Five ways Apple is responding to falling iPhone sales
CNE
As both Apple, and investors, accept that the halcyon days where iPhones were selling as fast as the company could make them is coming to an end, we're now getting a few glimpses into what the next phase of Apple's life will look like.
So where is Apple going? Let's take a deeper look at what Apple executives had to say during the Q2 19 earnings call.
#1: Forget iPhone sales, the focus is shifting
Apple CEO Tim Cook's opening remarks that accompanied the financial results say a lot, while simultaneously avoiding other things.
"Our March quarter results show the continued strength of our installed base of over 1.4 billion active devices, as we set an all-time record for Services, and the strong momentum of our Wearables, Home and Accessories category, which set a new March quarter record," said Tim Cook, Apple's CEO. "We delivered our strongest iPad growth in six years, and we are as excited as ever about our pipeline of innovative hardware, software and services. We're looking forward to sharing more with developers and customers at Apple's 30th annual Worldwide Developers Conference in June."
There's not a single mention of the iPhone in the opening, even though this product represents the biggest chunk of the 1.4 billion install base. There's also an odd teaser about "innovative hardware, software and services" that are in the pipeline.
#2: How to leverage that 1.4 billion device ecosystem? Ads!
Given that both CEO Cook and CFO Maestri mentioned Apple's App Store search ad business in their opening prepared statements during the earnings call, it was no surprise that this drew questions. When asked how Apple's App Store search ad business was doing, Cook responded enthusiastically:
"It's growing very, very fast, Mike [Mike Olsen, the Piper Jaffray analyst who asked the question]. I think it was up around 70 percent over the previous year. We're expanding into new geographies as well, and we still have more geographies out there that we think can move the dial further. So, it is a… it's definitely a business that is big and getting bigger."
That's definitely one way to leverage such a vast ecosystem.
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#3: Greater China is a worry, and Apple is willing to tweak pricing to gain traction
There's a lot going on in this single statement by Cook:
"Our year-over-year revenue performance in Greater China improved relative to the December quarter and we've seen very positive customer response to the pricing actions we've taken in that market, our trade-in and financing programs in our retail stores, the effects of government measures to stimulate the economy and improved trade dialogue between the United States and China."
It's clear that Apple is having to work much harder than it once did to sell iPhones in China, but that it's willing to put in the work to attract customers.
And it's not just hardware sales that's on Apple's mind. Leveraging that ecosystem with services is also important.
"Our App Store results are still reflecting the impact of the slowdown of regulatory approval in gaming apps in China, but we're encouraged by the recent increase in the pace of approvals. We believe strongly in our long-term opportunity in China, thanks to our robust ecosystem, our talented developer community and the country's growing population of tech-savvy consumers who value the very best products and services."
#4: Apple is pointing the finger at Intel for Mac revenue slip
Maestri is not pulling the punches here:
"Next, I'd like to talk about the Mac. Revenue was $5.5 billion compared to $5.8 billion a year ago with the decline driven primarily by processor constraint on certain popular models."
Since Intel is the sole supplier for Mac processors, this is a telling statement, and hints at tensions between the companies, and perhaps gives credibility to the rumors that Apple is looking to break free of Intel's grip on silicon.
#5: Trade-ins and installments are the new subsidy
People don't want to pay full price for new iPhones, and now that carrier subsidies are dying (and as Apple sells more iPhones direct to customers), Apple needs new ways to soften the blow of the price tag.
When asked about "pricing adjustments," Cook had this to say:
"Clearly, what we've learned here and it's not a surprise really is that the -- many, many people do want to trade-in their current phone. It does, from a customer user point of view, the trade-in looks like a subsidy, and so it is a way to offset the device cost itself. And many people in literally every market that we've tried this in, there is a reasonable number of people that want to take and pay for something on installments instead of all at once. And so, it's a little different in each market in terms of what the elasticity is, but you can bet that we're learning quickly on all of those."
Apple is actively tuning and tweaking the price of the iPhone in different markets using tools like installments and trade-ins. Watch this space going forward.
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