iPhone warning signs: Apple management is losing control of the situation

“Apple has spent years proving iPhone doubters wrong. Those who made a habit of calling for the iPhone’s demise have watched the product go on to bring Apple over $600 billion of revenue and close to $250 billion of gross profit over the years,” Neil Cybart writes for Above Avalon. “Ironically, just when it seemed like iPhone skeptics had thrown in the towel and accepted the iPhone’s supremacy, warning signs are beginning to appear in the iPhone business.”

“Apple’s 2Q16 earnings report was not pretty,” Cybart writes. “Not only did iPhone sales decline year-over-year for the first time, but management issued alarming guidance for 3Q16, suggesting another very difficult quarter for iPhone sales. In addition, Apple expects iPhone average selling price (ASP) and margin to deteriorate due to the recently introduced $400 iPhone SE. On top of it all, Apple will take a historically large $2 billion inventory adjustment related to the iPhone 6s due to sales coming in below expectations. While some are optimistic that the iPhone 7 and 7 Plus will turn things around in a few months, it’s time to become skeptical. The iPhone growth story is breaking apart, and management does not seem to be in control of the situation.”

“The most alarming aspect of the iPhone’s recent growth troubles has been that Apple management appears to have been caught off guard,” Cybart writes. “The company thought the iPhone 6s and 6s Plus would build off of the sales level associated with the very successful iPhone 6 and 6 Plus. Instead, Apple is seeing iPhone sales fall 15% to 20% in 2016.”

“Apple needs to get ahead of this deteriorating iPhone demand environment,” Cybart writes. “Management cannot assume that iPhone users will upgrade to new iPhones like they have in the past. This will have an impact on how Apple approaches iPhone development schedules. It was clear that the iPhone ‘S’ cycle ended last year, and current iPhone trends all but confirm that to be the case. It is now time to get rid of the ‘S’ iPhone nomenclature as well. A case can even be made that it is time for Apple to change its entire iPhone numbering nomenclature given changing device upgrade behavior.”

“The good news for Apple is that the company is organized in such a way as to handle these iPhone warning signs better than most other companies,” Cybart writes. “There are signs that Apple has been working to move beyond the iPhone for well over a year with Project Titan and other wearable devices representing the company’s future. The one thing management needs to work on is moving the Apple narrative away from iPhone unit sales growth.”

Much more in the full article – very highly recommended – here.

MacDailyNews Take: Please read the full article. It very clearly lays out Apple’s issues and the company’s path forward.

It’s time for Apple to grow services as a very profitable bridge while they work on the Next Big Thing™.

Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it. – Steve Jobs, November 9, 1998

And, yes, we’ve been advocating “death to the S” for years and as recently as last month:

Apple should strive to execute annual iPhone updates, in three display sizes if the SE is successful (which we think it will be), and drop the off-year “S” model concept. Apple is certainly big enough and rich enough to do a new iPhone family each and every year. Apple should have killed the tock year “S” model idea years ago.

What’s happened with iPhone is painfully obvious: Apple was at least a year (more likely two years) late with properly-sized iPhones. When iPhone 6 and iPhone 6 Plus finally, blessedly materialized, buyers quite literally stampeded to get them. Then, when faced with such a “tough compare” this year, Apple was still sticking with their ill-conceived “S” model concept – making the tough compare much, much tougher.

The “iPhone 7” family – three models with the same case design and all with 3D Touch — comprised of the 4-inch iPhone 7 SE, the 4.7-inch iPhone 7, and the 5.5-inch iPhone 7 Plus — should have debuted last September. That would have taken care of the current tough compare with iPhone 6/Plus. Then, this year, the iPhone 8 family, again with a new case design, but now waterproof, with dual cameras, etc. would debut this September. In 2017, perhaps Liquidmetal and AMOLED will be ready go for the iPhone 9. Etcetera. No more “S” years, Apple. Duh.

Had Apple done as we’ve just described, they’d have sold millions more iPhone units this year and millions upon millions more each year going forward.

Apple’s raison d’être is to delight customers. “S” model “tock” year iPhones do not delight customers in the same way as new “tick” year models. Obviously. They’re still the best smartphones on the planet, but they’re just okay. A bit of a meh. We all know that “S” models exist so Apple can wring out nice margins from existing designs and tooling, not expressly to delight customers. When Apple strays from its main goal is when things get wobbly. Just delight customers, Apple, and the world will beat a path to your door.

If we didn’t work for MacDailyNews, we’d have skipped the iPhone 6s Plus and held onto our iPhone 6 Plus units with no qualms – and we’re the most rabid Day One iPhone buyers you’ll ever find.

Why have an annual iPhone upgrade program, if you’re not going to wow us annually with new iPhones?

