
Letter from Tim Cook to Apple Investors - minimaxir
https://www.apple.com/newsroom/2019/01/letter-from-tim-cook-to-apple-investors/
======
ProfessorLayton
"...customers taking advantage of significantly reduced pricing for iPhone
battery replacements"

Very interesting that Apple included this as someone who took advantage of a
$29 battery replacement for my 6S just last month. The chain of decisions that
took place for this to happen should be a lesson for more companies.

I imagine it went something like this:

\- Feedback that iPhones were shutting down unexpectedly due to degraded
and/or defective batteries.

\- Instead of shouldering the battery replacement immediately, the product
team decides to change the performance envelope of the phone.

\- The root issue is not addressed.

\- Betterygate™ inevitably happens.

\- Apple heavily subsidizes battery replacements for everyone

\- Some people decide that they'll stick with their phone a bit longer than
they otherwise would have, reducing iPhone sales.

\- Apple misses their earnings target, likely costing them more in value than
it would have cost them to address the root issue in the first place.

Of course there are other factors addressed in the letter, but this issue was
notable enough to be included.

~~~
notable_user
I’m not sure what you mean by “address the root issue”.

The root issue is that batteries degrade over time, for everyone, not just
apple. iPhone’s did a good job hiding that away by degrading performance along
with it.

The same thing still happens with new phones, but now apple just tells you
when it happens. My X crashed in the cold and it said something like “your
battery couldn’t provide peak power and your phone is now in degraded
performance mode. Disable this setting in the settings app.”

~~~
L0stLink
The main difference is _ _consent_ _ and it should not require an explanation
on why it is important. May be I am strange for wanting transparency? I do not
want such facts to be hidden. Slowly degrading my user experience over time
with no way of me knowing why is not a good way of handling battery
degradation. And so I strongly disagree with you and the child comment, Apple
did not do 'a good job' hiding it, and them now handling it as they should
have in the first place does _not deserve_ praise.

~~~
megablast
> The main difference is _consent_ and it should not require an explanation on
> why it is important.

What a copout. There is no good reason. Your phone already does a 1000 things
that you don't know about. Do you also want access to how many cores are used,
which ones, what speed they are running at, which frequency your phone is
using, how the GPS is getting its location, etc...

~~~
AlisdairO
no, but if my phone is going to massively slow down I want to know why so that
I can correct it, rather than being left in the dark and ending up buying a
new phone for no good reason.

~~~
mcny
I think the key legal point was that they changed how the phone worked after
that sold it. (I anal)

------
pdimitar
IMO Tim Cook did a good-enough analysis but deliberately omitted the rather
insane prices of the XS and XS Max phones. Just look at the prices of the
256GB storage models.

My wife's brother has a 6S Plus. My mother has 7. They work _amazingly_ well
and fast. To them X / XS / XS Max are basically "spend 1300 EUR to get a
bezel-less phone and nothing else"... and in a way, they are correct. Many
people don't care about FaceID or OLED screens.

Smartphone market is nearly saturated. It's time for more realistic pricing.
And I am saying this is a loyal Apple user.

~~~
mrob
>Many people don't care about FaceID or OLED screens.

The OLED screen is arguably a downgrade because it uses flickering PWM
brightness control.

~~~
creddit
I’m not familiar with this. I have a X and haven’t noticed any flickering of
the screen and really love it generally. Can you expand on this?

~~~
_fzslm
The OLED display on the X uses pulse-width modulation, which is basically
where the OLED panel flickers at different frequencies to adjust its
brightness. Most people (like me) don't really notice it, but for some it can
cause headaches over prolonged use, and in some extreme cases really bad
migraines.

~~~
TheSpiceIsLife
Nit pick. Pulse Width Modulation holds the frequency steady and varies the
duty cycle, that is the ratio of on time to off time.

See here for more info: [https://en.wikipedia.org/wiki/Pulse-
width_modulation](https://en.wikipedia.org/wiki/Pulse-width_modulation)

~~~
kartickv
Does this mean that the R, G and B values of any pixel is either 0 or 1 at any
given instant? And how is it different from FRC:
[https://en.wikipedia.org/wiki/Frame_rate_control](https://en.wikipedia.org/wiki/Frame_rate_control)

~~~
Fredej
Basically yes. But the frequency used for PWM is usually _way_ higher than
what should be realistically visible to the human eye - If it was me, I'd
probably use a couple of kilohertz.

Not sure how specifically it's done for OLED though.

~~~
kartickv
Is PWM for varying the brightness of each pixel separately, or for adjusting
the brightness of the entire screen? How are these two implemented generally
on modern screens? Are PWM and FRC complementary or does one supersede the
other? You can tell me about LCDs since you know them better.

------
aphextron
I just totally de-Googled my life recently, and ended up almost entirely in
the Apple ecosystem after evaluating my options. Switched to DDG full time for
web search, Safari for browsing, iCloud for email, and Apple Maps is actually
usable now with decent real time traffic. I never thought in a million years
it would come to this, but the lines have clearly been drawn over the last two
years. Apple has time and again come out emphatically in support of The User
in a way that Google simply has not (or _will not_ ) step up to. It's quickly
becoming their single largest competitive advantage in consumer web services.

~~~
banachtarski
Dissenting opinion. I currently have an iPhone and a Macbook and I cannot wait
for the next cycle. I'm ditching Apple and its products entirely. Between the
predatory rent-seeking app store, hostile my-way-or-the-highway developer
environment, and just downright awful products (mail, message, contacts, and
all the other apple nonsense apps preinstalled i never care for) as well as a
buggy and unreliable icloud that has lost me data, I can't wait to leave.

~~~
curun1r
I won't try to sell you on a MacBook, but I tried ditching my iPhone for an
official Google Android phone because I felt similarly to the way you do and
it was one of the worst decisions I've ever made.

