kia's sound system, such as it is. I've had a lot of cars over the years, cheap, mid-priced and expensive, and never had the audio hardware that just worked without some manual labor to fix the tonal balance. Not once. The default settings were usually at the extremes of what I can tolerate. Car audio is notorious for boomy bass, and sizzling highs. Impressive in the showroom, but not so impressive when you have to live with those systems day in and day out. Maybe it needs an Apple solution, but why just the audio system? So there are reports that Apple is making a huge push into getting more involved in the auto industry. A Wall Street Journal report mentions several hundred engineers being involved in an Apple project that's code-named "Titan," which may be working on an electric car, shades of Tesla. There are even reports that Apple and Tesla are busy plucking employees from one another, although there's a natural affinity in a few areas, such as advancing battery and infotainment system technology. With $180 billion on hand in banks and investments, it's not that Apple doesn't have the cash to create a new car. Typically it costs an auto maker $1 billion to design a new vehicle and bring it to production, although many of the components may be lifted from other models. But they also have the factories and supply chain sourcing to turn the concept into a finished product. Apple certainly has the contract manufacturing resources to build Macs, iPhones and iPads, among other things, but not an entire motor vehicle. At least not yet. One auto magazine, which I shall not name, suggested Apple didn't have the engineering expertise to understand how to make the 10,000 working parts of a new car operate properly together. Other than Tesla, and there are still question marks about its long-term prospects, there hasn't been a successful new car maker in years. It's mostly about mergers and acquisitions, and building new versions of existing cars at various price points. So we have a fancy Toyota becoming a Lexus, or a fancy Honda becoming an Acura. It's as much about repackaging and extending existing hardware platforms as creating new brands. Sure, they said Apple didn't have to expertise to build a smartphone several hundred million units ago. But that's nowhere near as complex as selling a product that, today, has an average transaction price of $31,252. It's not that Apple couldn't do it, but the betting is that it would take years to accomplish. Even if Apple were to build a new car, there'd be the matter of setting up production lines, or paying contract manufacturers to handle the chores at the start, and establishing showrooms. It couldn't just be an expanded version of Apple Store, but a new concept in auto retailing. Apple doesn't take the sales experience casually, and the usual car buying experience, involving endless haggling and time-wasting nonsense that takes you through several steps from sales to finance, is downright unpleasant for most of you. It is for me. Again, Apple could surely build the best car on the planet, though you wonder how much it'll cost to design, and overhaul the manufacturing, purchasing and service experience. There's more than enough cash to fund such a project, and Apple does think long-term, so taking such a venture from concept to fruition wouldn't try their patience. But I don't see why they need to go there. As with TVs, the auto industry is a cutthroat business, and profit margins are far lower than iPhones, iPads and Macs. Is all that pain worth the gain? One other possibility is that Apple isn't so much going after the motor vehicle as the motor vehicle's dashboard, the brains. If the entire driving experience, from ignition to navigating to a vacation spot in another state, could be controlled via an Apple designed interface, that might have a sizable impact on the industry. Apple has already taken the first steps with CarPlay, which is essentially AirPlay for autos, since it lets you dock your iPhone with your car, which allows it to become the face of the infotainment system. There have also been periodic rumors about Apple buying Tesla. Technology synergies might seem logical, with Apple gaining control over the Tesla's sophisticated computer systems to control the entire driving experience. As the company prepares to build reasonably affordable models, such a merger might seem sensible. It would certainly shortcut the process of entering the car market by a number of years, assuming Apple wanted to go in that direction. As of the time I wrote this article, Tesla's market cap was roughly $25 billion. Assuming Apple paid twice that, $50 billion, for this transaction, it would consume a sizable portion of those cash reserves, but Apple would still have $130 billion left. The question, of course, is why would they bother? What changes would Apple have to make, if any, to make the Tesla conform to their vision of the ideal car? It's not that Apple doesn't buy other companies, though it's mostly for technology, with Beats being a rare exception. But a car company is something else entirely, and I'm not altogether convince this is a sensible direction for Apple. It may well be that Apple is planning on building some car prototypes with which to test dashboard-related technologies. That might be the true source of those rumors. At the end of the day, a new car design could emerge from this rumored project, but I wouldn't bet the farm on such a prospect.
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