Apple, Inc. has been taking some punishment in the equity markets lately as CEO Tim Cook explained away questions about sluggish iPhone growth forecasts on the cold trade war with China. Last night, he doubled down on that excuse with CNBC’s greatest showman, Jim Cramer, using the iPhone XR as an example:
“I mean, do I want to sell more? Of course I do, of course I’d like to sell more. We’re working on that. But in terms of the product itself, it’s an incredibly innovative product. It has a bunch of advanced technologies in it from the chip with the neural engine to security embedded to an edge-to-edge liquid retina display, the first in the industry, longest battery life ever in an iPhone.”
Hmm… it’s got a “bunch of advanced…” er, stuff in there people WANT, right! It’s almost as if Cook can’t understand why anyone would want anything else?
All too often, leaders and executives at successful enterprises (alphas leading alphas, in other words) fail to appreciate the overshot needs of customers at the lower-end of their demand curve as they continually strive to push higher against other alphas seeking to out-innovate them incrementally. In Apple’s case, the other alpha they’re driving to out-innovate is Samsung; which, incidentally, took advantage of all the China distraction to explain away its own depressed sales forecast on that same reason.
But that excuse obscures the pressure both companies are feeling from broader smartphone fatigue worldwide. Two-thirds of Apple’s revenue is linked to iPhone sales directly, but it’s also Apple’s barricade to new market entry by other alpha competitors who lack the vertical integration Apple has exploited so well to take performance expectations higher and higher for smartphones. Until now, anyhow…
Over time, Apple has surrendered, quite happily it would seem, down-market performance territory to newer entrants nearly since the iPhone launched in 2007, giving ground to Android competitors like Samsung and later Huawei, Xiaomi and other Chinese rivals.
So, what would you do if you were in Tim Cook’s chair? This morning, supplier rumors out of Japan indicate a production cut of 10% across all three of its new 2018 models – iPhone XS, XS Max and XR – as the company tiptoes around overcorrection from the mythical China slump, while also deciding not to share iPhone sales numbers publicly any longer. They’re just “not as relevant as higher-margin services revenue” to the growth forecast, you see?