I chose an official Google phone because I wanted to be sure that I could get
security updates and run the latest version of the OS. But it didn't take long
before the phone's UI performance became extremely noticeable. Simple stuff
like triggering the back action or switching between apps would take multiple
seconds. Chrome sometimes took up to 20 seconds to load. I can't help but
think that Android made some fundamentally bad decisions in their software
stack given just how bad the experience can be. And 13 months into my Android
phone experience, the phone started boot looping and basically turned into a
brick. Called Google, who ducked out of any responsibility because their
warranty only covered the first 12 months, despite the fact that they've known
about this issue for more than 2 years and kept selling the phone anyways.
Compare that to the way that Apple responded to batterygate and you can see
the difference in customer service between them and Google is night and day.

Maybe it's just me, but I've also talked to others that have gone to Android
and found only a world of hurt. With Apple making iPhone battery replacement
very affordable, you'll get a far smoother experience sticking with an
outdated iPhone models than you'll get with top-of-the-line Android phones. I
hope for your sake that you have a more positive experience with Android than
I did. But less than 18 months later and I'm back using an iPhone 8 and have
no plans to ever consider Android again.

~~~
e40
That is definitely not typical. I have the Moto x4, a budget phone, and it's
as snappy as that day I bought it, at launch, through 3 major version
upgrades.

I do remember seeing your complaint in the pixel subreddit, though. Seems
Google has a QC problem.

~~~
beatgammit
Agreed. I had a Nexus 6 for a couple years, and my only complaint was that it
got a little slower with Android 8, but it was still quite usable.

I accidentally destroyed my phone, so I got a Moto x4 and couldn't be happier.
It's faster than my Nexus 6, has way better battery life, and my only real
issues are with Hearthstone (frequent disconnects, seems to be pretty common)
and Smart Lock sucking, and Smart Look seems to be a common issue across
Android phones (after a reboot, Smart Lock won't work if it was enabled, so
disable it from Trust Agents, reboot, and reenable it and it works great
again; I've run into this on Nexus 6, Pixel 2, and Pixel 3).

However, I'm trying to de-Google my life, and I don't want to run to another
monster (Apple), so I'm watching the Librem 5 to see if that's an option once
this phone gets long in the tooth. That being said, Android doesn't suck if
you want a mainstream phone, and the Moto x4 is quite nice for how cheap it
is.

------
aylmao
Also not to be underestimated: Android.

Personal anecdote: I broke my iPhone and have been using Android for a bit,
and I must admit: at first I thought I'd switch back but nowadays Android is
pretty good.

Hardware at a comparable price-point is solid, the UI is smooth and better-
looking than it was before, the app ecosystem isn't quite as good, but is very
very close, and there's features I would actually miss on iOS (a calendar
widget on my homescreen, unlocking my device without touching the screen and
Google's Night Sight).

I miss my to do app and my email app, both of which are not on Android (Things
and Spark). But overall, I personally can't think of a single aspect where iOS
"miles ahead" anymore, from an end-user perspective.

~~~
g45y45
privacy

~~~
diafygi
For state-sponsored privacy, sure. But for ad-tracking privacy, I don't think
you can do comprehensive ad-blocking in browsers on iPhones, right? It's still
either VPN-based or the capped blocklist api, right?

I would love to switch, but Firefox+uBlock on Android is soooo nice for a fast
mobile browsing experience. The moment I can do what uBlock does on an iPhone,
I'll switch.

~~~
NamTaf
A few days ago my friend complained that her phone had randomly started
popping up ads on its screen as she was just using it. She had to dig through
the play store and find the 'recently used apps' to identify the culprit,
which was a random app she'd downloaded that after a few days updated itself
to start pumping out ads.

That is a distinctly android problem, and is an example of one I'm glad to
avoid by sticking to iOS.

~~~
H1Supreme
> random app she'd downloaded

Perhaps she should be more selective with apps she installs? Also, how would
this be exclusive to Android? iOS apps can have ads on them. Even if the
feature is added with an update.

~~~
NamTaf
The ads weren't only displaying _in the app_ , they were appearing over other
apps. This is something that simply can't happen in iOS.

How does a standard user know whether a small app to e.g. manipulate photos
(as in this instance) is going to be updated a few days later to show ads when
it's not running? Shouldn't an end user be able to trust Google's app
marketplace to not feed them junk like this?

~~~
sofaofthedamned
There's a permission "draw over other apps" which has legitimate uses but is
also used for crap like this.

------
CWSZ
_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._

Why spend $1,449 on an XS Max when you could have replaced the battery on your
phone for $29?

~~~
function_seven
My thoughts exactly. The iPhone 6S is still plenty fast, does everything I
need it to, has a large screen, and a headphone jack.

I have used the latest models and don't see any improvements worth upgrading
for. FaceID is cool, but not enough on its own to convince me to upgrade.

In previous cycles, my update from 3GS to 4S was a no-brainer (retina, massive
speed improvement), as was the upgrade from 4S to 6S (lightning port, LTE,
massive speed improvement, larger screen).

Once I got my battery swapped, the phone was as good as new.

And I still have a headphone jack.

~~~
westoque
From someone having sweaty hands (Hyperhidrosis). FaceID is not only cool, but
it’s a game changer! I always get frustrated when attempting to unlock my 6S
plus 3 times, then ultimately being just asked for my passcode. With FaceID,
everything just works smoothly/seamlessly as if there’s not even an
authentication phase.

If I knew this earlier, I could’ve bought the X sooner. Couldn’t recommend it
enough.

------
braythwayt
If the shortfall is indeed almost entirely within China, then it is fair to
say that all of the usual criticisms you see on the Internet at large, where
people explain why Apple products are not good enough/too expensive/whatever
for them personally, are irrelevant.

The issue here is entirely around Apple and China.

~~~
Schweigi
_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._

Sounds to me that it isn't just China. The new phones are even more expensive
then the previous ones. It's kind of hard to imagine that those high prices
have no impact on sales and I would have at least expected there to be a
mention about pricing in the letter.

~~~
braythwayt
What you said matches what I said. It isn't _just_ China, but the vast
majority of it is China.

~~~
seanmcdirmid
“And other emerging markets.”

They don’t break it down.

