Company / division: iPad
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 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.
Apple today upgraded its iPad Pro lineup and announced a new version of iOS with big changes for the iPad as well as support for AR. The major theme in both the hardware and software aspects of the iPad announcements was productivity, where Apple continues to push the iPad Pro as a potential laptop replacement. The hardware changes improve performance across the board while specifically tweaking the ratio between screen and device size for the smaller iPad Pro in a change that likely foreshadows what Apple will do in a more dramatic way in the Fall with the iPhone. Just as the Mac lineup became more powerful with today’s announcements, so the iPad is becoming more powerful as a potential computer replacement, and the iOS changes specific to the iPad further that message, with support for a much wider range of multitasking scenarios and other more sophisticated features. For the first time, the iPad version of iOS feels like it’s gaining a truly distinct identity that’s really optimized for heavy-duty productivity tasks, and it will be interesting to see how the OS feels on the iPads not designed for pro use, because a number of user interface elements and conventions will change as a result. However, the other big change in today’s iOS announcements is support for AR through ARKit for developers, which is Apple’s first foray into AR. Notably, whereas the VR support in the Mac is primarily aimed for today at creation of VR content, Apple’s AR push is much more end-user centric, and will enable developers to quickly and easily create a range of AR apps and games for the iPhone and iPad. Whereas smartphone-centric AR today is very photo- and video-centric and dominated by companies like Snapchat and more recently Facebook, Apple’s platform approach could dramatically expand the use of AR in smartphone apps and move smartphone-based AR forward significantly in terms of mainstream adoption.
★ Apple is Developing a Dedicated AI Chip (May 26, 2017)
IDC Says Q1 Tablet Shipments Were Down 8.5% Year on Year (May 5, 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)
For The First Time, Apple Drops Below Microsoft In J.D. Power’s Tablet Survey – Fast Company (Apr 7, 2017)
This is symbolically hugely important, because these are just the kind of stats that Apple likes to roll out on earnings calls and so on to highlights the strength of its products, far more so than market share or other statistics (though it often focused on percentage satisfaction rather than rankings per se). As the article makes clear, though, even though this is the first time Apple has dropped behind Microsoft, it’s not the first time it’s been beaten, as Samsung did so earlier. As is often the case with these rankings, you end up wishing the data were a little more transparent. For example, Microsoft apparently beat the iPad on Internet connectivity despite the fact that iPads offer 4G LTE as well as WiFi, which makes me wonder to what extent the ratings reflect the expectations people have of particular brands. In other words, are people pleasantly surprised that the Surface does certain things well, whereas others would expect the iPad to do those things well and therefore give it lower scores? Adjusting for those expectations would be tough, and I doubt JD Power does so. I also wonder to what extent Surface owners self-select into a much more narrow set of use cases for which the Surface is uniquely well suited, whereas the iPad is more of a general purpose device used by a far wider range of use cases, not all of which by definition it’s designed for. At any rate, it’s worth keeping an eye on this over time. Some of the other commentary in the article here is a little overblown – one thing is for certain: iPads massively outsell Surface computers of all shapes and sizes, so any idea that Surfaces are somehow displacing iPads in large numbers is nonsense.
via Fast Company
Apple today updated its online store and issued a press release around a new 9.7″ iPad, confirming a change in strategy which seemed apparent when the 9.7″ iPad Pro launched but wasn’t made explicit until now. The new iPad drops the Air branding, and offers specs a year or two behind the iPad Pro line, while reducing the price to the lowest in Apple’s iPad lineup, at $329 (the only iPad mini available now is the 128GB model, which starts at $399, meaning that for the first time it’s cheaper to buy the new 9.7″ iPad than the newest iPad mini). What we have now, then, is a clear bifurcation between the iPad Pro, which is the latest and greatest with high-end specs, new features, and accessories like Pencil and the Smart Keyboard, and the more basic and low-end iPad. The iPad Pro is therefore not just the iPad for people who want to replace their laptop, but also the best iPad for everyone else. The iPad, then, becomes the low-cost alternative, the one for people with simpler needs, for giving to kids, and so on. That’s going to do interesting things to average selling prices, which had gone up slightly with the launch of the iPad Pro line and will now come down, but also to Apple’s competitiveness in a price band where it really hasn’t played before, expanding its addressable market. This new iPad is effectively the equivalent of the iPhone SE, taking older innards and wrapping them in new branding to bring the price down to a new level, and I suspect that – like the iPhone SE – it will indeed bring the device to new people. However, I suspect it’ll take quite a bit more share of the overall market than the SE has in iPhones.
