Apple's own battery blunder may be to blame for its earnings miss

A report claims that Apple CEO Tim Cook told staff the company had carried out 11 million battery replacements under the $29 program that was rolled out, compared to the 1 to 2 million that would normally be carried out in a year.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

What was behind Apple's first profits warning since 2002? Was it the weakening Chinese market, in combination with pressures from the ratcheting of the US-China trade war and supply chain constraints, or did Apple bring it upon itself with the $29 iPhone battery replacement program that it had to put in place following the Batterygate scandal?

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Apple replaced 11 million iPhone batteries under the program, claims Daring Fireball's John Gruber, who leaked the information based on a private meeting Apple CEO Tim Cook had with staff. This replacement figure is, according to the report, much higher than the normal 1 to 2 million batteries the company usually replaces in a year.

Apple did bring this reason up in its profits warning letter earlier this month, but it was buried in a long list of other factors:

While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements. 

So what sort of effect would 11 million fewer units sold have on revenue? Well, let's take the average selling price (ASP) from the previous quarter – which was $793 – and do the math. Using that figure, 11 million iPhones would represent $8.7 billion in revenue.

Given that Apple lowered its guidance from a minimum of $89 billion to $84 billion, this shortfall is enough to account for that.


There are a few factors to consider. First is that not everyone with a slow iPhone would have bought a new one, and of those who would have chosen to buy a new one, it's hard to say which iPhone they would have gone for, so that ASP figure I used earlier might be wildly optimistic.

Also, we do have to factor in the China equation. All signs point to that market contracting.

On top of that, if battery replacements and not China was behind the profits warning, I'd have expected Apple to have made this clearer in the profits warning. After all, why cause panic among investors about the Chinese market collapsing if the reason was the battery replacement program, right?

However, since Apple did list the battery replacement program as one of the reasons behind the profits warning, we have to accept that it had some part to play in things. And that it came about because Apple itself started to throttle iPhones with worn batteries. Whether Apple shouldn't have throttle iPhones in the first place, or whether the iPhone is poorly designed and shouldn't have to need throttling because of a worn battery over the course of a normal lifespan is debatable. But what can't be ignored is that this is a problem that Apple bought upon itself.

That sort of leadership mistake, especially coming at a time when sales are weakening, is what should be worrying investors.

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