Company / division: Apple Watch
Following on the heels of yesterday’s iPhone 8 reviews, today the reviews for the Apple Watch Series 3 with LTE came out, and they were rather different in tone, in at least some cases. Whereas yesterday’s reviews were largely positive with some misgivings around the edges, today’s Watch reviews were bifurcated between those that were almost entirely positive and those that noted significant connectivity issues, notably those at the Wall Street Journal and The Verge (once again, I’m linking to the Techmeme roundup here). All seemed to agree that the faster processors and watchOS 4 combine for significantly better performance across multiple areas including fitness and heart rate tracking, app use, and music, but the differences occurred around LTE/WiFI connectivity.
It appears (there’s a good explainer here) that the Watch tends to try to hop onto so-called captive WiFi networks – those that allow devices to connect without a password but require going through an interstitial or popup before allowing internet access – but can’t progress beyond the interstitial, putting the Watch in an awkward in-between state where it’s connected to WiFi but can’t actually reach the internet. That, in turn, stops the Watch from trying to connect to LTE, which is what you really want it to do in that situation. That should be a relatively easy software fix for Apple, and it’s suggested that’s the case, but it’s baffling that this issue didn’t come up during all the testing that must have gone on over recent months, and as such is an embarrassing slip-up for Apple when the new connectivity options are the key selling point for this device.
It is notable that not all reviewers experienced the problem, which may be indicative of either their differing use during the review period or their differing earlier use, with some perhaps more prone to hop onto captive WiFi networks with their iPhones (and thereby inadvertently setting up their Watches for failure) than others. At any rate, many regular users likely won’t see those issues either, especially if using the Watch out in the wild rather than in busy urban areas, while those who do will hopefully see the problem fixed very quickly in a software update. Regardless, this clearly wasn’t what Apple was hoping for from these reviews, and it’s likely that the glitches will color perceptions of the Watch at least until Apple does issue a fix and that gets some decent coverage.
As is often the case, various details are dribbling out today about the many announcements Apple made yesterday, so here’s a quick roundup. Firstly, CNBC reports that Apple quietly hiked iPad Pro prices by $50 yesterday without making any changes to the hardware – that’s likely because flash memory prices have been rising dramatically recently, putting pressure on both smartphone and PC makers (but driving Samsung’s highest ever profits).
Secondly, MacRumors reports that the new desktop version of iTunes drops the iOS App Store entirely, meaning it’s now just for buying and consuming content that can actually be used on a Mac or PC, further untethering the iPhone from the computer. I would guess very few purchases were made this way in recent years anyway given how many people likely sync and backup to iCloud.
Thirdly, the Wall Street Journal confirms a detail I pointed to during yesterday’s keynote: Disney is a holdout from the 4K movies that will be available through the iTunes Store, likely because it wouldn’t go along with the pricing Apple wanted. In the end, there was no clean answer on the pricing question I posed in my earlier piece on the negotiations: Apple won with some studios and lost with others, notably Disney, but they may still come around eventually.
Fourth, MacRumors confirms a rumor that wasn’t confirmed on stage yesterday – the new iPhones will support fast charging if charged with MacBook rather than iPhone power adapters, charging to 50% in half an hour, which will be a nice bonus for those that own MBP chargers but won’t affect most others (I find that an iPad charger already generally does a pretty good job with faster charging).
Lastly, Business Insider reports on Apple Watch LTE battery life, which is one hour for calls or four hours for exercising using the GPS and LTE while untethered from an iPhone. That should be perfectly adequate for the most likely use cases, which are exercising without an iPhone or taking the odd call while the phone is out of range while at home, for example. The Watch with LTE certainly isn’t intended to be used all day without a phone, and battery life certainly won;’t support that use case.
★ Apple Announces Upgraded Watch and TV Devices (Sep 12, 2017)
CNBC reports that Apple has recently held discussions with insurance company Aetna about providing Apple Watches on a subsidized basis to at least some of its 23 million customers. Aetna already has a program to provide Apple Watches to its employees, and both Apple and Fitbit have been talking to a variety of healthcare companies about partnerships to get wider distribution of their devices. This is the first real sign that Apple might do a deal which would be much larger in scale than anything that’s been contemplated so far. For context, Apple has likely sold just over 30 million Watches in total so far, so getting Watches to even half of Aetna’s members would be a massive boost to the business. Such a deal would likely see Apple supplying Watches at less than the usual retail price, both as a bulk discount and because the cost of acquisition would be much lower than a typical retail purchase, while Aetna would subsidize the remaining cost for its members on the basis that fitness trackers tend to improve health and fitness and therefore lower the odds of a medial issue that requires insurance coverage. The rationale there would be much the same as for insurers providing discounted gym memberships. Partnerships like this with medical providers probably have more potential than anything else to boost the addressable market for fitness-centric wearables, including the Apple Watch, because they substantially lower the cost of entry for consumers while providing strong incentives to make use of the devices. There’s obviously no guarantee any of this gets done, but it’s the kind of thing I’m sure we’ll see at least on a small scale in the near future, whether with Aetna and Apple or other pairings.
