Company / division: Apple
Apple Delays Carpool Karaoke Launch (Apr 25, 2017)
KGI Reports High-End 2017 iPhone Production May Be Delayed (Apr 24, 2017)
Backchannel has a piece out this week which argues that the iPhone’s declining market share in China is due to the poor competitiveness of its services, notably Apple Music and Apple Pay. The piece is well worth reading, but it offers few real answers. It states that Apple fails to compete effectively with its music and payment services in China, but then also says that the music and payments markets in China have been sewn up by strong local competitors, with music rights in particular subject to exclusives from Chinese services. As such, it’s really not clear what Apple could have done differently in these categories. At the end of the day, Apple’s lack of competitiveness in services in China is a symptom of a much broader issue, which is that Apple doesn’t bend much to local custom when it comes to pricing or service structure (see also India). It does localize content stores, and indeed is one of the strongest players in that respect globally, but China is such a massive market, has so many homegrown competitors, and is run by a government which is not afraid to disadvantage foreign interlopers, that it’s hard to see how Apple could compete effectively there on services. As such, I think it’s smart to compete more on its devices, its growing retail presence, and its non-content software and services. But that does mean that the ecosystem Apple has built elsewhere is missing some of the appeal it has elsewhere.
But all that is to ignore the central premise of the argument being made here, that it’s this services weakness that’s at the root of the recent decline in iPhone market share in China. I think that’s debatable at best, and it’s worth remembering that that decline isn’t about ownership but sales, and Apple went through a massive cycle earlier off the back of the iPhone 6 in China, and then came down to earth over the ensuing year, so that change in market share is reflective of cyclical rather than permanent trends, with some signs of recovery recently with the iPhone 7. So overall this piece feels like it makes some interesting points, some of them legitimate with regard to Apple’s services competitiveness in China, but overdoes the narrative about its impact.
Google recently got out of the satellite mapping business by selling its Skybox / Terra Bella unit to Planet Labs. That unit had mostly been working on mapping imagery, and Google clearly decided it didn’t need to do that work itself to benefit from the results, and effectively outsourced it. Now two executives from that former team have ended up at Apple, under former Dropcam exec Greg Duffy. Given that Apple has nothing whatsoever to do with satellites today, that raises some interesting questions. While it’s true that Google, Facebook, and others have invested in satellite and other new methods for getting connectivity to remote places, Apple has far less incentive to do so, because its users are typically the kind of well-connected people that can afford premium smartphones and computers, not those in remote emerging markets. And to pursue such a play in a market like the US makes little sense either given how satellite broadband has struggled to compete with wired and wireless services because of limited throughput and high latency (just ask DISH). What makes more sense is some kind of mapping play for better imagery, although even there the same logic that led Google to dump its unit would apply to Apple too. These are certainly intriguing additions to the Apple employee rolls, but I’m not yet convinced that either broadband access or mapping are the explanation here.
Apple is starting a new program through which it will spend a month at a time promoting young relatively unknown artists through its various Apple Music assets, including the streaming service, Beats 1 Radio, and in other venues. When Apple first launched Apple Music, the Connect feature felt like it could be a great way for artists of all sizes to connect organically with their fans through the platform, but it really hasn’t taken off in that way. Meanwhile, SoundCloud and YouTube continue to do better in helping young artists get their start before they get signed to labels. This effort is aimed at a somewhat later stage in the game, but builds on Beats 1 DJ Zane Lowe’s reputation for giving artists their big break, but if it’s a monthlong effort it’s hard to see how it will be scalable. However, it’s all part of Apple’s pitch that its service is the best for artists, whether that’s through exclusives, discovery and promotion, or simply getting paid for their work (since it’s one of the few services that doesn’t have a free tier).
Apple Enables Web Embedding of Live Photos for Developers (Apr 20, 2017)
Apple Makes Big Environmental Push for Earth Day (Apr 20, 2017)
Apple Acquires First Movie at Tribeca Film Festival (Apr 20, 2017)
Qualcomm has just reported its earnings for the March quarter, and one of the most interesting aspects is its commentary on its dispute with Apple. It says that Apple’s suppliers reported but did not pay around $1 billion in royalties in the quarter, which exactly offset the $1 billion Qualcomm is refusing to pay Apple under the Cooperation Agreement the two companies have, and which Qualcomm says Apple breached. Importantly, that Agreement ended in December, so there are no more payments to be withheld, which means if Apple suppliers continue to withhold royalty payments, they’d affect Qualcomm financially going forward in a way they didn’t this past quarter. As such, it’s given a wider EPS guidance range (25 cents) than usual (it was 10 cents in the last two quarters, for example) because of the uncertainty over these royalty payments (the math here is tricky but I reckon that’s about a $400m range in net income terms). Beyond the Apple dispute, the results are a little tricky this quarter because on paper they look terrible, with revenues and profits way down over the same quarter last year. But that’s partly because Qualcomm had to reduce from its GAAP revenues the nearly one billion dollars it’s due to pay BlackBerry as a result of arbitration between the two companies. The actual results are much better, in keeping with recent trends at Qualcomm, lawsuits aside.