Apple, enough with the stupid iPhone ‘S’ naming already.

iPhone “S” years usher in hugely significant features, such as oleophobic displays, significant GPU improvements, world phone capability, Siri personal assistant, video stabilization, panorama photos, 64-bit processors, TD-LTE support, Touch ID, and 3D Touch, among other improvements and additions. Each year’s iPhone deserves its own number. By not doing so, Apple is shooting itself in the foot; handicapping iPhones with an “S” every other year. Why Tim Cook or Phil Schiller haven’t put an end to this stupid – yes, stupid – “S” naming is inexplicable. Why don’t you just name it “iPhone No Big Deal This Year,” Tim and Phil?

Here’s what you say onstage and in the press release when there’s no “iPhone 7s” and you jump directly from iPhone 7 to iPhone 8: “The improvements are such that the new iPhone deserves its own number.” Period. Done. Mission accomplished. It’s your naming convention, Apple, and you can correct your stupid mistake at any time.MacDailyNews, September 9, 2015

SEE ALSO:
Why Apple’s iPhone 7 doesn’t have to be a ‘disappointment’ – May 3, 2016
Why Apple needs more hardware hits – And, has Tim Cook lost his focus? – April 29, 2016
The iPhone 6s has been a major disappointment for Apple – April 27, 2016
Analyst: Apple to dump ‘iPhone 7s’ and jump straight to iPhone 8 next year – April 22, 2016

28 Comments

  1. The reason iPhone sales are slowing, I believe, is due to the carriers no longer offering the 2 year contract pricing. Now it’s rent to own or buy outright, and I think more people than it is thought, prefer to own their phone instead of paying the extra to “upgrade whenever”; so therefore will simply upgrade less often than the 2 year clockwork-like upgrade style from the previous 5-10 years. I know almost all of my friends and family are thinking like that now.

    1. My wife and I still have iPhone 5 and 5s when they were first released and have yet to upgrade for this very reason, but we’ll probably upgrade this fall…

    2. Market saturation DOES occur. Not every phone user wants or cares to update every year or two.

      An even larger number of users can NOT upgrade given the effective 8 year recession we have been in here in the US. There has been no average increase in wages over the last 15 years. Yup, no wage increase on average and yet taxes, fees and Obamacare are through the roof.

  2. MacDailyNews has a clearer understanding of Apple Inc. than Timothy D. Cook.

    I don’t type that lightly.

    Oh, sure, Cook knows all of the numbers, has all of the contacts, and he’s an operations genius, but the MDN entity can clearly see the big picture. Cook seems to struggle with that.

    I remain unconvinced that Cook can see what MDN sees so clearly after watching the company so closely for so many years.

    That should be concerning to AAPL shareholders.

    For just one example, here’s MDN demanding that heads roll over the Apple Maps debacle and Tim Cook following their advice a month later:

    “One thing we would like to know is: Who’s responsible for opening Apple up to this overblown shitstorm and why are they still working for Apple Inc., if they still are?” – – MacDailyNews, September 28, 2012

    “John Browett and Scott Forstall out; Jony Ive, Bob Mansfield, Eddy Cue and Craig Federighi get expanded responsibilities.” – – Monday, October 29, 2012

  3. My girlfriend recently acquired an older iPhone 5 to replace an aging Android, and loves it so much better, and was musing about getting the latest model of that size.

    What followed was five minutes of confusion and exasperation as she tried to understand where the iPhone SE fit in relation to the iPhones 5, 5s, 6, 6 Plus, 6s, and 6s Plus. She finally understood the generational thing with the “s” between major form factors, but not why the heck it wasn’t called the iPhone 5SE or the 5E (since “SE” looks like “5E” anyway).

    Yes, it’s time to kill the “S” and other letter monikers. Next versions should be iPhone 7, iPhone 7 mini, and iPhone 7 Plus.

  4. MDN — Maybe they just can’t do it. All of the high end amenities with the “latest and greatest” technologies, takes time. Time to develop, but also to wait for suppliers, manufacturers, etc. to get their “ducks in a row” too. Pulling off a spectacular product requires having many things and entities coming together. That maybe where they simply can’t do it.

    For example: What if the Liquidmetal manufacturing process has a hiccup and needs more time for perfections? The whole process comes to a halt. This example could exist at any one of many links in the chain. It would be remiss to announce a product or falsely build expectations for something great and then not deliver. Far worse for Apple’s image, public perception, market cap, etc.

    So, I agree. No more S model year. Maybe a phone every 16-18 months is better than no phone.

    1. Cook has been telling us for 5 years about how excited he is about what’s in the pipeline. His is a very long skinny pipeline that delivers beta products long after competitors have defined product categories.

