Apple CEO Tim Cook’s letter to shareholders leaves one or two key questions unanswered

“By the end of October 2018, Apple was on its way to a decent quarter. Sixty days later, $7B in revenue is missing,” Jean-Louis Gassée writes for Monday Note. “Tim Cook writes to his shareholders but leaves one or two key questions unanswered.”

“In layperson’s language, there seem to be two explanations for the $7B miss: China and the ‘S Factor,'” Gassée writes. “The S model isn’t different or exciting enough to move mountains of upgrades… We see the phenomenon again in 2017. The iPhone X is a breakthrough, a visibly, neatly functional innovation. A year later, the XS iteration is seen as just that, an iteration that stretches the formula without a striking difference. (Here, I’ll insert a saying from the auto industry: When a car maker starts throwing extra words onto a model designation — the Jalopy 16S Special Sport — it’s not a good message. The product is getting old, it’s sprouting wattles and dewlaps. The analogy isn’t entirely apt for iPhones, of course, but one wonders: Would shorter model names convey a better message? iPhone 11 vs iPhone XS Max?)”

MacDailyNews Take: Yup.

There are plenty of numbers in the universe. Infinite, actually. Don’t worry, Apple, you won’t run out.MacDailyNews, October 4, 2011

It’s as if Apple is naming iPhone models solely for their own internal inventory purposes, just so they can keep track of which model is which, with no regard for how the iPhones are perceived by the rest of the world – the media, the customers, etc. – outside One Infinite Loop.

The “S” doesn’t stand for “Speed,” it stands for “Stupid.” Yes, we know it’s the same case design; we know the “S” version is the one you make the big margins on; we get it. Call it the “S” internally if you must, but don’t be so engineer-ish that you insist on calling it that on the box, too!

It’s not about sales figures or the model’s success (as long as “iPhone” is in the name, it will be a success), it’s about setting a tone. In this case, with the “S,” Apple sets a tone that they are just making an incremental update… Why gift the naysayers with the opportunity, Apple? MacDailyNews Take, April 5, 2013

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 16, 2015

“S” year iPhones were not “slight upgrades,” but that horrid mischaracterization is exactly why we advised Apple to drop the the stupid “S of Death” naming scheme many years ago.MacDailyNews, September 13, 2017

And, just when you thought it was impossible, stupid iPhone naming gets even stupider. Turns out Apple’s stupid naming scheme isn’t a scheme at all, it’s just whatever random gibberish happened to strike Phil’s fancy that year. Finally, it all makes perfect sense!

We can’t wait for next year’s iPhone X sR Super Extra LMNOp Quattro Turbo and the iPhone X sR Super Extra LMNOp Quattro Turbo Max! — MacDailyNews, October 22, 2018

Apple’s latest iPhones were named as idiotically as they are, because Apple SVP Phil Schiller says, “I love cars and things that go fast, and R and S are both letters used to denote sports cars that are really extra special.” Unbelievably, that’s the rationale for naming the most important product of, at the time, the most valuable company in the world? No, that’s the rationale of a six-year-old child. Maybe five. The stupidity is sharp enough to hurt. The level of compensation awarded for such idiocy is criminal.MacDailyNews, January 2, 2019

“Between these two explanations, China and the S Factor, we could have enough to account for the $7B miss. Still, a few questions remain,” Gassée writes. “I have a hard time believing that the $29 limited time offer had a significant impact on Apple’s numbers. Did Apple replace hundreds of thousands of batteries? I doubt it. At 100 replacements per Apple Store times 500 stores, that’s 50K happy customers and only $50M in missed new iPhone revenues. I’d have to be off by a factor of 10 — half a million iPhone battery upgrades, one thousand repairs per Apple Store — to approach a mere $500M in missed revenue.”

