The World As We Know It Might Change in 2017
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Apple has one foot in the grave, the other foot on a bar of soap, and it's raining like hell.
On the cover:
iPhone is a line of smartphones designed and marketed by Apple Inc. They run Apple's iOS mobile operating system. The first generation iPhone was released on June 29, 2007; the most recent iPhone model is the iPhone 20, which was unveiled at a special event today.
Apple has lost its mojo.
Even though Wall Street is forecasting the company will post near record earnings in its upcoming quarterly report, Apple has arrived at an impasse, a wall; it can neither advance nor retire, nor sidle away. Analysts are predicting earnings of $77.38 billion, which would surpass Apple's previous record set in the first quarter of 2016. The stated reason for the boost is sales of the iPhone 7 family, expected to be around 78 million units sold.
Analysts expect iPhone sales to drop drastically, 30% or more, during the second quarter of 2017, from 78 million units to 53 million units.
Apple's problem is that the iPhone comprises 70% of the company's revenue. And demand is declining. During the third quarter of 2016, iPhone sales dropped 5% in two markets, China and the U.S. In response to the lagging numbers, Apple decided to focus on so-called emerging markets, which is problematic, since potential customers in these emerging markets, like Indonesia and India, lack the wherewithal to plop down over $600 for an iPhone, when they can get something almost as good for 80% less. According to Business Insider, customers in India are used to paying $120 to $150 for a smartphone.
Other than adding newer and faster chips, and a better camera, Apple hasn't really done anything but tweak the iPhone for the last three years. Supposedly, the iPhone 8 is a totally new design that will engender pervasive covetousness, leapfrogging Apple to unprecedented growth. On the other hand, rumor has it that Microsoft's new Surface phone will sport a fingerprint sensor, along with a touch screen. If true, Microsoft would appear to have left Apple in the dust when it comes to innovation.
Apple's decision to seek out growth by attempting to sell premium smartphones in emerging markets demonstrates the company's skewed perspective on reality. Put simply, Apple is stumped. The company has abandoned its focus on innovation. Instead of bringing the Next Big Thing to market, the company has opted to overcompensate for its lack of innovation in favor of upgrades, gizmos and doodads. Apple jumps from one hifalutin concept to another, making a virtue of inscrutability.
For example, Apple's TV sternly tests users' patience and amicability. Unlike Amazon and Netflix, Apple TV's content invites disapproval, simply because of its dearth. It's as if Apple hurriedly threw something together, hoping that by attaching the name Apple to it would make it a success. And speaking of making an effort, when was the last time Apple bothered to improve the Mac Pro? Oh yeah, about three years ago. Microsoft's Surface Studio is becoming the go-to for professionals who want a capable desktop.
And what's with the iPhone? Other than adding newer and faster chips, and a better camera, Apple hasn't really done anything but tweak the iPhone for the last three years. Supposedly, the iPhone 8 is a totally new design that will engender pervasive covetousness, leapfrogging Apple to unprecedented growth. On the other hand, rumor has it that Microsoft's new Surface phone will sport a fingerprint sensor, along with a touch screen. If true, Microsoft would appear to have left Apple in the dust when it comes to innovation.
Then there's Apple's car project, with the grandiose name, Project Titan. Current reports indicate that the company has dumped the whole thing. Instead, Apple has decided to concentrate on supplying software for self-driving cars. Sounds like the company's foray into self-driving cars hit too many speed bumps, so they decided to switch to Plan B. In reality, perhaps the truth is simpler: they realized they were too far behind the curve and just gave up.
Admittedly, Apple has had big successes: the iPhone changed the way people think about smartphones; the iPad was a hit; so is Apple Pay. But that was then, and this is now. Right now, Apple appears to have mislaid its prowess in innovation.
As far as augmented reality and virtual reality is concerned, Tim Cook says Apple is heavily involved in this arena. In fact, Cook believes augmented reality is the future rather than virtual reality. To this end, according to reports, Apple is working on augmented reality glasses. In addition, other reports indicate that Apple is forging ahead in artificial intelligence, concocting image processing algorithms that are light years ahead of the competition. Still, as far as machine learning applications, the smart money is betting on IBM or Microsoft.
Apple definitely likes to hide what it's doing. Like the Wizard of Oz, Apple prefers to operate behind the curtain. So the company may have some aces up their sleeves. Yet as the pundits at Motley Fool point out, if Apple fails to innovate and maintain margins, then its ship will sink. Realistically, Apple can't begin making low-priced smartphones without demolishing its brand identity. This means Apple is caught between a rock and a hard place. Fully 70% of the company's revenue comes from smartphones. Either Apple innovates and comes up with the Next Big Thing or they stock up on buckets and start bailing water from a wallowing ship.
In July, Tim Cook made remarks that seemed to indicate Apple was changing direction and wanted to be a services company. Gene Munster opined that Apple would have a hard time pulling that off, asserting that investors might balk at such a perception. To accomplish such a radical shift would require Apple to reduce its margins, reduce expectations and essentially become a vendor of cut-rate hardware.
Cook's remarks, of course, are open to various interpretations. One, he expects revenue from services to increase or, two, Apple is aware it cannot innovate fast enough or well enough to keep up with the pack, companies like IBM, Google and Microsoft, not to mention Samsung and Meizu.
Basically, it's crunch time for Apple. The company is putting all its eggs in one basket, a basket called iPhone 8. It will either return Apple to glory, or the company will become another also-ran.
Randall Radic, Left Coast: Author of: Blood + Death (Feb. 2016; Headpress), Killing God's Enemies (Feb. 2017; Trine Day) and United Blood Nation (Late 2017; Headpress). Contributor to ContactMusic.com, Ozy.com, Seeking Alpha, HuffPo and Newsaratti.com. (more...)