~~~
noitsnot
India was supposed to be huge but they lost sales there, also.

~~~
seanmcdirmid
They still don’t have stores in India right?

------
gordon_freeman
I think if I want to invest in AAPL today I'd rather focus on this: "Services
generated over $10.8 billion in revenue during the quarter, growing to a new
quarterly record in every geographic segment, and we are on track to achieve
our goal of doubling the size of this business from 2016 to 2020." Apple is
definitely trying (successfully IMO) to diversify its business to services-
centric and that is exciting to me!

~~~
acomjean
But most apple services really work only/ best on apple devices. If they're
selling fewer phones, its less itunes/imusic/icloud revenue.

~~~
londons_explore
iTunes/iMessage/iCloud will all become available on Android if it looks like
the iOS platform is failing.

~~~
scarface74
Apple Music is already available for Android.

------
j1vms
> "Apple innovates like no other company on earth, and we are not taking our
> foot off the gas."

Apple has indeed accomplished many things since Jobs handed over the reins,
but delivering a new, innovative compelling product line is not one of them.
If they finally deliver on the Apple Car or some as yet unknown new product,
they might finally fully move out of the shadow of Jobs' final tenure.

If not, they will find their existing product lines eaten away by relentless,
industry commoditization. Having to bump profit margins on the iPhone X was
their first serious stumble -- only to be rectified, if they can deliver a
new, compelling product line in the next 1 to 2 years.

~~~
baxtr
That’s what people have said over and over again. What’s the difference
between BMW and Apple? Why doesn’t BMW need to get into a completely new
product line all the time? (Outside of cars)

~~~
sz4kerto
There are two major differences.

1) BMW is a much smaller company, 15x smaller than Apple. Apple's valuation is
partly based on them pocketing _most_ of the smartphone profits globally.
There is no expectation like that towards BMW. Remember, stock market is a
game about expectations.

2) Cars don't seem to be a winner-takes-it-all market. IT services are not
always like that either, but closer. It doesn't make your life harder if your
friend is using a VW and you're driving a Toyota; but it does make a
difference if your friend is on iMessage and you're on Android. So there's a
market force towards oligopoly.

~~~
baxtr
1) so if size is an argument: does google need to have a new product every 5
yrs? I don’t think google has innovated outside its main product “search”
(like a new category with a major source of revenue on the size of search).
They’re doing just fine

2) that’s actually a strong argument pro Apple and not against them (that’s
like saying: no one will ever use another search engine than google and
because of that they’re growing bigger and bigger)

------
Doctor_Fegg
> 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

Dropping the SE - the one affordable iPhone - is starting to look like a
really bad move for Apple.

~~~
sneakernets
Exactly. There are tons of people (like myself) who wanted a small smartphone
that gets the job done and gets out of the way. Apple blew every bit of that
market away for reasons I can't fathom.

And since everyone copies apple, get ready for massive slabs across the entire
smartphone market.

~~~
haditab
Slightly off-topic but how are other manufacturers copying Apple by making
large phones? Apple was the only one not making large phones for years.

~~~
sneakernets
The difference is that most phones were large due to limitations of
miniaturization of the tech. Now it's mostly for aesthetic reasons, which is
fine, as long as manufacturers make smaller form factors. Apple stopped doing
that, so expect everyone else to follow suit and make phablets from now on.

~~~
haditab
This is definitely not true. I worked in the smartphone industry before and at
the time Apple started making large phones. Rumor had it Apple stuck with
small phones because Steve Jobs wanted them to stick with the same screen size
to avoid apps looking different on different iphones. Regardless, everyone was
making them large because it provided the best user experience and eventually
Apple switched to it as well because it put them at a disadvantage in terms of
user experience. Even the term 'phablet' was coined before Apple switched to
large phones.

------
ksec
450 Comments And no one has done any numbers. May be I am the few who are
actually interested in this, I did these for fun during Xmas as Data from many
analysts companies were made public. I wish I had post some of it before Apple
revised their guidance. Oh well.

Last Year they had $88.3B, this Year their lowest guidance were $89, so
roughly the same. But Apple knew well ahead that they had new iPad, new
MacBook Air, new Apple Watch for this quarter. They also changed their
accounting to move revenue from Apple Maps and Siri to Services instead of
bundled with their Products. So they knew Services were going to have a
substantial increase.

In other words, they knew their Non-iPhone revenue were going to increase YoY.

They knew, nearly in real time their iPhone XS were doing well when launched,
factored in the Q4 2018 quarter. That was what pushed the record Q4 quarter
numbers, by those analytics over 30% of XS in total were sold during first two
weeks, out of a total 14 weeks since launched.

In other words, to have made that initial guidance, Apple were expecting Xr to
be a great seller. Everything from Non-iPhone and XS has been better than
expectation, it was only the Xr that let them down. Xs Max has been doing
better than possibly Apple has estimated likely pushing ASP even higher ( even
though they may no longer release the number ) So 5% lower revenue is actually
better that most would have expected.

All these leads to Xr. The Xr were targeting general buyers, but they were
used to paying $749 for latest Smartphone, which the current $999/ $1099 are
out of their bracket. Some have extended battery life that want their iPhone
last longer. And more importantly in China, the price / performance gap
between Chinese made Android Phone and Apple iPhone has never been greater.
Huawei, Vivo, OnePlus and Mi.

If we assume the the ASP increase were roughly 15% compared to last year, we
can estimate this year Apple had ~25% drop in unit sold. ~57.7M Compared to
last year 77.3M.

Now more importantly, what will the guidance be for Apple on Q2?

Edit: I think this is the best thing happen to Post Steve Jobs Apple and I
hope Q2 will be even worst and served as a Wake up Call. In my opinion for the
past years Apple has been doing something wrong with their design and features
decisions that add cost while brings little to no value to users. Touch Bar,
Curved inside Bezel display, Butterfly Keyboard etc. While trying to nickel
and dime on many areas, lack of fast charging, new lighting cable connector (
lower cost but higher resistance ) etc. Apple under Tim Cook has been far to
concern about 20% Net Margin and other numbers.

~~~
kace91
Your comment paints a worse picture than I thought. Mostly because I think a
great majority of potential customers are hoping apple will finally eat dirt,
get the market's message and stop their new trends, but with those numbers in
hand they might think that their mistake was selling the lower priced product
and continue on their path on all other areas...