“A more serious issue is Apple’s blind spot regarding China. I distinctly recall Cook telling analysts during a quarterly earnings call that, having studied the country for 30 years, he knew China,” Gassée writes. “How could Apple, which is more embedded than most Western companies, not see a Chinese economy slowdown that started well before the 2018 Holiday quarter? More specifically, what did Apple know and not know when they issued a guardedly optimistic Q1 revenue guidance in the $89B to $93B range on November 1st? What did they learn in the following 60 days, how much, how fast? (Unsurprisingly corporate ambulance chasers have already filed Class Action suits.)”

Read more in the full article here.

MacDailyNews Take: We look forward to hearing some of these questions answered by Apple management at the company’s 2019 Annual Meeting of Shareholders on February 6th.

Apple’s 2019 Annual Meeting of Shareholders takes place on February 6 in Apple Park’s Steve Jobs Theater – January 9, 2019
Investors’ rights law firm investigates Apple’s earnings cut for ‘potential securities fraud’ – January 3, 2019
Open thread: Does Apple need new leadership? – January 2, 2019
Apple’s inexplicably awful iPhone naming schemes – September 26, 2018


    1. A small sampling of responses to your delightful inputs !
      Reminder to you and alike: Jobe, Green, Kens, Seven etc.

      -Calling you a Moran would be a Huge complement!
      Calling you an Imbecile would still be a pretty big complement !
      Calling you and Idiot would be an insult to idiots!
      How about calling u a total Nothing !

      -Seems a lot of people don’t enjoy your foul posts. How about you go post on Samsung Daily News, Android Daily News, Google Daily News and, I’m sure your favorite, ASSus Daily News? Oops! My bad.. that is Asus Daily News. Sorry bout that!!

      -You know that all u do is bitch and offer zero useful productive input.
      And do you know how easy it is to to solve your suffocating problem!?
      Very !!!
      Just get the F out .. you will both do yourrself a favor and us.
      Neither one of us will be suffocating any more.
      You must have some serious intelligence and mental issues if your choice is to spent so much time and energy where u find it to be so suffocating and yet not move on.
      And despite u think u are qualified to advise others when u cant even manage yourself out of your suffocation…Silly

      -Mr Zero, your phoebic bashing is completely asinine and unhindged

      -You have some notable anger and IQ issues.
      A little help from a doctor maybe?

  1. Keep in mind – In the auto industry it takes 5 years to realize a new design (Japan and Korea seem to do it in 3). It is not just the design and engineering, but also the re-tooling, etc.

    Is it reasonable to expect Apple to come up with a radically new iPhone design every year? If it realistically takes a couple years to effect a new design, and Apple didn’t refresh every year with new “innards” and doable advancements, everyone would complain. (Their neglect of the Mac Pro is now legendary, but even delays in updating processors in their MacBook lines leads to much complaining). Until they perfect and overcome the production challenges of radically new technologies (e.g. foldable OLED phones, etc.), how different can they make them anyway. Someday people will look back and say of the holding and use of square-ish touchscreen phones as “quaint.” Right now, we are still in the iterative evolution of that product, with less significant changes.

    Apple can’t win either way – for change hungry fans, the “S” is not enough; if Apple skipped the S and simply refreshed every two years, when they are able to make significant changes, the furor would be heard world-wide.

    1. Yes, but cars and smartphones are totally different animals. Most part that requires a long time in new car launch is the body configuration that requires many molds that has to carve out intricate body shape for mold press. Yes, tooling requires change but automakers always try to keep the tooling change to a minimum, and they can do that just by conforming to the integrated components suppliers by vendors. An electronic gadget is not like that at all.
      I am oversimplifying this but it should show the fundamental difference in the analogy of car vs. a smartphone. Apple does have to go through several proto-typing to make sure everything fits inside the enclosure etc. Rest is mostly up to how fast vendors can package logic board and battery etc.

    2. Apple products are a fraction of the complexity and regulatory oversight as automobiles. These days planes trains and automobiles all have more software than mobile devices too. Not even a valid comparison.

