Apple fans face a big iWait on new product categories, services

Apple fans face a big iWait on new product categories, services

Summary: Apple teased new products and services in the year ahead, but it's unclear whether a better dividend and shareholder cash will buy the company more patience.

TOPICS: Apple, iPhone, iPad

Apple entered its fiscal second quarter earnings report with a bevy of questions and now faces even more.

The second quarter was solid relative to expectations and the outlook was light, but CEO Tim Cook also teased new products and services but in 2014 most likely. Cook said:

We see great opportunities in front of us, particularly given the long-term prospects of the smartphone and tablet markets, the strength of our incredible ecosystem, which we plan to continue to augment with new services, our plans for expanded distribution, and the potential of exciting new product categories.

After the report, we're all left with the following questions:

  1. What does the product innovation pipeline look like?
  2. Can Apple generate new software and services hits?
  3. Does Apple begin to monetize its customer base---and those iTunes and App Store accounts---to look more like PayPal or Amazon?
  4. And can Apple deliver game changing products in the post-Steve Jobs era?

That latter question is the one that dangles. William Blair analyst Anil Doradla cuts to the chase:

From our point of view, the Apple story boils down to one thing—the ability to generate new product cycles over the next six months, enabling revenue reacceleration and leverage.

Apple's outlook already tells you what's coming in the fall---a low cost iPhone for the emerging markets. The company said its gross margins in the June quarter will fall from 36 percent from 37 percent. Analysts expect gross margins to fall from there. Apple needs the emerging markets and will sacrifice profit margins for them.

Why would Apple chase market share? Because the user base may become more important than the devices. Morgan Stanley analyst Katy Huberty said in a research report:

Perhaps most interesting was Apple’s increased focus on content/software/services, which hit a $16B+ annual revenue run rate, up 30% Y/Y. Apple also broadened its comments on product pipeline to include software, services, and new product categories. Most interesting to us is the potential for a killer service, like mobile payments, to better monetize the 500M+ account base and drive further differentiation and share gains in mobile devices.

So far the payments thing for Apple has been lackluster, but you see where the company is going. In the future, Apple may be more about services than devices. The iPhone and iPad could just be the lure that hooks you.

This revenue mix, outlined by Deutsche Bank, would materially change away from hardware. 



In the end, content, services, cloud and payments all sound promising. The issue is Apple hasn't proven it can deliver more than content services and great devices so far. Apple is handing over more cash to shareholders---the company's dividend yield will be on par with Coca-Cola's after a 15 percent increase in the dividend---to alleviate the worries, but the company has a bit more to prove.

Barclays analyst Ben Reitzes said:

While the reception of the iPhone 5 and execution of late has tested our patience, the cash announcement, performance and guidance set Apple up better into product cycles predicated on platform/service innovations.

Indeed, a $100 billion capital return program is nothing to sneeze at, but Deutsche Bank analyst Chris Whitmore noted it only goes so far. "Shareholder friendly initiatives will certainly appeal to investors but does not hide the fact that Apple needs to introduce a 5 inch iPhone, a new 5S and a low cost iPhone for emerging markets," said Whitmore.

Topics: Apple, iPhone, iPad

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.


Log in or register to join the discussion
  • Apple has built a loyal following

    Their past products have revolutionized how people use technology. Apple is the product that everyone is trying to beat. Currently, their biggest hurdle is translating their past successes into future hits in the Post-Jobs era. We are all(customers and competitors) waiting to see if they can continue to create the next game-changing device sans jobs. Everyone is waiting for this second shoe to drop.
    • Everyone is trying to beat Apple sales numbers...

      technologically, Apple was bypassed years ago. Those in the know do not buy Apple. Lucky for Apple, 95% of the population does not fit in this category.
      • Feeling a bit defensive

        aren't we?
      • True true

        Theyve made a name for themselves. Now theyve been doing like every other company that made a good product once and relax a little ... sell the name only. Theyll have good sales for many years now even if they continue to put out mediocre products.
        • True, some other day

          You can't make good sales with mediocre products. Not in this Internet times, when that your product is mediocre becomes known worldwide in a minute.