      The only truly hit products he has delivered, however, were iterative versions of the iPhone. Everything else has sold relatively poorly in the market compared to prior products developed under Jobs. Lack of advertising and hardware updates on existing lines has been downright embarrassing.

      The iPhone 6 & 6+ were delivered at least 3 years after the competition already fleshed out full families of phones with multiple screen sizes. Then in the face of the pent-up demand, Apple made people wait to get the product they delivered.

      This year, Apple finally got around to updating its old 4″ screen phone. LATE LATE LATE. People with 2-year contracts didn’t have a natural upgrade path. Also, on the 5SE (or 5E as some say) instead of offering a case design that looks like it belongs with the 6 series, Apple went cheap and reused the existing iPhone 5 case & screen. Some might like the old square edged brick, but it’s not like Apple is pushing forward with new exciting detail design. The screen is inferior to other Apple products and the competition. The only breakthrough thing about the new 5SE is that fact that Apple got the price right.

      The Apple board seems to be giving Cook way too much leeway to ignore his core markets and engage in activities that DO NOT benefit Apple.

      The reality is that Cook isn’t CEO material. He’s got all the reports from his deputies but he’s not leading. his heart is in gay activism, not computational technology advancement. His deputies aren’t visionaries either. They care first about profit short term profit maximization, which means serving fashionistas and emerging market mobile gadgets first, and pushing subscription services and serving existing customers (especially Mac users) as an afterthought.

      As a Mac enthusiast: Thanks for nothing, Tim.

  5. Two year contracts merely disguised the cost of the Phone in the monthly bill. That said, people are still ignoring this. The Apple upgrade plan could offer some sort of purchase discount for using it as a marketing tool.. but I suspect Apple is too protective of margins to thwack $5 a month off the upgrade program to give the impression of a “deal”

    While I am not sure how many more “features” Apple or anyone can jam into a phone and wow us anymore.. You can try to make it cooler looking, with displays and design, and remove buttons, add memory, and perhaps finally make a waterproof design, they’ve got the sizes pretty much set.

    Using the 6S, or Plus, Everyone is different, 3D_Touch, I don’t use so much, its a cool feature, just don’t find myself using it much, I’ve got the apps i need, its plenty fast now, when your in an area where your carrier actually works. Performance is excellent. I think what i need most is unlimited data… that will either cost you, or its not offered.

  6. What Apple needs to do is connect project Titan with Apple TV’s gaming controller.

    Make the Apple Car just a giant RC car. Then tell someone back at home –say, your butler– to turn on the Driving App on the Apple TV.

    Your butler then uses the Apple TV Remote as a gaming controller to drive your car where you want it to go.

    The car would have built in FaceTime so you can tell your butler where to go.

    It doesn’t have to be your butler, of course. It could be your wife, son, daughter, mistress, whoever.

    Apple could release this tech TODAY and blow the competition out of the water.

  7. Apple’s sense of taste has been in decline for years, even though they’ve made money from it.

    Calling an iPhone the SE is typical. Sounds like the Toyota Camry SE.

  8. Another anal-yst who manipulate stats in favour of his article.
    Nicely done Mister Clickbaith.

    In respect for the numbers, the YOY decline is nowhere near alarming.

    Seeing the little SE grabbing attention is a sign of sustain for the Apple brand. I have no doubt the next iPhone will be a hit.

    But again, those stupid naysayer deadbrain anal-ysts will consider, once again that it is not enough.

    Its been 4 or so years that the anals are dooming Apple every quarter. Apple spanked everyone everytime. Even now with their last result, they aimed it right.

    If this is no conspiracy, it is constipation, there is an agenda WS is operating and it is against Apple.

    Apple could come out with the next big thing and the streets would reject it. It has lost its commun sense. WS is rot and anals like to talk rot.

    FTA!

    1. What’s scary is there is so many people out there hoping for Apple to fail. There are so many articles about Apple and everything the company is doing wrong before and after quarterly results. It’s just endless bad news for Apple. That’s has absolutely got to scare at least some potential investors away from the company.

      It’s really odd how everything Amazon does is right and everything Apple does is wrong. Is Apple really that messed up as a company? I mean, all companies make some mistakes. Is Tim Cook really that incompetent? Did he really not see the possibility of a steep drop in iPhone sales despite all the warning signs?

  9. Forget project Titan, the next big thing is rumoured to be absolutely massive, an Apple insider asked not to be named has claimed the new device is near completion codenamed the iJupiter.

    1. One of my sources (who asked not to be named so he could speak freely), said that Apple is preparing to build a megastructure around the sun to harness solar energy. The source said Apple is using patents it licensed from aliens.

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