Is this Apple’s “disaster” point or turning point?

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Image source: Visual China

Suppliers were cut, mobile phone sales were no longer disclosed, stock prices fell, and ratings were downgraded... Is this the end of Apple's ascension to godhood?

After a Trillion

In fact, not long before the rainstorm, Apple's sky was still bright.

This summer, Apple had its highlight moment. On August 2, Apple's market value exceeded one trillion US dollars during intraday trading, becoming the world's first company to exceed one trillion US dollars in a single market. At its peak, it soared to 1.1 trillion US dollars. This figure would even rank 16th in the 2017 global GDP rankings, making it "rich enough to rival a country."

The distance between Apple back then and Apple today is two McDonald's.

At 2 a.m. on November 24, the U.S. stock market closed early, with Apple leading the decline, closing at $172.29. This was the eighth consecutive week that Apple's market value fell. Compared with its historical high on October 3, the decline was more than a quarter, and the market value evaporated by more than $280 billion, which is equivalent to the loss of the market value of two McDonald's in 52 days.

The drop in stock price is a result and a response of the capital market to Apple's performance.

What did Apple do before this?

The first to be criticized is the new iPhone launched this fall. From a product perspective, the iPhone XS series is just as its name suggests, just an improvement on the iPhone X. From the media reports before the launch, Apple fans already knew that the new model will still have the notch.

But nowadays, domestic smartphone brands have successfully launched "true" full-screen displays without bangs, from vivo NEX, OPPO Find X to Xiaomi MIX3, Honor Magic 2, and even Lenovo Z5 Pro. Whether it is a rising camera or a sliding screen, everyone has really put real effort into the "screen".

For Apple fans who are proud of leading the technological trends, the notch screen is tantamount to a slap in the face.

Perhaps the high price and high sales of iPhone X gave Apple confidence, and iPhone XS once again set a new high in price. However, this time, the ups and downs of the mobile phone market proved to Apple that there are no absolutely loyal users in the world. After all, no one's money comes from the wind.

Among the three models, the "cheap version" iPhone XR is more popular.

As the new model's sales were not good, the Wall Street Journal lifted the fig leaf of Apple and revealed that Apple had cut orders from suppliers: Apple cut the number of mobile phone orders originally planned for September this year to February next year by one-third, equivalent to a production reduction of about 23.3 million units, and many suppliers had their iPhone XR production orders cut. Since then, many suppliers have also hinted that Apple has cut orders for parts for the new iPhone, and have even been forced to lay off employees or arrange employee vacations.

At the same time, the iPhone X, the "shortest-lived" model that was taken off the shelves after the launch of the iPhone XS series, also "resurrected" and the production line was restarted.

All of this news is a sign that the new iPhone products are not performing well. At this time, Apple needs a morale-boosting financial report.

The Q4 financial report is indeed a beautiful one: revenue was $62.9 billion, a year-on-year increase of 20%, higher than Wall Street's expectation of $61.57 billion; net profit was $14 billion, a year-on-year increase of 32%, a record high; the Japanese market, which had the strongest revenue growth, increased by 34% year-on-year, the Asia-Pacific region as a whole increased by 22%, and the Americas, China and Europe all increased by 16% to 19% year-on-year.

However, when we look at the hardware sales data specifically, we will find a problem: iPhone shipments totaled 46.89 million units, a year-on-year increase of 0.45%, with total revenue of US$37.185 billion, a year-on-year increase of 29%, accounting for 59% of its total revenue; iPad shipments totaled 9.699 million units, a year-on-year decrease of 15%, with total revenue of US$4.089 billion; Mac shipments totaled 5.299 million units, a year-on-year increase of 3%, with total revenue of US$7.411 billion.

The iPhone series, the main revenue driver, has stagnated, Mac has also grown very little, and the iPad product line has experienced negative growth. The reason why iPhone sales have been able to grow even though sales have not increased is also due to the increase in average selling price.

To make matters worse, Apple announced that it would no longer release sales data for iPhones, iPads, and Macs after releasing the earnings report, because the numbers did not accurately reflect the underlying strength of the business.

After seeing this statement, the inner monologue of Apple analysts with "black question mark faces" was: What exactly can express the potential strength of the business?

Daniel, a technology analyst at US investment company Wedbush Securities, made a very representative complaint: "Apple's decision is unacceptable because the transparency of Apple's business will be seriously affected. Tracking iPhone sales has become a must for investors over the past 10 years."