      Also, Japanese and Korean makers attempted to shorten development cycles to 3 years and they failed big time. You won’t see a successful comprehensive remodel any sooner than 4 years these days, even when digging deep into parts bins to push out derivative products. All-new car designs are now billlion $+ investments and it is wise for car companies to take the time to get it right. Unlike the tech stocks, shipping betaware and pumping up stock valuations with vaporware is not a profitable option.

      There was a time I compared Apple to Porsche: taking the time to perfect an already class-leading car. Higher initial purchase price that easily earns its keep with better usability and lifetime value. Those days seem to have passed. Apple is now Mini. It’s a front wheel drive budget BMW living off its name and cute design, not by product excellence and value. Just because they stamp “John Cooper Works” on the side of some models doesn’t change the fact they are still underpowered FWD highly compromised and overpriced cars that don’t perform particularly well in most of the world but are held in high regard by fashionistas who don’t have any technical chops.

  2. China is a dictatorship. Its leaders are in a war with the US over trade. China’s leader has the power with single order to stop Chinese purchases of iPhones in a way that is not obvious, except to the participants in the war. I think China is using Apple to send a message to Trump. “We have the power to destroy the largest most successful American company.” This shot is just a small signal. China could Apple’s entire production line. Not just the iPhones but everything Foxconn makes. Apple is in a very delicate crisis right now and its not simple demand falling off in China. China is holding a gun to Tim Cook’s head and asking Trump what he wants to do next. I think that is the scenario.

  3. My only beef is how Apple kept trying to sell iPhones in a completely saturated smartphone market, also raising iPhone prices beyond what so many consumers were willing to pay and definitely unaffordable for emerging nation consumers. Apple is putting far too much dependency on a low-growth product such as the iPhone. Investors hate that type of thinking. Apple should have been investing in some cloud business which is always being called an unlimited growth business.

    It just seems to me as though Apple wasn’t looking ahead. Tim Cook sat in with POTUS discussing China tariff possibilities and he should have had a clearer picture of what was going to happen. Why did only Apple get caught with its pants down in China while all the other major tech companies pretty much held their value? Apple is always putting itself in the position of being a doomed company while companies with much less money aren’t considered as such. It just had to be Apple to lose nearly 40% of its value in a couple of months which is absolutely insane. Facebook is a joke of a social company and yet WS values it much higher than it does Apple.

    Yeah, I’d really like to know why Cook was so surprised upon learning iPhone sales were weak in China. I just figured he should have somewhat expected weak iPhone sales even if there wasn’t anything he could do about it. iPhones are still making money, but it’s high time Apple finds another profitable product to make up for iPhone unit sales losses. Very few people believe Apple is going to be able to grow Services significantly, so that isn’t going to get investors interested in owning Apple stock. All that cash Apple has to make moves to boost revenue and it doesn’t seem to be doing a lick of good as Amazon, Alphabet and Microsoft run past Apple with the greatest of ease. Apple again becomes the major tech company with the most questionable future, being mentioned with the likes of RIM, Nokia and Palm.

    1. Totally agree.
      But I still have serious doubt about the credibility of Tim Cook, and if the China conundrum was such a single big issue that Tim Cook portrayed it to be.
      My take is simply that the smartphone sales have been declining year by year recently, while Apple was desperately trying to compensate it by maintaining the profit margin to keep the investors happy and maintain the stock price level. Tim Cook’s Apple tried to accomplish it by keeping jacking up the price beyond a reasonable level. And in due course, they tried to hide the iPhone sales trouble by some petty tactics such as eliminating reporting unit sales figure etc. Complaining about the battery replacement program is just so cute. No matter what Apple said, they simply overpriced it beyond the cliff and fell but Tim Cook NEVER mentioned anything to blame himself or themselves. Just too timid but not honest and upfront. They can try to hide it but it was too obvious. People are not buying and not upgrading like before. In the Apple’s world of having a 20% market share but over 80% profit share (just using approx. reported number), and that’s what institutional investors like Warren Buffett was buying and he said so (he did not care less about the sales amount but Apple’s “ability” to earn tremendous “profit”). But was crazy for Apple to expect “annual” upgrade of lowly phones that cost over $1,000 going forever. And when they needed other revenue sources, Mac and other products have too long been neglected and not ready. I think they can negotiate through these difficulties eventually (they are swimming in the sea of cash), but they also have to feel the pain in doing so. It’s their own fundamental failure.
      What were they thinking?!

