2016: Apple's year of ups and downs

It's been a year of ups, and also quite a few downs for Apple.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

With billions in the bank, and a product on sale where demand outstrips supply, it wouldn't seem that Apple would have much to complain about. But 2016 has seen Apple move from an apparent position of total invulnerability to one where the future looks uncertain.

A rocky start

Indications that trouble might be looming came as early as January, when sales data for the Q1 quarter showed that the iPhone might be losing its Midas touch:

First, iPhone sales. Yes, strong sales, yes, record sales, but year-on-year unit sales growth is a zero, with revenue growth at 1 percent. Q1 is historically Apple's strongest quarter because that quarter includes both the release of the new iPhone and the holidays. It's a quarter that traditionally shows strong growth.

Even adding China to the launch day didn't manage to boost sales beyond the year-ago-quarter.

Things also went from bad to alarmingly bad for the iPad:

Things are worse for the iPad. Here unit sales have tanked by a staggering 25 percent, with revenue down by 21 percent. This is the second holiday quarter that Apple has seen a huge decline in iPad sales.

Then came the brickings

The first was the Error 53 bug, a serious problem where iPhones that had had the Touch ID button replaced by third-party repairers were suddenly turning into bricks. Apple initially claimed that this wasn't a bug, but rather a feature designed to keep users safe. In the end, Apple decided that the bad publicity wasn't worth it and reversed its policy.

This was followed by the "1 January 1970" bricking bug. As the name suggested, you set the iPhone to 1 January 1970, and it was then bricked. Fortunately, there was an easy fix for this bug, and Apple issued a patch to prevent it happening.

iPhone SE

March saw the release of the iPhone SE, a cheaper version of the iPhone for people with smaller pockets (in both senses of the phrase).

So why did Apple need the iPhone SE?

If the analyst predictions are correct and iPhone sales are going to weaken, Apple not only needs a more compelling piece of hardware to draw in new users, but it needs that device to be as cutting-edge as possible in order to get owners into the habit of using Apple Pay and sending Live Photos to grandma. Why? So that they're hooked and keep on buying iPhones.

Then there's the opportunity to sell an upgrade to existing iPhone users running old hardware. According to a research note sent out by IHS, of iPhone models in active use, 29 percent are iPhone 5 models with 4-inch screens, and 23 percent are even older iPhone models with screens sized just 3.5-inches.

From a hardware specification perspective the iPhone SE was a total steal for the price, but early adoption seemed subdued compared to earlier iPhones.

The end of an era

Then in April came a big down for Apple -- the company's 13-year growth streak came to an abrupt end:

Apple shipped 51.1 million units, which isn't as bad as was expected (the figure to beat was 50.7 million units). That's a unit drop of 32 percent since the previous quarter, and 16 percent down year-on-year. Notice though how it's a sharper decline between first and second quarter unit sales than Apple has previously seen. The momentum generated by the launch of a new iPhone hasn't carried over as strongly into this quarter as previously, suggesting that it's not as big a hit.

If that's not enough doom, it also looks like the iPhone average selling price has dropped dramatically this quarter, from $690 last quarter to around $641, and this is before the launch of the iPhone SE. This suggests that consumers were opting to buy cheaper/lower capacity iPhones over higher priced models.


In June Apple hosted its annual WWDC event, and this year we saw Apple's focus shift to more tightly integrating iOS and macOS, and making the iPhone more attractive to Chinese buyers.

Apple also announced that it was going to open up to developers key aspects of iOS that it had previously kept to itself:

Siri, Messages, and HomeKit are being opened up to third-party developers, which will allow for a whole raft of new and exciting apps for both iOS and macOS. Rather than having to have more and more features baked into the operating system -- inevitably adding to bloat -- users can instead choose the functionality they want to add by downloading the relevant third-party app.

More bad news, and a silver lining

The third quarter of 2016 was particularly bad for Apple:

Apple narrowly beat Wall Street expectations, but the third quarter was pretty bad for hardware sales.

Let's begin with iPhone sales, which at 40.4 million, is the lowest sales Apple has seen since Q4 2014. While not exactly falling off a cliff, it's an indication of just how weak iPhone sales are, and how badly Apple needs the new iPhone to be a hit.

More worrying is how far the iPhone's average selling price has dropped dramatically this quarter, from $641 last quarter to around $595, which is lower than the $606 that analysts were expecting.

This suggests that consumers have been opting to buy cheaper/lower capacity iPhones over higher-priced models. This is likely to be down to the lower-priced iPhone SE, which Apple is using to entice new users into the iPhone fold (probably in the hopes of selling them a more expensive iPhone down the line).

But there are always silver linings, and in this cloud, the silver lining came in the form of "Android switchers":

Android users are switching to iPhone. According to Cook, they, along with first-time buyers, represented "the lion's share of our iPhone sales in the quarter."

Old and stale

By the time August rolled around, it was clear that Apple was suffering from a new problem -- its entire hardware lineup had become old, outdated, and in desperate need of a refresh.

I've already looked at how pathetic the Mac and MacBook lineup are. Apart from the MacBook, nothing there is worth buying because it's either old and crusty (5K iMac), or very old and crusty (Mac Pro). Buying any of this stuff means you're paying top dollar for technology that is, by the standards of the fast-moving tech industry -- ancient.

But it doesn't stop there.