The attempt to hide something only makes it more obvious, the attempt to try to cover up one's mistake, the ostrich burying its head in the sand... The act of no longer releasing sales data has only exacerbated the outside world's pessimism about Apple's new products, and has also intensified the capital market's distrust of Apple's future development. Financial institutions such as Goldman Sachs, Citigroup, Morgan Stanley, Bank of America Merrill Lynch, Nomura Securities, and KeyBanc have all lowered their expectations or ratings for Apple and its suppliers to varying degrees.

When new technologies such as folding screens, multi-lenses, and reverse charging are beating drums and gongs, this winter for Apple seems particularly cold.

Post-Jobs Era

It’s not that Apple hasn’t experienced winters, but after Steve Jobs led Apple to become a legend, people didn’t think that anything could stump this “great company”, and in the minds of consumers, the smart device market seemed to only have “Apple” and “others” left.

In 1996, Apple was in an unprecedented crisis because it could not find a new product breakthrough. It even hired a bankruptcy consultant and prepared to liquidate and close down. Later, by acquiring NeXT, which was founded by Jobs, Apple brought back its founder.

After that, Jobs spent several years sorting out Apple's business lines; in 1998, he hired an executive named Tim Cook to lead Apple's global business; and in 2001, he released the revolutionary product iPod, leading Apple back to its peak.

From 2003 to 2006, Apple's stock price rose from $6 per share to $80 per share.

On January 9, 2007, Steve Jobs stood at the Macworld conference in San Francisco, holding a palm-sized electronic device and announced that mankind had reinvented the telephone at this moment - the first-generation iPhone made a stunning debut, with no keyboard and only a home button on the main screen; it could not replace the battery, was extremely slim, had an astonishing degree of integration, and the colorful software inside was also impressive.

Although it still has many problems, such as unstable signal, high price, and no front camera... but there is no doubt that it has led the industry into the era of smartphones. People can praise it or denigrate it, but they cannot ignore it. It is also because of this that Jobs, wearing Levi's jeans, New Balance sneakers and a custom-made high-necked black velvet sweater, has become a technology idol of a generation.

In addition to hardware, what makes Apple's ecosystem truly full and three-dimensional is the software and hardware synergy brought about by the openness of the iOS system.

At this year's fall conference, Cook announced that the number of iOS developers worldwide has exceeded 20 million, covering 77 countries. Apple's developers have earned more than $100 billion from the App Store, and now the Apple App Store has 500 million visitors per week, making it the world's largest application market.

When we think about the antitrust lawsuit Apple recently faced for its 30% commission on the APP Store, we cannot understand this sentence: You are not paying for the iPhone's hardware, but paying a premium for Apple's iOS software ecosystem and the synergy between software and hardware.

The massive number of iOS users has inspired the enthusiasm of tens of millions of developers, and the creativity and technology contributed by developers have enabled Apple users to experience the coolest applications. The super-strong two-sided network effect built by the APP Store has built high walls on both the supply and consumption sides of application software, trapping more than half of the users. It is no wonder that some people say that Apple is essentially a software service company in the guise of a mobile phone.

Such a mobile phone that exceeds consumers' expectations in hardware, software and system is of course a leader.

Then, after the last model released by Jobs, iPhone 4, Apple began to make minor improvements and innovations. Especially after iPhone 5S was equipped with Touch ID, iPhone 6, 7, and 8 basically just became bigger and bigger. However, thanks to the brand appeal, user loyalty, and the irreplaceable iOS system, Apple is still doing well.

But the aftereffects of a high starting point will eventually become apparent.

The former glory is a double-edged sword for Apple without Jobs: Apple has loyal, high-quality users around the world, but also a group of the most discerning and expectant tasters.

If you want to wear the crown, you must bear its weight. When the iPhone encountered a breakthrough bottleneck, latecomers were catching up.

The rapid rise of Chinese mobile phone brands, led by Xiaomi, Huami, and OPPO, has brought a huge impact on Apple and Samsung. At present, this army of Chinese mobile phone brands is heading to the global battlefield and has achieved good results in India and Europe. At the same time, their performance in the "new retail" with Chinese characteristics is also remarkable, and they are adept at the marketing strategy of combining online and offline. In terms of products, each company's product line from high-end to entry-level is also constantly improving. The sense of crisis is also in place, and new technologies and selling points such as folding screens, multiple lenses, and reverse charging are rushing to the market without stopping.

Apple is facing a siege, and even Huawei, the vanguard of this army, is only one step away from it.

From iPod, to iMac, to iPhone, Apple's leading products at different times have become new ladders to the throne. Today, when the iPhone is stuck in the quagmire and Moore's Law fails, Apple led by Cook must find new growth points to break through the dilemma. For Cook, all he has to do is follow Jobs' instructions, don't ask yourself "If it were Steve Jobs, what would he do", just do the right thing.