      1. With all these efforts to smoke up the true reason (s) of the recent decline of revenue and resultant dive of the stock value, I still believe there are rather simpler (juvenile?) reasons to explain this.
        The reason Tim Cook/Apple has been trying to hide the bad news until the real last minutes (for example, they revealed the elimination of the unit sales figures toward the very last minutes of the teleconferencing, indicating they were keenly aware of the negative reaction by the market regarding the transparency) is simply by their desire to support the stock level, or avoid the collapse of it. This is of course because they did not want to disappoint their shareholders, but I also speculate (yes, I do wish to emphasize this is my speculation) that those chummy old club executives wanted to defend their stock option benefit. They must have already been feeling the heat from the BOD that their time in Apple might not be too long.

        Anyway, so much on China, “S” designation, battery replacement program etc etc.

    2. First, iPhone margin has not gone up. So Apple isn’t price gouging. The X class of phones were expensive to invent, design and manufacture. Love Face ID or hate it, Apple’s version of it is far better and more secure than anybody else’s, even after competitors have had time to catch up.

      Second, if you followed Apple closely, you would know that they’ve not been resting on their butts, but busting them from A to Z. Where have you been, Mag7-48? Did you miss the new iPad Pro the APple Watch 4, the impending rollout of Apple’s video service, and the move of a key Apple electric-car guy to VW in what is rumored to be a sign of a partnership arrangement? Did you notice that Apple’s installed base of active devices increased by 100,000,000 year over year in the most recent quarter? Did you read Sinofsky’s tweet stream explaining that growth in the installed is the most important sign of a healthy business — as opposed to a declining business that’s merely skimming cream? Have you followed their pilot projects on interactive health records, which would seem to be precisely the kind of cloud business you seem to be recommending?

      Apple unveils products (and services) when they’re ready. I hope they keep doing that. Like everybody else, I can’t wait to see what’s next. But that feeling is a sign of Apple’s world-class success. Not it’s failure.

  4. MDN: Nonsense about the S and R models. You place far too much emphasis on the S and R in the model name being a big deal. You are obsessed over it and its silly.
    I don’t really care nor should anybody if the phones naming was inspired by sports cars. In way that’s actually kinda cool. But in reality, (hopefully) not too many really care and obsess over the the model name, 6s or 7 etc.
    I also don’t buy the authors opinion. S and R etc. are just used to differentiate models at least on my car. It has nothing to do with the model being old etc. Nothing at all. Its just part of the model name, nothing more. Get over it.

    1. I just asked a random person with an older iPhone (Home button) why they didn’t upgrade this year and they said, “It’s only an ‘S’ year. No big deal. I’ll wait for next year.”

    1. This screw up falls on the shoulders of Dopey Donald and his insulting and incendiary bargaining style that has insulted the Chinese and resulted in a consumer backlash. Cook diplomatically won’t say this aloud, as Trump will just begin an assault on Apple.

      1. So the Apple apologist Hiram blames EVERYTHING on President Trump. Cook had absolutely nothing to do with the downturn because he is PERFECT in every way.

        Yeah right…

        1. You are aware that the shortfall in China is more than the shortfall of the revenue miss? And that Trump himself is happy to be the cause?
          No apologies for the 2nd largest quarter in Apple’s history. BTW, when the China deal is done, Apple sales will NOT immediately bounce back, because the Chinese consumer will not forget Trump’s rhetoric.