------
Shivetya
my two take away items.

1) China, obviously, if luxury perceived items like Apple products are slowing
then that is a real indicator of the economy truly slowing regardless what the
government states.

2) Having to full develop an in store trade in program pretty much is
admission they priced themselves out of the market

~~~
tanilama
They played that Appel Status Symbol card for too long. In China, Yuan's
depreciation should also be counted, so eventually Apple raised the price for
local customer for about 30%, north to 10k in Chinese Yuan. In fact with 4
times that much money you can buy a budget car in China.

People chasing status symbol but they are not fools, and the local brands
offer good enough quality with only 40% of the price, you know what to choose.

~~~
hn_throwaway_99
> People chasing status symbol but they are not fools

I think that is the real risk to Apple. Right now iPhones (esp. in China)
_are_ a status symbol, but public opinion is a fickle thing. It's possible
rising nationalism in China could also lead to an atmosphere where buying an
iPhone is looked down upon as an exercise in conspicuous consumption but paid
to China's enemy (when home grown phones are "just as" good). When that
happens, Apple really is in dire straits. Apple needs to ensure they can
innovate faster than the competition, but with a lot of value shifting to AI-
related services (not necessarily Apple's strong point - compare Siri to Alexa
or Google Assistant), that's a tough battle for Apple.

~~~
tanilama
Nationalism is one thing. My observation is that Chinese people generally hold
favorable opinions towards Apple, it has a harmless image: selling good phones
that happen to be really good looking.

But I would say the real reason that Apple is suffering now is that they
stopped to innovate. Those touted innovations on their press conference is
hardly convincing that they are essential to my user experience. Gimmicks,
like Animojis are showcased and centred during the once a year event to
communicate to their customers. It is embarrassing and laughable.

And I blame Apple itself 100% on this, they are setting on a largest pile of
cash that mankind every entrusted to a private corporate and does nothing. Now
comes the recoknining, and it is probably overdue.

~~~
hn_throwaway_99
I don't necessarily agree Apple stopped innovating, but I think that as the
smartphone market has matured the places ripe for innovation are not in areas
of Apple's strengths. For example, Apple's design and hardware/software
integration excellence were absolutely perfectly aligned with the transitions
from "phone" to "high powered computer in your pocket". But now most of the
innovation is happening it data-related AI areas where Google and Amazon are
much stronger. I mean, Apple Maps was released 6 years ago, and while it has
improved by leaps and bounds I still don't see any reason to use it over
Google Maps (and that is despite Google Maps becoming ever more annoying with
more clutter every release).

------
exabrial
> we believe there are other factors broadly impacting our iPhone performance

Here, Let me help you with that:

* Lack of a $0.05 headphone jack

* Lack of storage expansion

* Lack of USB-C

* Expensive 3d Touch that nobody uses intentionally

* Lack of a fingerprint reader

* Nerfing NFC for months on end

Despite that, there are things you are doing great:

* FaceID innovations

* Battery life improvements

* Performance improvements

* Taking a stand against predatory spying by Facebook and Google

It's like you're so close, then you shoot yourself in the foot.

~~~
jm4
I couldn’t care less about those features. I’ve never met anyone who says they
would buy a new iPhone if only it had those features.

The problem is the iPhone has been so good for a few iterations now. There is
absolutely no reason to buy a new one unless you are gaming. I can’t tell the
difference between the 7, the X or the XS in terms of day to day capability.

It used to be there was a good reason to upgrade every year. Now you can
easily go 2-3 years without missing much.

~~~
oblomovshchina
I dumped my iPhone 7 this year for an Android. I would have upgraded if they
still had headphone jacks. Bluetooth headphones are garbage: I have enough
things to charge and I wear my headphones pretty much every waking hour of my
life. Any contemporary android phone with a headphone jack seemed like a
better value proposition than a current iPhone.

~~~
thirdsun
I value good headphones too. Which is why I simply leave the small lightning-
to-jack-adapter attached to them. A minor inconvenience that surely won't make
me swith from an otherwise fantastic phone and platform. And of course the
headphone jack is on its way out in Android land as well.

------
luso_brazilian
Interesting tidbit in another source [1]

 _> Apple boss Tim Cook has blamed the US-China trade war as he warned of
lower than expected quarterly sales for the iPhone maker._

Seems like the US-China trade war is taking its toll on Chinese economy,
particularly on the high end.

[1] [https://news.sky.com/story/apple-cuts-sales-forecast-as-
chin...](https://news.sky.com/story/apple-cuts-sales-forecast-as-china-
slowdown-bites-11597357)

------
awareBrah
I will use my iPhone 6 (not S) until they release a phone with a headphone
jack

I’m hoping for a refreshed SE. I like the button. I like the headphone jack. I
don’t like FaceId.

~~~
huhtenberg
Amen, on all points.

But it ain't gonna happen.

~~~
awareBrah
I was very happy to hear of the disappointing sales. I hope they continue to
disappoint until they have to make it happen.

------
borland
He dances around the point so many times, but never comes out and says it (and
of course he wouldn't) - The 2018/2019 lineup of iPhones is TOO EXPENSIVE and
this is causing a significant number of people, particularly in "emerging
markets" (i.e. poor people) not to buy iPhones.

The surprise is that they didn't expect that raising the price by 20% wouldn't
have an impact like this

~~~
Despegar
The iPhone XS was the exact same price as the X and that sold plenty fine. It
wasn't the price as his letter points out, much to the dismay of many people.

~~~
kps
The people willing to pay that price already have an iPhone X, and not enough
of them are willing to pay it a second time for a minor revision.

~~~
Despegar
The entire installed base doesn't upgrade every single year. There are years
of people upgrading to the X form factor left.

~~~
grey-area
The entire installed base is not willing to pay these prices, as Apple have
discovered.

------
ummonk
_> We believe the economic environment in China has been further impacted by
rising trade tensions with the United States. As the climate of mounting
uncertainty weighed on financial markets, the effects appeared to reach
consumers as well, with traffic to our retail stores and our channel partners
in China declining as the quarter progressed. And market data has shown that
the contraction in Greater China’s smartphone market has been particularly
sharp._

That sounds like Huawei fallout.