This time, Cook has set his sights on businesses such as smart watches, audio hardware, smart cars and media services, seeking breakthroughs from multiple angles including hardware, software and the Internet.

In the field of smart watches, Apple has achieved good results. In Q3 2018, global smart watch shipments surged 67% to 10 million units. Among them, Apple Watch maintained its leading position with a 45% market share. In addition to mobile phones, this year's autumn new products are the fourth-generation Apple Watch, which adds functions such as low heart rate detection. It can be seen that Apple attaches great importance to the smart watch business.

In the field of audio hardware, Apple acquired the headphone manufacturer Beats in 2014 and continued to improve its product line. Apple also launched its own Bluetooth headset AirPods and is currently developing high-end headsets. In February this year, Apple also began selling the smart speaker HomePod, which imitates Amazon's development. The main selling point is music playback and sound quality. However, the sales did not meet expectations, and Wall Street analysts have reduced their expected sales.

What is quite dramatic is Apple’s car business.

In 2014, Apple's Titan project was officially established, launching Apple's car business. Apple's car research laboratory began to recruit software engineers, automotive engineers and even rocket scientists on a large scale. Jonathan Ive, known as the "soul of Apple's industrial design", also joined the team to control the aesthetics of the vehicle. The team once had more than 1,000 employees.

After that, the project, which had experienced team reduction, business adjustments, and team discord, was officially stopped in 2016. However, it turns out that Apple has not given up on making cars. In 2017, Apple obtained a permit to test self-driving cars in California.

Currently, data from the California Department of Motor Vehicles shows that Apple has 70 self-driving cars approved for road testing in California, and has begun developing self-driving systems and seeking breakthroughs in software.

As the global car manufacturing industry is in full swing, Apple Car is also particularly anticipated, but it remains to be seen whether it can stand out from the competition with Google Waymo, Tesla and a number of traditional car manufacturers and lead a new era like the iPhone did to the smartphone industry.

In addition to hardware, the service business has become Apple's fastest growing business, with year-on-year growth remaining at around 20%.

In addition to traditional hardware after-sales services and technology licensing, Apple has launched a series of Internet services, including Apple Pay, Apple News, and Apple Music. Among them, Apple Music has gained more than 40 million paying members, becoming Apple's most successful Internet business; in March this year, Apple acquired the electronic magazine subscription service Texture, paving the way for news subscription services; at the same time, Apple is also investing in original film and television content, looking for valuable film and television shooting projects in Hollywood, and may soon launch a membership-based online video service similar to Netflix and Amazon Video.

Cook also said that subscription service revenue is very important and there will be more and more subscriptions in the future. However, Apple's move in this high-profit market is a bit late. Netflix and Spotify are now fully grown. In the Chinese market, Toutiao and iQiyi, Tencent Music, Tencent Video, Youku Video and other companies with BAT backgrounds have also dominated the market.

Of course, Apple still has the advantages of capital, platform and iOS system, but as it is in an impact position in this field, there is still a tough battle ahead.

Wearable devices, smart speakers, smart cars, media services... Today, Apple is no longer just a manufacturer of mobile phones and computers. Clues to this could be found as early as 2007 when Steve Jobs changed the company's name from Apple Computer to Apple.

In the post-Jobs era, under the new technological background, Cook is leading Apple to make layouts in other smart hardware, software and content. Apple's actions are not slow, and it is not too late to start. In this transformation war, giants with resources, channels and supply chains still have advantages, but Apple needs to continue to invest before reaping the fruits, especially in big moves like making cars.

The new business has not yet yielded results, and the old advantages are gradually fading. Apple is currently in a period of transition.

A “robbery” point or a turning point?

Apple cannot blame anyone for the decline in its stock price caused by its business and products. If we take off the tinted glasses of "Apple is the God" and look at this legendary company calmly, we will find that it is going through an inevitable life cycle.

In the 1990s, Microsoft was the undisputed leader in the technology industry.

In 1997, when Google was founded, Microsoft believed that browsers were the core entry point for Internet users. At that time, IE browsers accounted for 80% of the market, and Microsoft did not care about search at all. 1998-2002 became the golden period of Google's development. At the beginning of 2003, Google's search web page market share had reached 35%, and its search engine share was about 70%, while Microsoft's market share was only 15%.

From 1997 to 2004, the impact of Google and antitrust turmoil had been plaguing Microsoft, and its decline began to emerge.

Microsoft also misjudged the trend of smartphones. Steve Ballmer, then Microsoft CEO, was not optimistic about the development of smartphones. In a 2007 interview with USA Today, he said that Apple phones would never occupy a significant market share. We all know how Apple performed afterwards.

Microsoft paid the price for its lag and loss of momentum. As heavyweight players such as Google and Apple rose, Microsoft was declining.