          Apparently, Apple products are good for the users, or they will not be spending their hard earned money and buy -- even during difficult economic times.
          • ...good sales, rubbish products...

            ...the N.A. Auto Industry did that for years. Sheeple will believe Madison Avenue tells them to. Steve Jobs was a genius. Patching holes in peoples' souls with shiny toys to impress all the other kids in the playground.
            Feldwebel Wolfenstool
          • Steve Jobs

            Come on, Steve Jobs passed away years ago. How come he is still influencing those sheep?

            Try some other explanation. This does not hold water. Again, that NA cars "phenomena" was before the Internet.
      • rubbish

        That is just rubbish. In my point of view OS 10 is way ahead of WIN 8 or any Linux distribution.
        I hoped Mickeysoft would have "stolen" more for OS 10 but no, they keep throwing crap on the market.
        • Everytime someone talks about how great OS X is....

          I send them to this site so they can read on the horrors that OS X causes. No version of Windows has ever completely destroyed whole volumes on a HD like OS X can do. Give me Win8 anyday over that crappy hodge-podge of software Apple patched together.
          Thomas Kolakowski
          • No version of Windows has ever completely destroyed whole volumes on a HD

            Hahahahahah! I had to laugh when I read this. Windows has always destroyed whole volumes. Usually, however, the volumes it destroys are Linux, MacOS, BeOS - in short, anything NOT Windows. I gave up dual-booting years ago because Mickeysoft, as bvandev1 calls them (an apt name in my opinion and something more like a real man would name his company 'Microsoft' is a sign of an inferiority complex if I ever saw one - think about it guys and I do stress men, not women) does not make products that work and play well with others. In fact, their whole corporate strategy has been one of beating competition into oblivion and controlling everything.

            Great. They helped to standardize computer architecture on the Intel 8080-based processor instead of the (at the time) superior 6502 architecture that was already in widespread use in nearly every home in America. We owe them for that.

            Great. We developers had to deal with some bonehead statement by a Harvard dropout who said "No program will ever require more than 640K to run." That piece of computing history stuck with us for twenty years. Incidentally, that same Harvard dropout just released a scaled down operating system that only takes 2GB of system memory and works on a touchscreen that he 'modestly' calls THE Surface.

            Great. Microsoft has recently rewritten their code to 'allow' Linux to run as a 'guest' OS on their system, but you have to use Windows as the host OS. Excuse me? A single-user, GUI-based OS running as a host for a multi-user, command-line-or-gui OS? Microsoft did not miss the boat on that one, they booked passage on the Titanic.

            Great. Microsoft freed me from the ability of having development tools readily available when I turn on my computer. Now I have to buy them (or download free ones) separately. Gone are the days of the BASIC interpreter, the C compiler, and even the scripting languages coming with the computer when I pick it up at Best Buy or Wal-Mart. No, now I have to license the language or IDE, and of course the only one that works right in Windows is one made by Microsoft. In fact, the tools that develop cross-platform code are often prevented from being used in cross-platform development by screwed up Microsoft-specific restrictions, like limiting the amount of memory available for the Java stack + heap to 2GB of contiguous memory and allowing a third GB if it is split off and specially accessed, requiring the Windows JVM to be used completely differently from the others.

            Yeah, Microsoft is so superior to Apple in those regards. I do agree that Apple overprices their products in many cases, but to say Microsoft never did anything wrong is like saying that the two suspects in the Boston Marathon bombings were just 'boys being boys'.
            Garry Hurley Jr
          • what the

            @Garry Hurley Jr
            "Great. They helped to standardize computer architecture on the Intel 8080-based processor instead of the (at the time) superior 6502 architecture that was already in widespread use in nearly every home in America. We owe them for that.:-) "

            the 6502 and the Apple 2 in particular was rubbish. I did a ton of machine code on the Apple 2 and developers had to workaround the stupifying architecture of the Apple 2.
            the fact it sold in great numbers proves that inferior design can be compensated with superior marketing.
          • Crappy hodge-podge ..