~~~
cronix
> That sounds like Huawei fallout.

How would fallout from Huawei have anything to do with fewer people walking
into Apple stores and buying a new Apple product? Have the prices risen or
something? Are people afraid of being kidnapped if they walk into an Apple
store?

To me, it is just a lame hyperpolitical straw man excuse as to why they aren't
selling more products. It has zero to do with China, imo. It has to do with
people not NEEDING a new device, so they are upgrading (a lot) less
frequently. Personally, I'm on about a 5 year upgrade cycle now. Apple will
have a harder time going forward having increasing records year after year,
because they mostly rely on new hardware sales. I think we're kind of coming
to a Moores law type effect in terms of hardware perception (not
design/capability). There just isn't enough of a perceivable or revolutionary
innovative difference for the average person to justify purchasing a new multi
$k machine year after year. For most people (non power users), they get no
actual tangible benefit. An iPhone X will perform just as well for the vast
majority of an average users applications as an iphone 8.

~~~
ummonk
_> How would fallout from Huawei have anything to do with fewer people walking
into Apple stores and buying a new Apple product?_

Some Chinese people and organizations are reportedly boycotting US phones
(which is mostly Apple phones) and purchasing Huawei phones instead.

------
firloop
>Third, we knew we had an unprecedented number of new products to ramp during
the quarter and predicted that supply constraints would gate our sales of
certain products during Q1.

> ... _AirPods_ and MacBook Air were also constrained.

(emphasis mine) Interesting that Apple still can't manage to make AirPods, a 2
year old product, fast enough. I wonder why that is.

~~~
snazz
Also interesting that AirPods are still the new hotness with plenty of people.
Usually the interest goes down after launch, but my anecdotal experience
suggests that, at least where I live, the interest has certainly risen.

~~~
zeveb
I think maybe it's something like the fashion adoption curve: first almost
everyone thinks something looks radical and weird, but a few people adopt it;
then a few more think it looks acceptable- _enough_ , then it becomes slowly
more mainstream, then it _is_ mainsteam, then it looks old-fashioned, then no-
one uses it anymore.

I know that in my own case I think that AirPods look ridiculous and stupid,
and I can't believe anyone allows himself to be seen in public with them. But
I think that _less_ now than I did two years ago, and presumably in another
two years I'll think that less still. No doubt in a decade I'll think that
they don't look dumb at all, and maybe someday I'll have AirPods or something
similar. And then one day I'll quit wearing them, because they're out of
fashion again.

Heck, digital watches were popular for about 15–20 years, right? Maybe AirPods
will someday be looked at as the digital watches of the early 2000s.

------
mandeepj
Apple’s cash in hand used to be around ~250b. Now, it’s 130b. Looks like, they
have spent almost half of that on stock buybacks

------
kornork
I can tell you why I haven't upgraded my iPhone 6S: I like my headphone jack.

~~~
acomjean
I'm in the same boat, I like my headphone jack. And honestly the phone is fast
enough.

But I'd like a better camera so I took a look:

The other thing that isn't helping apple is the went from a simple system to
understand iphone 6, 7 8 (s for the bigger models (edit: whoops I meant
plus.). To so iPhone Xr, X, Xs.. I can't tell it the iPhone 8 is the end of
the line for the numbered iPhones with a front button. Basically I'll have to
do some research.

They made a page to help, but when comparing phones, price is an important
factor to compare...

[https://www.apple.com/iphone/compare/](https://www.apple.com/iphone/compare/)

~~~
dragonwriter
> The other thing that isn't helping apple is the went from a simple system to
> understand iphone 6, 7 8 (s for the bigger models).

S has always been for second models with the same number (kind of like a minor
version), they invariably are released one year after and are the same size
(not bigger) as the corresponding non-S version (the XS Max is the only
exception, there is no X Max, and XS Max is just a bigger same-year cousin of
the XS, but the XS has the normal S-to-non-S relation to the X.)

This holds the whole way back to the first S, the 3GS.

------
myrandomcomment
I have an original X and love it. I see no need to upgrade to the newer X.
Wife has an 8 and kid has a 6S. Only thing that would get me to upgrade would
be the X in the form factor of the iPhone5.

------
gyrccc
Just to share an anecdote from my experience in China. I was in Beijing over
the holidays and met up with a handful of friends who live there, surprisingly
they all switched to Huawei within the past year, three of them even in the
past 2 months. The Huawei phones they use are flagship models and not cheaper
than iPhones and they have all been Apple users for years (like myself) and
who still use Macs today.

I asked each one of them if patriotism or the recent Huawei/US kerfuffle
influenced their decision. They all resoundingly said no. When I asked why
they chose Huawei after being in the Apple ecosystem for a decade, all of them
said "camera". They said camera quality isn't about DXO scores or 4k60 but
being able to take "beautiful" photos out of the box for some definition of
beautiful. To them, iPhoneXS is the same if not worse than a 6, because the
iPhone camera doesn't take more "beautiful" photos, only more "realistic"
ones.

Obviously anecdotes are meaningless and all that, but I want to note that
China is a very homogeneous society given its population, so even a brief
first-person glimpse into people's everyday lives can be pretty telling. I
would not be comfortable making similar conclusions about any other cluster of
1.3B people.

TL,DR: I don't buy that the economic downturn in China and the Huawei/US
situation are the sole perpetrators of Apple's problem in China. Apple is
missing opportunities due not innovating in certain crucial areas.

~~~
bluedino
>> because the iPhone camera doesn't take more "beautiful" photos, only more
"realistic" ones.

I hear this all the time from friends and family. Such and such camera is so
much better.

Most of the time the images really aren't. The brightness is just cranked up
or something, the image doesn't look that great. I'm not sure why the iPhone
doesn't have better low-light settings, even my 8 Plus doesn't take very good
pictures indoors if I don't use a different camera app.