Apart from the 9.7-inch iPad Pro, everything there either needs to be refreshed, or is long overdue a refresh. The iPad Air 2 is almost two years old and yet Apple expects consumers to still pay top dollar for this tablet.

The Apple Watch is also more than a year old, and while Apple did shave $50 off the price earlier this year, I'd be hard-pressed to buy one now given that we could see a refresh any minute.

It's even a terrible time to buy an iPhone, given that we're a few weeks away from a refresh.

The iPhone 7 and Apple's "stupid" and "user-hostile" decisions

The tech world awaited an iPhone refresh. And come September the iPhone 7 finally landed (although thanks to copious leaks, we pretty much knew everything that there was to know about the handset).

Despite the fact that the iPhone 7 was quite a modest upgrade, it saw record-breaking pre-orders. But the launch was overshadowed by discussion related to Apple's decision to remove the 3.5mm headphone jack, a move that was branded as "stupid" and "user-hostile." But Apple has a pretty long track record of doing things that were seen at the time as "stupid" and "user-hostile":

But the thing is that Apple is no stranger to making decisions that, at the time they were made, were labeled by some as "stupid" and "user-hostile."

Let's list just a few.

- Dropping the floppy drive

- Not supporting Blu-ray

- Dropping the optical drive

- Sticking with FireWire when the rest of the world went with USB

- Dropping the smartphone's physical keyboard for an on-screen keyboard

- Adopting a proprietary 30-pin connector for the iPod

- Coming out with a tablet that didn't have a USB port

- Dropping the 30-pin connector in favor of another proprietary connector rather than going with USB like everyone else

- Using Thunderbolt for high-speed connectivity rather than USB

- Making a MacBook with a single USB-C port that's used for charging and connecting peripherals

Ups and downs and getting outsmarted by Microsoft

Apple's Q4 earnings in October beat Wall Street expectations, thus making investors happy (but the worries about the future of the iPhone are just as real as ever):

Sales of 45.5 million are slightly higher than Wall Street expected, with unit sales up 13 percent compared to the previous quarter, and down 5 percent compared to the year-ago quarter.

October was also the month that saw Apple refresh its MacBook Pro lineup (which was, rather unexpectedly, overshadowed by Microsoft's unveiling of the Surface Studio). The big new feature was the Touch Bar:

First off, the function keys are gone, replaced with a Touch Bar multi-touch display strip that provides instant access to tools and shortcuts. The shortcuts change depending on what software application is being used, and are also customizable.

The Touch Bar also features a Touch ID sensor for logging into the machine and authorizing Apple Pay payments. The Touch ID sensor required Apple to build a new chip, called the T1, to act as a secure enclave for the sensor.

Apple also took the opportunity to cull the ports it saw as unnecessary, leaving the new MacBook Pro with four Thunderbolt 3/USB-C ports and a headphone jack:

The Thunderbolt 3 ports support 40-Gbps data transfer rate and can support two 5K displays and function as USB, DisplayPort 1.2, HDMI, or VGA ports with the appropriate dongle (so expect a lot of dongles in your future). When working as USB-C ports they offer 10 Gbps of data transfer.

It felt like Apple had been outsmarted and outmaneuvered by Microsoft:

So, why do I think that Microsoft has outsmarted and outmaneuvered Apple? Because while there's no doubt that Apple knows how to innovate, it feels like the company has lost sight of professionals.

The mantra of "thinner, lighter, and fewer ports" fits in with what we've come to expect from Apple, but these are rarely features I hear being requested by professionals. Equally, while the Touch Bar is certainly innovative, and gives Apple a new feature to promote on its website and on the box, it's again not what pros are asking for.

Microsoft, on the other hand, has with the Surface Studio taken the PC and tweaked the form factor a little to make it more useful, and then crammed it with high-end hardware aimed at creative types. In fact, many design pros I know will now be able to replace their expensive pen displays -- a 27-inch Cintiq pen display is $2,299, and you still need a computer to drive it -- with a 28-inch Surface Studio, without upgrading every other piece of hardware or peripheral they have.

Made in America

Which brings us to November, the month that saw President-elect Donald Trump tell Apple Tim Cook that it would be a "real achievement" if Apple were to shift manufacturing to the US, and promising tax breaks.

Cook's response was short and cryptic:

"I understand that."

In reality, shifting the assembly to the US would be a mammoth task:

First off, Apple doesn't manufacture iPhones itself. This job is outsourced to Foxconn and Pegatron, and these companies, in turn, manufacture the iPhone at six assembly plants in China and one in Brazil. Over the past four quarters these factories have assembled some 212 million iPhones.

But this is only a small part of the story.

On top of assembly, there's the supply chain to consider. Apple has more than 750 suppliers in over 20 countries, sourcing and manufacturing the components and minerals needed to build the iPhone. Those suppliers employ some 1.6 million people. And as of June 2016, 69 of those suppliers were US based.

And don't forget that these assembly plants and suppliers aren't just involved in building iPhones. Most will have some part to play in pretty much any piece of electronics you can think of.

This truly is manufacturing on a global scale.

According to Jason Dedrick, a professor at the School of Information Studies at Syracuse University, shifting the assembly to the US would add $30 to $40 to the overall cost, partly down to increased labor costs, but also because of increased transportation and logistics overheads.

What will happen with this remains to be seen in the year -- or possibly years -- ahead.

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