Apple reported its fiscal third quarter / calendar second quarter results today, and they came in at the high end of its guidance and beat analyst estimates. One of the biggest surprises was strong iPad unit growth year on year after four years of declines, and just the second quarter of revenue growth for iPads during that period, thanks largely to sales of the lower-priced $329 iPad introduced earlier this year. But Apple said all its product categories saw year on year revenue and unit growth, with Apple Watch reportedly growing 50% year on year, and Mac and iPhone unit growth up modestly, while the Services business continued on its recent tear, driven largely by the App Store, but also to an extent by Apple Music and iCloud storage plans. iPhone ASPs were up modestly year on year driven by stronger sales of the latest Plus models, and would have been up more if not for the fact that the company sold down its inventory significantly, with almost all the reduction being made up of more expensive phones.
Perhaps more significantly for the longer term outlook, the company provided guidance for the September quarter which essentially guarantees new iPhone hardware in September. I would guess that at the very least Apple will have the successors to the current phones on sale in the usual timeframe and in the usual volumes, while my hunch is that the new higher-end model will also go on sale at the same time but be even more heavily supply-constrained than new iPhones usually are.
Apple continued to talk up performance in mainland China as distinct from the Greater China region it reports, where sales were down 10% year on year, the best result in nearly two years, but still a drag on overall results with other regions all growing, all but Japan at double digit rates. Tim Cook also addressed the issue of VPNs in China which I wrote about yesterday, and defended Apple’s stance, which is a combination of following the law in each country where it operates, and believing that it’s better to engage and stay in a country than leave, even where it disagrees with policy (my notes on this portion can be seen here).
Overall, Apple’s management on the call seemed as bullish as they have for some time, clearly looking forward to what they expect to be a strong finish to the year in both product and financial terms. Tim Cook wasn’t drawn the slightest bit on new iPhones, but did hint at new products this fall, talked about the role of autonomy beyond vehicles and Apple’s big project in this area, raved about ARKit and the potential of AR, among other things. There’s clearly a good mix of products coming to market in the near term and investment for the long term which Apple’s management is also happy about. That’s no guarantee of a strong performance in the September or more importantly the December quarter, but I continue to be pretty bullish on what’s coming over the next few months from Apple.
Weekly Narrative Video – Wearables are Struggling (Jul 8, 2017)
This past week’s narrative video is on the Wearables are Struggling narrative, in light of the news that Jawbone is entering liquidation. I’ve seen lots read into that news, some of it sensible and some of it probably overblown as far as the significance for the broader wearables industry. In the video, I talk through how I see the news, and also what I think about the state of the wearables market. Subscribers can watch the video on the narrative page here as always, and if you’re not yet a subscriber you can sign up for a 30-day free trial here and get access too.
Strategy Analytics Says Apple Top Wearables Vendor in Q1 (May 8, 2017)
Apple’s results for calendar Q1 (its fiscal Q2) were out today, and they largely continued the trends from the December quarter. Revenue growth continued and actually accelerated despite the lack of the extra week which made last quarter’s numbers slightly harder to parse, but the connection between iPhone growth and revenue growth was broken as iPhone shipments dipped slightly (though a change in inventory patterns from last year eliminates some of the dip). Notably, Tim Cook said Apple is starting to see a pause in iPhone buying ahead of a big anticipated upgrade this Fall, which is bad news in the short term but potentially feeds the super-cycle narrative that’s become so popular lately if Apple is able to deliver. Other things worth noting: continued rapid iPad declines, though entirely in the Mini size (revenues from the rest of the lineup grew); strong Apple Watch sales, up nearly double year on year (likely around 3.2-3.5m), with total wearables (Watch, AirPods, and Beats sales) likely around $6 billion for the last four quarters combined. Services continues to be the strongest growth driver by far, up 18% for the second straight quarter driven by 40% App Store growth and likely strong Apple Music revenue growth too. Overall, this is a solid quarter for Apple, with nothing out of the ordinary or too unexpected – all the existing trends are ticking over nicely, with the iPhone roughly flat (up slightly on revenue, down slightly on shipments), and some of the growth drivers delivering well, while the iPad and China continue to be a drag. Next quarter’s guidance is going to be fascinating because it will have to address the issue of what new devices will launch, when, and at what prices without explicitly mentioning any of that!
via Apple (as usual, I live tweeted earnings with tons of charts which you can see in this thread, and I’ll have my earnings deck on Apple up for Jackdaw Research Quarterly Decks Service subscribers in the next little while)
Apple Watch Loses Google Maps, Amazon, eBay Apps (May 1, 2017)
This piece does a good job digging up the news that several iPhone apps from high-profile names have quietly ditched their Apple Watch companion apps. I’m seeing some spin this as a sign that the Apple Watch isn’t working for people, but the reality is that we’re seeing two rather different things at play here. Firstly, apps on the Apple Watch were one of the big misjudgments on Apple’s part: as a group, they really haven’t taken off, not least because in their first couple of iterations they were painfully slow to use. Performance of apps has improved markedly in watchOS 3 and on the Series 2 hardware, but that leaves us with problem number two: many of the apps launched for the Watch simply don’t provide enough utility either on a standalone basis or as alternatives to the iOS versions to be worthwhile. And what we’re seeing now is some of those failed experiments going by the wayside.