          1. iPhones are overpriced for the market in China, India and other developing nations. Hell, they are OVER PRICED PERIOD! Apple backtracked realizing their mistake by lowering prices and then offering higher trade in values on old models to stoke sales. They simply screwed up big time and we shall see if the course correction damage control worked…

      2. Hiram, really a dumb point you made there. Pipeline has put all his eggs in one basket. All eggs went into the iphone basket and he put all that production in the one China basket.

        It has nothing to do with trump, it has to do with incompetence as a CEO .

        Apple is a very small SKU company , yet he can’t focus enough to keep those SKUs updated in a timely fashion.

        Apple is now one of the most expensive computers you can buy with some of the worst performance and lack of upgradability.

        Alienware just destroyed Apple laptops for less money and they are not the only one.

  5. Phil Schiller is a loyal trooper.

    But although He’s head of marketing he’s no marketing genius. Steve Jobs was the marketing guru of Apple, one of the best if the not the best salesman of his generation. Schiller was a great executor of Job’s plans but when Jobs passed on it all went downhill.

    Schiller does not have a a marketing degree, he graduated as a BIOLOGIST.

    Under schiller:
    — Besides misunderstanding the recent China Market..
    he did
    — The Bizarro (basically anti sales tactics) of the iPhone naming scheme. (To be fair this started with Schiller under Jobs). Lots of people simply avoid ‘S’ versions saying they are just tiny speed bumps. Even the press treats ‘S’ versions differently. But in actuality many of the ‘S’ versions were actually major improvements.

    Now the confusing XR , XS marketing . There is no way from the name itself to understand which is the higher end model. (Exasperated Best Buy sales guy explaining to the customer : “The XR has a poor camera and a lousy screen vs the XS” . Which is isn’t really true as the XR LCD is great etc but is the EASIEST way for badly trained and tired sales people to explain the issue.. The customer usually replies “huh !, The XS is too expensive and I don’t want a lousy camera and screen” and walks out without buying ).

    Apple Marketing including TV , Web , Print ads have to solve many issues the customer might have BEFORE they walk into Best Buy….
    and no 99.9% of Apple customers do not watch 2 hr Tim cook product launches.

    Schiller casually named the phones, Apple’s biggest money earners, after sports cars because ‘he liked cars’.

    — Schiller did not do any serious Mac advertising for 6-7 years. Not even in the Win 8 fiasco years when Macs (if they were properly updated) could have grabbed market share by the bucketful.

    Note : Macs are Apple’s SECOND MOST PROFITABLE hardware product. Makes more money than Watch, TV, AirPods , Beats, iPod COMBINED by billions every quarter. Makes more than iPad

    Not marketing Macs , not putting the screws on Win 8 etc must be one of the biggest marketing fiascos ever, totally inexplicable , and will be doubtlessly be made into a case study in Business Marketing schools… Can you imagine any company not marketing at all it’s second largest product, a product which by itself is a Fortune 100 size enterprise? Not even cheap web ads ! There were small game companies selling $1 games which had more ads than Apple had for Macs for years.

    Jobs had one new Mac Ad a month , 66 different Mac PC guy ads in 4 years. Even with iPod booming etc.

    — Marketing should also help production with product line CLARITY. Jobs wanted clear easily understood product lines divided into entry, mid , pro models. But under Schiller and Cook for several years for example the Mac Book AIR which was supposed to be the LIGHTEST Mac had MORE ports than the Mac Book ! That’s product confusion and poor marketing.

    Jobs said if you confuse customers they won’t buy.

    — Approved such Ads as the gut wrenching ‘genius’ Ads.
    — There was a huge shambles in Apple Marketing when internal Ad departments (Schiller was reputed to have hired hundreds of staffers) competed with Apple’s traditional outside agencies.