            Well, why would you be in a discussion of Apple's future??

            Nothing better to do and your self esteem needing a boost?
        • having supported OSX since it began...

          ...I can tell you that since they went 64 bit, it has been bad...real bad. CUPS is constantly cr@pping the bed, they remove protocols that everybody used and tried to replace it with their own brand, replaced Appletalk with *shutter* Bonjour, and the latest? No 32 bit application support. From a printing standpoint, it's been a nightmare. Windows has the driver support and flexibility that Apple should have, but have yet to provide the simple feature of having a true default settings option...not the presets, but truly setting a print driver feature as a default when you click file-print. Started to dislike OSX at about 10.6
          Cory Ducey
      • So....

        5% of the population are "Know-it-Alls"?
        That explains everything.
      • Those in the know...

        Those in the know aren't blindly focused on technology. They buy the most useful product - the best tool for each job. Technology alone does not make a product more useful. Only narrow-minded simpletons believe that. Technology can actually make a device LESS usable. That's precisely why each iOS device is still the best selling device in it's category. There is no single phone which beats the iPhone. There is no single tablet which beats the iPad. There is no music player which beats the iPod. People want usable tools. They really don't care what's "under the hood."

        The reason iOS device sales keep climbing is because intelligent people have realized they don't need a USB port or memory card slot on their tablet (although both are available for iPads, people rarely buy them.) They want everything they need inside the device and self-contained. They don't want a 32GB device which forces you to buy 32GB expansion cards to get more space. They don't want to buy and carry external thumb drives or SD cards. They want the extra storage built-in so they don't have to think about it. They just want to use it.

        If you look at the all of the devices using a single OS combined, then Android has the advantage because there are probably 100+ different Android devices. Still, its success is not based on technology. It's based on price and useful applications.
        • Sorry Bill but..

          Your second paragraph is contradictory. First, the "intelligent people have realized they don't need a USB port or memory card slot" is more iTard talk. Let me help you properly re-phrase.

          Intelligent people have realized that paying $100+ for additional memory is a ripoff and have gone with solutions that allow you to expand at a fraction of the cost (i.e SD card).

          Stating people are more intelligent because they bough a limited, non expandable, overpriced device is the contradiction here.

          Oh, and BTW, my Surface has a 64gb SD card in it and I don't have to carry around anything extra.
        • ...really?

          The iPad does not have a memory card slot...they never had. I believe an adapter has to be purchased for this. As for nobody wants expandable memory, I disagree. The option to have a MicroSD slot to save additional files and not worry about running out of storage (especially now that one can connect and transfer photos and videos from the newer cameras) is huge. The cost of a Galaxy Note 10.1 32 GB is about 450-500. Add a 64GB microSD for about 70 bucks so ballpark 520-570. The iPad 32 GB? About 600 bucks...and you are still stuck with just 32GB...

          As for what's under the hood? Most people want bang for the the last 2 generations of iPads, they are far from that. Great display, that I will not dispute, but over all that's about all they got compared to other devices out there. Devices such as the Galaxy Note series are tools compared to the iPads which are now considered toys. I have had more use out of my 10.1 Note then i will ever have out of an iPad and it was seriously considered when I was shopping for a tablet. The big thing for me in not getting the iPad? Its limitations in what it can do and what I need it to do.
          Cory Ducey
        • Bill is a simpleton

          Everything you wrote points that you are blissfully ignorant about what anything else is doing outside the world of I devices.
          And that is the only thing that keeps people with Apple: blissful ignorance.
          When they finally discover that the grass is greener on the other side, they invariably wonder how they managed with the one button UI for so long.
          • boy you are not very smart

            but don't worry probably is your father fault.
        • Exactly, Bill

          I second all of that. Let me just add one more advantage Android has: Telecoms and retailers usually don't like to sell Apple products. Also, sales people everywhere love to sell on price (except the good ones of course but how many are there?). I doubt that Android would stand any chance at all if it wasn't the cheapest option most of the time.