------
drinchev
What is worrying in addition to the global economy slowing down is the
volatility and how the stock market closed 2018. I believe a new crash is
imminent and I hope this time we have our seatbelts on.

~~~
stevewodil
Buy Gold!

US Dollar crisis coming to a market near you

------
paul7986
Sorry Apple I bought then returned the iPhone XS(happy with 8)...

\- No home button

\- no Touch ID... I can no longer quickly unlock phone with thumb .. Face ID
is no good and can be dangerous in certain situations we all can relate but
don’t admit (i.e. in stand stil traffic)

\- it’s too big.. I can’t one handed text

Hoping some of the above is addressed and brought back in the 2019 models.

------
beezischillin
This might not be popular, but here goes: I wonder if knowing that he will
have to share this news with his investors is why he came up with that semi-
religious cult-like speech about exercising corporate censorship at the ADL
not that long ago ([https://www.macrumors.com/2018/12/03/tim-cook-adl-keynote-
sp...](https://www.macrumors.com/2018/12/03/tim-cook-adl-keynote-speech/)), if
that was his way of pandering to an audience in hopes of getting some
additional sales...

I might be wrong but it's happened several times before where companies were
trying to drum up some support by suddenly being extremely "woke" just before
having to come out with some bad news.

~~~
krrrh
I really doubt that “woke” speeches do much to drive sales, but I’d wager his
speech to the privacy commissioners had a larger effect than the ADL one.

[https://www.theverge.com/2018/10/24/18017842/tim-cook-
data-p...](https://www.theverge.com/2018/10/24/18017842/tim-cook-data-privacy-
laws-us-speech-brussels)

------
IkmoIkmo
What the hell is Greater China... Odd context to use as a company when better
alternatives (that are less politically charged) are available. Very strange
to see such an appeasement term being used.

~~~
pooppaint
China the SARs and Taiwan. It’s meant to be least politically charged since
you refer to both Taiwan and mainland without, you know, without specifying
which one is the more legitimate China.

------
NicoJuicy
The Chinese governement has since long tried to "shift vibes about Apple"
through the "China Central Television". In 2013 it was named together with the
"820 Party", i don't know what happened now though. But i'm not sure that
"blaming it on the trade war" tells the entire tale.

PS. They did the same thing with Google, after "Operation Aurora" happened.
That was the moment that Google left China.

------
mgazzer
I wonder how long before Apple offers a One-Google like offering they really
embrace the recurring revenue model. Imagine if Apple could get people to pay
$20 a month for Photo storage, iCloud storage, some TV offering, and possibly
some Apple Music.

I hate that we're in this in-between land that requires 3 or 4 different
subscriptions to the same company whereas these things in my mind would just
be bundled together.

------
ohazi
> 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.

Translation: We tried to charge $1,500 for a phone, but not even our core
demographic is this gullible.

------
celerrimus
Quite funny. Mr. Tim Cook apparently either think investors are stupid or he,
and the Apple board, are detached from the reality.

For other people reasons for this is clear. Apple is making slightly improved
phones, with the extreme price tag. The pain threshold has been exceeded.

Almost all innovations now are from Asian manufacturers. Notch is not
progress, it's a deffect. OLED? It was innovation 8 years ago, with Samsung
Galaxy S. A phone as fragile as an egg, with back glass replacement costing
$599 (versus $99 for Samsung Galaxy S9+). In my opinion, the only real
advantage of iPhones is iOS, without apps slowing down OS, tons of bloatware,
and lack of privacy even on the system level. But this not justify

And lastly, batterygate, that weakened trust to the brand, also didn't help
here.

------
ggm
Marginal value of a new I(thing) over the prior generation is a significant
barrier once it's good enough. There is no looming improvement in UI
experience except probably bad ones like the failed 3D push in TV's. I won't
pay a premium for a foldable screen or curly edge bezel-less experience right
now and I suspect most consumers are feeling much the same entering a trade
war focussed global economy. I've got better things to do with my disposable
income now.

Apple has a tonne of money. It can solve shareholder disappointment by using
it to buy back stock or pay dividends or something.

I don't look to Tim Cook for innovation right now.

Declaration of Interest: disappointed touchbar MacBook owner

------
kodablah
> We can’t change macroeconomic conditions, but we are undertaking and
> accelerating other initiatives to improve our results. One such initiative
> is making it simple [...]

As a naive person on the outside looking in, why are there no suggested
changes to the clearly incorrect estimation approach, especially in volatile
markets? If the numbers are not as expected why not look at expectation
generation along with other factors instead of ignoring it? Or are they saying
in so many words that they can't be blamed due to macroeconomic conditions?
Sounds like such a volatile environment would require caution on these short
term forecasts. Again I'm naive, I just didn't see it addressed.

------
just_myles
" In fact, categories outside of iPhone (Services, Mac, iPad,
Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.
"

Wonder why they never break out these products in these sales forecasts.

~~~
sulam
They used to, at least in the case of Macintosh. Once it started to show
weakness (lack of YoY growth), they rolled it into other measurements. Now,
unless all of them flail, they can declare success without you knowing the
real story about any one of them.

------
baybal2
Apple's fate in China is very similar to German premium car brands – despite
being a definite good sell elsewhere, they have no real alternative to
actually _double down_ their stakes and investment into China, if not making
it their primary focus.

BMW, Audi (WW premium brand) and Mercedes all committed to gigantic
investments into growing their presence here in last hew years, and so now has
Apple.

In the past, American companies were some of the most passive players in
China. It seems that they finally started to notice that China is a no joke
market.

------
pjdemers
If Apple creates a new phone with an ear phone jack, I will upgrade to that.
Until then, I will keep my 6s until it stops working.

------
dkrich
The most common dig I continue to read about Apple’s strategy is that the
phones are too expensive. But there’s little evidence from their earnings that
this is the case. Today’s report reduced guidance by $6 billion and was fully
attributed to lagging demand in China. All signs point to the new phones
selling very well in the US and anecdotally I’ve noticed lots of my friends
and family upgrading to the XS with no regard for the cost. These are not
extremely wealthy or otherwise financially irresponsible people.