We’re still figuring out what works and what doesn’t on the Watch, although a glance at the official App Store for the Watch gives you some idea of what Apple thinks: health and fitness apps dominate the first screen, followed by games, news, sports, and finally utilities. Apple obviously has its own play for navigation, which works particularly well for walking directions, and the Amazon and eBay apps were always a bit of a stretch. The eBay app is a great example of a use case that doesn’t actually need its own app but can work perfectly fine with interactive notifications or a widget on the iPhone. So we’re likely to continue to see apps come and go from the Watch, not least because developers now have many possible areas of investment around iOS apps, including watchOS, tvOS, iPad support, support for the unique hardware features on the iPad Pro line, and so on. As such, some are likely very wise to prioritize other features and platforms over the Apple Watch, while others will do well putting their investment on people’s wrists.
via Apple Insider
This is a good follow-up to this morning’s item about the new Android Wear watch from Huawei, and argues much as I did that other smartwatch makers are largely failing to learn the lessons of or compete effectively with the Apple Watch. It frames the discussion in terms of the compromises and tradeoffs watchmakers choose to make, which seems a smart way to think about it, and has arguably always been one of Apple’s strengths.
via The Verge
Apple Watch Series 2 Satisfaction & Usage Survey – Wristly (Mar 13, 2017)
Wristly is one of the only organizations out there which does regular Apple Watch user surveys, and as such provides some very useful insights into how users feel about their Watches and how they use them. It’s worth reading the whole thing, but I’ll call out two points in particular: user satisfaction has risen over the past year as the number of users has grown significantly, and the drivers are the new hardware and new software Apple has released in the past year. That both have driven increased satisfaction is obviously good for Apple, but the fact that the new software improved the experience has possibly also worked against bigger hardware sales – I know my first generation Watch performs well enough running the new software that I don’t feel the need to run out and buy a Series 2 device, and I’m guessing the same is true for others. But of course the Watch has sold reasonably well regardless, and so the user base continues to expand, albeit still at a fairly small scale relative to massive mainstream categories like smartphones.
Wearables grew 16.9% in Q4 2016, Fitbit still first but Xiaomi is gaining – VentureBeat (Mar 2, 2017)
The numbers here look about right, but what a far cry from the forecasts of the wearables market we saw a few years back. I recently wrote a piece on the state of the wearables market, in which I argued there are really three important sub-markets within wearables: the Apple Watch in its own category, dedicated fitness trackers (in which Fitbit dominates in western markets and Xiaomi in China), and Samsung’s various devices, many of which are bundled with smartphone purchases and therefore thrive on a rather different business models from the others. These IDC numbers largely back that up with market share numbers, but also reinforce the point I made in that article about how the market has fallen short of its theoretical potential and largely stopped growing. It can still grow, but the offerings need to get much better and broader in their appeal, and to some extent we also need the technology – especially in components – to catch up with the vision here.
Apple Reports December 2016 Quarter Results – Apple (Jan 31, 2017)
This was an important quarter for Apple – it had predicted a return to growth, and it delivered on that promise, though the growth was helped by the extra week in the quarter due to Apple’s quirky reporting calendar. The highlights were iPhone, Mac, and Services growth, with the latter being by far Apple’s most consistent and fastest growing segment. The lowlights were the iPad, Other Products, and Greater China, all of which were down. Both total revenues and iPhone shipments (which are closely tied) have been within a remarkably narrow range the last three years in the December quarter, suggesting at least something about supply constraints and natural limits. The Mac had its best revenue quarter ever, helped hugely by the new MacBook Pros, which are more expensive than the average Mac Apple sells and boosted ASP a lot. Services was mostly driven by the App Store as usual, but music (Apple Music and iTunes combined) grew for the third straight quarter, and iCloud and AppleCare also helped. Apple Watch had a record unit and revenue quarter too, apparently, though we have to guess at the actual numbers. I’d guess it was marginal growth year on year, for around $2.1 billion in revenue and 6 million units. iPad dropped significantly both in unit shipments and revenue (and ASP), though some of that was down to channel depletion, and the large iPad Pro had launched a year ago, boosting that quarter. Overall, a pretty decent quarter for Apple, but no strong growth here yet (especially when you strip out the extra week). Foreign currency isn’t helping either unit sales or reported revenues or profits, and arguably roughly offset that extra week in several regions.