The link here is to the PDF of a report from Jamf, which makes Mac management software for enterprises and educational organizations. It naturally has an incentive to push Mac adoption in the enterprise, so it’s worth noting that context, but the findings are broadly in line with what I’ve seen elsewhere. Some key figures: 91% of enterprises use at least some Macs, while 99% use iPhones or iPads; 74% of organizations have seen an increase in Mac adoption; 44% of companies offer employees a choice of Mac or PC, and at IBM for example 73% of employees want to use a Mac as their next computer. The survey of IT decision makers also has majorities saying Macs are easier to manage, configure, secure, and support than PCs. The enterprise is critical to Apple’s future growth given increasing saturation of global smartphone and PC markets, and already accounts for around 10% of revenue. Enterprises providing Macs, iPhones, and iPads as options for employees is therefore a key enabler of future growth here, and Apple’s recent deals with IBM, Cisco, SAP, and Deloitte are all part of its push to make Apple device adoption by companies easier and better.
via Jamf (PDF)
This trend has been a long time coming, with Google becoming very aggressive about getting deeper into schools in the last few years, and having quite a bit of success, while Apple has lost ground despite some good enhancements to its own education offerings, including the Swift Playgrounds app. Apple used to have an outsized share in education thanks to the simplicity of both using and managing its devices, but Chromebooks have some of the same simplicity and manageability benefits at a much lower cost, and are starting to displace products like Macs and iPads in schools. And the education market is much more important than the relatively small amount of revenue it generates in the overall context of the tech industry, because it influences the devices and services kids will continue to use as they grow up. A kid reared on Macs and iPads in school will likely continue to use them when she goes to college, but one raised on Chromebooks and Google Apps will favor those when he graduates. This battle is by no means lost for Apple, but it needs to continue to up its game if it’s to claw back some of that lost share.
via New York Times
I’m not quite sure about the headline here – in fact, I think the point of Apple’s new ads is that the iPad can do many of the things your computer can do but without some of the downsides. The examples cited include built-in LTE, Pencil support, lack of viruses, and portability. It still doesn’t feel like the iPad has a single clear value proposition in the same way some of Apple’s other devices do, but Apple is getting better at communicating some of the several reasons why you might want an iPad, and an iPad Pro in particular. And I’ve no doubt the wireless carriers will be delighted that two of the four ads specifically mention the optional built-in LTE.
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.
KGI: 3 new iPads to debut next quarter will slow decline in sales, 10-10.5 inch model wildcard | 9to5Mac (Jan 8, 2017)
The iPad had a better year in 2016, but shipments were still down 10-15% year on year, while revenues were down by a few percentage points. I believe revenues will likely level off sooner than shipments due to higher ASPs driven by the Pro models, while shipments will level off over the next year or two as well. New iPads which provide more compelling reasons to upgrade will help with that, but a lot of sales will be driven by replacements among the massive installed base of older models. The new models reported by KGI are intriguing – at least one new size will make an appearance, and it appears this will be the high-end version of the 9.7″ model, which will remain at a lower price point.
Flurry Analytics: Apple devices were most popular mobile holiday gifts – Business Insider (Dec 27, 2016)
Until Apple reports its results for the December quarter, this kind of data is the best insight we’re going to get into how its quarter has gone. The answer appears to be pretty good, at least as it relates to iPad and iPhone sales, and taken together with other data on Mac, Apple Watch, and AirPods sales, it’s looking like a pretty healthy quarter overall.