    Today Tim Cook has to hire Advertising talent like Tor Myhren to report directly to him and not Schiller. (Just like the TV guys report directly to him and not Cue… )

    Although Apple advertising has improved somewhat, winning some awards, there still isn’t a Unified Theme to Apple’s Marketing. there is no ground breaking go-viral campaigns like Think Different, 1984 or give immediate recognition like the ‘dancing iPod figures’ Ads.

    I like Schiller as person and as I said for his loyalty and hard work but without Jobs Apple marketing isn’t what it used to be. (Please people don’t argue $$ in sales, talk about growth, Apple unit sales have stalled for several years now, EPS has only gone up due to buybacks and rising ASPs).

    I’ve not even talked about Apple PR which is part of Marketing, which has been pretty bad as well (like basically no defense against the Fake News China Apple child labour and suicide issue. Mike Daisey whose testimony fuelled a lot of it later, he was to be featured on NPR etc, confessed he made it all up ! but the damage — not defended by Apple — was done. The NYT won a pulitzer based on erroneous facts over the issue but not one counter argument or letter to the editor by Apple PR). Apple PR ad Marketing just slept as Apple’s reputation got gobsmacked.

    1. since I’m on the topic maybe I can give a further 2 cents and perhaps someone among Apple’s 150,000 staffers will find useful:

      1) Apple should Advertise it’s Advantages and be Clear about it. Apple Marketing should think hard : what are Apple’s Advantages over say Android. (It sounds obvious but if you look at Tim Cook’s early ads you don’t see it applied, later ads have somewhat improved )

      What do I mean?
      Look at the ‘Happy Photographer’ ads they ran for years showing happy iPhone photo buffs. What do they these achieve? Android users seeing that say “I enjoy taking photos too” and my camera is pretty good. The ads don’t make them abandon their Androids and go buy and iPhone because the ads have not shown CLEAR iPhone photo advantages ( more recent ads do better).

      To ‘sell’ the advantages of iPhone photography you have to clearly show the differences between it and its rivals (which those early iPhone ‘Photo’ campaigns don’t) , by side by side comparisons if necessary, show for example in the same situations an Android camera’s pictures are washed out, blurry or whatever. That most android phones don’t have true Zoom etc. If TV ads are too short and expensive to do this, use cheap Web Ads.

      2) Apple also don’t show it’s clear advantages in things like:
      — PRIVACY (the big CES banner recently was one of the few attempts)
      — COMPLETE ECO SYSTEM. Apple has Macs, iPads, iPhones that are designed to work together and have a single point for support (i.e one company to deal with) , a BIG advantage nobody else has yet I hardly see eco system being marketed.
      — APPLE MAKES BOTH OS AND HARDWARE (down to key processors etc) . Another big advantage, making both means seamless integration and OPTIMIZATION (that’s why Apple devices need less RAM etc). Again Apple doesn’t market it.

      PC and Android Manufacturers must breathe sighs of relief everyday when Apple ignores marketing it’s Eco System and Integration advantages. Most Android OEMs would give their right arm for such things. Yet Apple Marketing is blind to it.

      3) Together with Eco System, Apple should sell more of it’s eco system to users, and I’m talking more than just services.

      For example iPhone sells a lot more than Macs, so many iPhone consumers use PCs. Why doesn’t Apple try to market Macs to iPhone purchasers more fiercely?

      For example have iPhone Mac tie in promotions like if you buy an iPhone you can buy a Mac for 10% off if you buy within 30 days or something (with 30-40% profit margins this is doable). I’m just giving a one minute thought example, Apple marketing staff paid millions a year can think of better ideas, they just need to think of eco system tie ins and other imaginative sales programs.

      Only recently have they boosted imaginative techniques like this in heavily advertising their iPhone ‘trade in’ program.

  6. Perhaps we wouldn’t be having this discussion if Apple was a more diversified company that didn’t overly rely on one class of product, which is the iPhone.

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