Say what you will about lack of innovation (which I don’t agree with), but the
constant skepticism about cost ignores what consumers actually do in the real
world. China is probably not going to be a reliable market for Apple because
as Ben Thompson points out, smartphones are much more of a commodity there
because consumers don’t value Apple software as highly as consumers elsewhere.
If that’s indeed the case there’s not much Apple can do about it because they
sell the entire package at a high price point. If people don’t value the
hardware and software it’s probably not a market that is going to be good for
Apple. Apple wants no part of a race to the bottom commodity market where cost
is the sole differentiator. It’s a tough pill to swallow but what we’re
talking about is consumer preferences in different markets around the world.

Apple should be worried about customers flocking to cross platform messaging
apps in the US, though. Right now US consumers won’t part with Apple largely
due to iMessage. What happens if people slowly transition to WhatsApp or FB
messenger? I could see this as a real threat if FB continues to innovate in
messaging.

------
senthilnayagam
Apple has outpriced all its competitors, I have not updated my MacBook Pro for
4 years, not upgraded iPhone for 3, never bought iPad Pro, watch, air pods.
bought last years MacBook Air , 2018 iPad instead .

Apple can reduce pricing by 10-15% or give credits so that people can use it
for accessories and apps.

Until it gets price right, market like India can never grow for Apple.

~~~
saagarjha
> 2018 iPad

This is a recent product…

------
mandeepj
Apple should have bought Tesla a long time ago. Imagine, what would Model 3
have done to their bottom line now.

~~~
creddit
Provided a significant headwind? Tesla financials don’t look great.

~~~
mandeepj
Autopilot, Database of billion+ miles, awesome products in pipeline, given EV
is the future, Tesla as Taxi network (the new business plan), the charging
network, self driving cars means people will have more time to consume Apple's
services, Apple music in Tesla's, Apple pay for transactions, Apple TV also in
Tesla's or once level-5 driving is reached then front windshield can be
converted to a TV, Wireless charging for these cars
([http://www.ubeam.com/](http://www.ubeam.com/))

------
ssawyer06
iPhone upgrades are slow because Moore’s Law is dead and, guess what... the
new iPhones don’t offer significantly better performance per physical size.

(And note that Moore’s Law being dead just means density doesn’t double on
schedule. I am not suggestion there is zero progress in semiconductor
technology.)

------
kaycebasques
Does anyone have the quick stats on how much their various guidance
measurements have been downwardly revised?

~~~
nemo44x
They guided for 89B - 93B and it has been revised down to 84B.

------
luxuryballs
honestly I think the notch may be slightly to blame too, even though it’s
totally a non-issue and I actually like it, you need to really get your hands
on the device before you realize that it’s great, I wonder how many average
users aren’t interested in bothering with what they feel is too quirky or
different to be worth the risk, and would rather stick with more familiar
ground

also thinking that if nobody had noticed the battery longevity performance
degradation “feature” would Apple be sailing more smoothly right now? maybe
they depended too much on crafty ways of trying to get people to upgrade and
it didn’t pan out so here we are

------
gigatexal
Blaming China for slowing demand for its phones screams cop out. They jacked
the prices for everything from the Mac to the iPad and the iPhone way too high
and customers aren’t buying. Simple as that. I think they’re using China wales
a scape goat.

------
torgian
I still use my 6s. I really want to upgrade, but the prices are just bonkers.

I haven’t replaced the battery yet. I probably will this year. I’d rather just
replace my battery for 60 bucks than buy a new phone for 800...

------
thetruthseeker1
I think the additional value the newer iphone provides i.e face id and better
screens doesn’t warrant the increased price tag. Ideally the price should also
be falling like it did for PCs in the 90s.

------
Entangled
Apple needs balls. They need to show the world they can innovate where nobody
has gone before. An Apple TV with screen and game controllers for $2k would
sell like hot cakes. A stackable 'Mac Nano' the size of current Apple TV 4k
for under $500. An 'iPhone Y' aimed at the lower end for under $300 so
everybody can use Apple Pay, Facetime, etc and get immersed in the Apple
ecosystem.

You can't survive in a competitive world with just 10% of the market share
since interconnectedness is crucial for the dominance of any platform and
that's why you need cheaper macs and phones without losing the appeal of high
end products for those who have the money in times of economic duress like the
ones to come.

~~~
wozniacki
I tend to agree with the sentiment that Apple just hasn't innovated off late
like it did in the past. I'm an Apple user and am constantly fighting off the
urge to switch to Android given just terrific some of the phone experiences
are, over on that side.

I've heard from Youtubers who have maxed out the RAM on their Mac Pros that
its absolute garbage at even handling mundane video editing tasks. This was
two years ago.

Nonetheless, I won't switch to Android only because of the privacy promises
Apple has made & doubled down on. Whereas Google doesn't seem to care so much.
The forced auto-login into Chrome browser (desktop) when you login to your
Gmail on the browser, was the last straw for me.

However I just don't get just why Apple doesn't loosen those purse strings and
spend massively on re-capturing the imagination of the user like it once did.

Is it Tim Cook and the board?

Does the ROI simply not exist in this space anymore no matter the capital
spend?

Where - if at all - does Apple see a justifiable spend in the near future -
tvs? cars?

------
sanketskasar
Maybe the market response will lead to Apple pricing its products and services
more reasonably instead of just making them outright expensive as compared to
the competition.

------
general8bitso
I bought my wife, then girlfriend, the original iPad 16GB for $499.

I just bought her the latest 64GB iPad on sale for $249.

When the iPhone 4 16GB was released, it was $499 unsubsidized.

Something isn’t right.

------
ydnaclementine
>emerging market

>China

pick one

Remember, China is the second largest economy in the world. There was a HN
article awhile back arguing that China is taxed as an emerging market (low
tax), but is dollar size of a mature market. So, two questions:

Is China considered a maturing market?

Is China considered a mature market?

I don’t think just positive growth counts as maturing (even the US still
grows), so I think the answers have to be mutually exclusive. Maybe you could
argue the rate of growth makes it maturing, but I would love to compare it to
the rate of US growth from 1950's-60's (was the considered US maturing or
mature during that period?).

~~~
gumby
It's big but still has a lot of structural problems like any emerging market
(e.g. very high unemployment, poor statistical data, only quasi-free markets,
very high poverty rates, low per capita gdp, poor judicial system, et al). So
it's pretty clearly an "emerging" market, i.e. non-OECD.