After Microsoft's market value fell below $600 billion in 2000, it has fallen off a cliff, even to half of its peak. The theory of Microsoft's decline was very popular, and everyone was speculating that Microsoft might not be able to survive - after all, things change, and the technology and Internet industry changes particularly fast. Giant companies like Nokia and Motorola were once glorious, but eventually declined and could not recover.

But Microsoft created a miracle. After missing out on opportunities such as smartphones and social media, Microsoft seized the cloud service and AI business and regained its former glory in the capital market. It took a full 17 years until it regained a market value of $600 billion in October 2017.

Some companies are not as lucky as Microsoft. Yahoo, which achieved a market value of $100 billion less than five years after its founding, was once the diamond of Wall Street, but after a short 23 years, "Yahoo!" has completely become a memory.

Google, which also started out of a dormitory like Yahoo, has written a different story. Along the way, it has not only changed online search and digital advertising, but has also become a strong competitor in the smartphone market, cheap laptop market and self-driving car market. It is also one of the technology companies with the highest stock price in the world.

The ups and downs of the Internet wave are full of dangers and opportunities.

In China, there are also some familiar stories that show us that in the torrent of the Internet, every choice made by an enterprise brings completely different results, as fascinating and ever-changing as a kaleidoscope.

Lenovo, the big brother of China's technology industry, is a typical representative of relying on technology to survive. The "Liu-Ni dispute" 20 years ago became Lenovo's bet at a crossroads. Later, Lenovo gradually went astray in implementing the "trade, industry and technology" strategy, and eventually moved further and further away from "technology", and now it has become more like an investment institution.

The younger giants have also reached the age where they need to drink wolfberries for health preservation.

Baidu, which lost momentum at the advent of mobile Internet, is now slowly recovering by going all-in on artificial intelligence, but it is still a long way from its glorious peak and has not yet achieved a comeback like Microsoft. Tencent, which once moved from closed to open, has conveyed its determination to deepen its B-side through an organizational structure adjustment this year as its overall growth rate slowed down and its market value continued to decline. Not to mention the ambitious Jack Ma, who announced his retirement at the first move, and is looking forward to the long-term prosperity of his business.

Summarizing the rules, we will find that it takes about 20 years for Internet companies to experience a cycle from peak to trough: Microsoft was 22 years old when it faced an antitrust case in 1997; Yahoo was 22 years old when it sold its core assets and changed its name to Aitaba in 2017; Dell was 19 years old when it delisted in 2013 due to poor performance; and the Chinese companies Tencent, JD.com and Alibaba, which encountered setbacks this year, are all exactly 20 years old.

Apple was also 20 years old when it suffered huge losses, plummeted sales, fired two CEOs in a row, and even considered bankruptcy in 1996. Now, 22 years later, Apple is facing another cold winter, falling from its historic trillion-dollar market value and falling into the cloud of doubt about its future.

Behind these "coincidences" is an economic law called the Kondratieff cycle.

In the 1920s, Nikolai Kondratiev compared the economic development history of many countries such as Britain, France, the United States, and Germany and found that there was a 54-year cycle in economic development, and thus proposed the "Kondratieff cycle" theory. Later, Ispelding of the United States further explained the Kondratieff cycle, believing that a Kondratieff cycle contains about three Kuznets cycles, and each Kuznets cycle is exactly 20 years.

There are peaks and valleys, which is a rule that every business cannot escape. For lucky businesses, they will experience a process of recovery, prosperity, peaking, recession, depression, and recovery again. But for unlucky businesses, they may only be able to experience one cycle and not be able to experience the story of the next cycle.

20 years seems to have become a curse that has been placed on the heads of every Internet company.

In every generation, there are talented people, each leading the way. In just a few years, the iteration of technology is getting faster and faster. After PC and mobile Internet, artificial intelligence and 5G networks have already been clearly seen. As the iteration of technology is getting faster and faster, for Internet companies, this cycle has shown a trend of shortening.

A duck is the first to know when the water in the river warms in spring. The changes in technology are fully demonstrated in the field of smart hardware. Every change will give birth to new forces, but it is also a test of blood and fire for the old giants.

Even with its "star halo", Apple cannot escape the power of the life cycle. In the face of the law, Apple is just a "living" company. It can create miracles, but it will also encounter bottlenecks. Apple, which is now in a new round of troughs, is accumulating momentum for the next stage of climbing, and the capital market is doing exactly what it is doing: reflecting Apple's situation and anxiety in real time and accurately.

This is Apple's "tribulation" point, and also a turning point. Just like what is said in fantasy novels, ascending to become a god requires going through tribulations: nine chances of death, but once successful, it will be an incomparable experience.