There's an unrelated question as to whether OECD and non-OECD countries should
be treated differently.

------
turbinerneiter
Wait, they have 38% profit margin? And 16% tax rate?

Isn't that ridiculously high for the margin and kinda small for the rate?

------
sytelus
Actually $1000 high quality smartphone isn’t quite unreasonable. You use your
phone for at least 3 years so your daily expense comes out to less than $1.
I’ve seen much more expensive things with much less utilization. Also note
that phone is less of a phone and more of computer and camera that often fared
better than many other $500 cameras.

~~~
sleepychu
But when you compare it to a phone 1/3 of the cost (e.g. my now 3 year old
Moto 4G Plus) it's clear that for many people it's not going to offer 3x the
value.

------
gesman
Could someone add interesting insights to between-the-lines of Tim Cook
message?

------
LeicaLatte
Pretty much confirms battery degradation was driving growth, doesn't it?

------
shmerl
Apple is one of the worst companies when it comes to lock-in these days.

------
sjg007
I took advantage of the extra trade in cash.. That was a good deal.

------
mandeepj
iPod > iPhone > iPad

This product line was born organically within them. What you think Apple
should do next? They have patented a headset so maybe that is next for them.

------
rbreve
Good time to short AAPL stock, will probably drop to 46$

------
jrnichols
>We believe the economic environment in China has been further impacted by
rising trade tensions with the United States.

That sounds like a slightly roundabout way to throw some of the blame at Trump
and his trade policies. Not the only reason, but one of them, as the letter
mentions.

------
Geee
Apple used to be a status symbol but now it's a stupid symbol. I don't want to
be ashamed that I spent too much money on something.

------
droithomme
Perhaps the Mac Pro is truly dead.

------
sloanedavids
I’d be pretty happy to have a company announcing such a shortfall. First world
problems indeed.

------
bluedino
>> Gross margin of approximately 38 percent

Stop charging $1,000 for a phone. Stop gouging us for storage. Bring back a
$999 MacBook.

~~~
timbit42
That will only happen if people stop paying it.

------
meursault334
I think the long term question for Apple is whether or not they can pull off
another category-creating move at the level of the iPhone. I believe they will
in the next 3-5 years therefore I am glad for the opportunity to put more
money into AAPL less expensively.

~~~
l33tbro
I'm surprised by your optimism here. Over the last 5-10 years, Apple seemed to
have receded in to the clunky monolith of its former mid-90s self. While their
supply and distribution chain is amazingly streamlined, they're still dining
out on the cachet of their innovative product line from 10-15 years ago.

I just cannot understand how an increasingly risk-averse, profit-driven
company will summon the chutzpah to again create category-creating products
once more.

~~~
askafriend
AirPods, Apple Watch, Apple Music, Apple Pay, FaceID, huge strides in mapping,
Privacy-aware services and much more were all created in the past couple of
years and have tremendous category-defining value.

I don't think you can overlook those things and take them for granted.

There's still not great alternatives to AirPods or Apple Watch to this day.
Music streaming is pretty much just Apple and Spotify at this point. Also, few
companies have been able to align privacy and embed it into their business
models.

Apple has also quietly built one of the best chip design teams in the industry
- pumping out various custom silicon that is powering FaceID, ML, Photography,
and AR among other things. The # of custom chips Apple uses in their products
grows every year.

So they've done a ton of innovative things over the past couple of years, it's
just that you're not going to get another product like the iPhone which is
perhaps one of the best businesses of all time.

We may never see another business like it anytime soon, from anyone. So I
think it's a bit unfair to grade everything Apple does on the "iPhone Curve".

~~~
Apocryphon
Those are all great _features_. (Yes, even the  Watch.) None exists on its
own. The underlying product is still the iPhone.

~~~
askafriend
The actual product is the Apple ecosystem and that's the bet Apple is making.

Right now, the ecosystem is tied together by iOS whose most popular
incarnation is iPhone. But iOS was so successful that it has an install base
of over 1 billion users.

That's nothing less than an incredible user-base - a hell of a foundation. If
they can sustain that install base while strengthening their ecosystem through
value-add products like Apple Watch, AirPods, HomePod and Apple Music, then
they have potentially many cash cows with dramatically high ceilings and
reach.

This is a good bet for them because it plays to their strengths and they've
earned incredibly loyal customers over the years.

iPhone may not be the future of Apple, but it is the core from which many
futures will emerge. It'll still be a critical product for Apple, but no
longer a key top-line growth driver. And that's OK, that's how innovation
cycles go. iPhone made it possible for them to start on 3rd base for the next
cycle.

~~~
general8bitso
I keep seeing the 1 billion devices line being touted, but what is the
breakdown by iOS version?

Kind of useless if you can no longer install any new apps.

That probably includes obsolete iPads too.

~~~
askafriend
Here's the breakdown on Dec 3rd, 2018:
[https://photos5.appleinsider.com/gallery/28764-45426-ios12-a...](https://photos5.appleinsider.com/gallery/28764-45426-ios12-adoption-
charts-dec-4-2018-l.jpg)

iOS adoption of new versions is extremely strong and has typically always been
that way. Rate of adoption is fast as well. From release of a new version to
50% adoption is often just a few weeks.

------
LeicaLatte
Tim probably gave a video interview of some sort too but Apple should be glad
the open web still exists and they are able to communicate such crucial
information in a timely manner to investors. Nothing beats writing a blog on
the internet which can be read by everyone with a browser.

------
arthurcolle
Apple is extremely hostile to users. I'm going in to get a single K key
replaced. Maxed out MacBook Pro (around ~$4,500) with the ridiculously
overpriced AppleCare+ (another $450), and if they try to pull shenanigans with
"full unibody replacement" to fix the moronically designed butterfly clip
that's basically DOA in terms of usage, for a $5000 computer, I'm literally
never going to buy another Apple product again.

Good luck trying to excise people's money through "Services" when everyone
jumps ship after realizing they ship dumbed down products without any regard
for people's need for workstations and not expensive toys that break
trivially.

