May 28, 2023

Apple in the Cook era has reached a turning point in its destiny


On May 6, Beijing time, Apple announced its financial report for the second quarter of fiscal year 2023, with quarterly revenue of US$9.48 billion, a year-on-year decrease of 3%.

This means that Apple’s revenue decline in fiscal year 2023 is almost a foregone conclusion. In the last quarter, when Apple explained the 5% year-on-year decline in performance, it attributed the reason to “insufficient production capacity of new iPhones.” However, as the iPhone supply returned to normal, sales in the second quarter did not usher in a strong rebound, and year-on-year sales only increased slightly by 2%, which means that the overall sales performance of the iPhone 14 series is still weaker than last year’s 13 series.
However, against the background of the overall depression in the technology industry this year, Apple’s performance is still not satisfactory. Despite the decline in performance, the capital market still gave a fairly optimistic response. After the financial report was released, Apple’s stock price rose 4.69%.
Some analysts commented on Apple’s financial report performance for the quarter with a “breath of relief”.Since Jobs returned to Apple in 1997, in the 25 years since, Apple has experienced only two fiscal year declines. In 2019, the last time there was a recession, Apple’s market value shrank by one-third within half a year, and it was once in crisis.
But for Apple, the current stock price stability may really be just a “breather”. From the capital market to users, everyone is watching its next move, whether it is the MR head that is rumored to be unveiled in June. Obviously, or the iPhone Ultra, which may further increase in price in the fall, will define Apple’s next chapter. At the same time, the continuous outbreak of internal turmoil has also exacerbated the uncertainty of the future.
Everything is the calm before the storm.

growth stagnation

Expanding the financial report for this quarter is almost a replica and continuation of the recession performance of the previous quarter.
Total revenue fell 3% year-over-year, narrowing from a 5% decline in the previous quarter.Specific to each business sector, Mac fell 31% year-on-year, iPad fell 13% year-on-year, iPhone rose 2% year-on-year, services rose 5% year-on-year, and wearables, home, and accessories fell 1% year-on-year.
Considering that this quarter, apart from the updated configuration and color of the Mac mini and iPhone 14, Apple has not released other new products, and it is not surprising that the financial report performance continues the trend of the previous quarter. Apple had previously given a performance guidance that revenue would fall by 5%, which was consistent with the decline in the first quarter. In the end, the actual decline narrowed and exceeded market expectations.
Against the background that almost all business sectors are in decline, the only good news comes from software services on the one hand. Apple recorded service revenue of US$20.9 billion, a record high; on the other hand, iPhone sales rose slightly year-on-year, although here It is necessary to take into account the factors of the continuous release of user demand who “couldn’t grab the iPhone 14 Pro” in the last quarter, but it is still a good thing in the context of the overall shrinking smartphone market.


In terms of regional markets, the performance of major business regions such as North America, Europe, and Greater China also remained stable. There has not been a situation where the performance of the Greater China region fell sharply in 2019 and rebounded strongly in 2021. Apple’s revenue in Greater China fell 3% year-over-year during the quarter, exactly in line with total revenue.
At the same time as the financial report was released, according to CNBC reports, Apple will continue last year’s stock repurchase plan, repurchase about 90 billion US dollars of stock, and keep the repurchase intensity at a historical high, providing certain confidence to the capital market. In the after-hours trading after the financial report was released, Apple’s stock price rose by 4.69%, and its market value reached 2.75 trillion US dollars, still close to historical highs.
Only from the two points of “exceeding expectations” and “repurchase”, it cannot fully explain the contradiction that Apple’s performance has declined, but the stock price has remained stable at a high level.
In 2019, Apple submitted two quarterly reports similar to this year, and the revenue in the first two quarters of the fiscal year also experienced a 5% year-on-year decline.At that time, Apple’s market value evaporated by one-third within half a year. It was not until the spring conference that Apple released four new services, Apple Arcade, TV+, News, and Card, that it reversed the decline in revenue.
So this time, the same problem is still in front of Apple, and it still has to find a way to find out the problem and reverse the decline.

The benefits are exhausted

From the perspective of a single quarter, the biggest “bleeding points” of Apple’s performance this quarter are Mac and iPad, with sales down 31% and 13% year-on-year, respectively.
It is not difficult to understand that the last round of growth in the two businesses mainly occurred during the launch of the M1 chip in 2020. The excellent performance and power consumption performance of self-developed ARM architecture chips, superimposed on the surge in demand for home office and home learning in 2020-2021, drove the sales growth of Mac and iPad.
But now, on the one hand, the next-generation 3nm process chips continue to be difficult to produce, the performance of the M2 series chips has been limited, and the higher-performance versions of the M2 Max and M2 Ultra have not been seen for a long time, which has caused resistance to the product iteration of Mac and iPad. On the other hand, the replacement cycle of productivity tools is relatively long. After the wave of replacements in the past two years, it is not surprising that demand is weak.


The Mac mini computer with the M2 and M2 Pro chips is one of Apple’s few new products this year.
A similar problem also affects the iPhone.
The previous sales growth of the iPhone 12 and 13 series was largely due to the fact that Apple took the lead in adopting TSMC’s 5nm process technology to manufacture A14 and A15 chips. The performance and power consumption of the two are far superior to those of Qualcomm’s flagship chips of the same period. However, the improvement and leadership of the 4nm A16 on the iPhone 14 Pro this year are not so obvious.
The market is also changing. According to data from market research firm Canalys, global smartphone shipments will drop by 12% in 2022. Corresponding to Apple’s last two fiscal quarters, the overall market has shrunk by 18% and 13% respectively. In the context of an overall market decline of 13% this quarter, the iPhone’s 2% sales growth is indeed a positive.
When the smartphone market as a whole entered a stock war and was facing a recession, Apple enjoyed the bonus of “dominating the high-end”. The more high-end model users are, the more loyal they are to the brand, and they are more willing to pay for some new features and replace the phone.This is one of the main reasons why the market is still confident in Apple’s basic market. In the field of smartphones, the iPhone is still absolutely synonymous with high-end.
The problem will eventually come down to “increment”. The market does not doubt that Apple can stabilize the current basic market, but for listed companies, growth expectations are more critical.
In the past few years, Apple’s two main growth engines were “services” and “accessories”, including the recession in 2019, and it also turned the tide by launching a number of new service products. However, judging from the situation in the past two quarters, the era of rapid growth of these two businesses has come to an end.
Last fall, Apple released the Apple Watch Ultra, which is more expensive but equipped with more functions, hoping to leverage some new wearable device increments through the vertical market of outdoor sports. At the same time, Apple also released AirPods Pro 2, which should theoretically drive a wave of sales.
However, the sales performance of the two is not satisfactory.In the past two quarters, sales of Apple’s wearable accessories have not increased but decreased. This is the first decline in performance after the birth of Apple Watch and AirPods, and it is when new products are released.This means that the demand behind this market is not so strong, and there is a lack of more excavable increments.


In the end, only “services” remained, the only business that Apple still maintained its growth momentum. However, the growth rate has dropped from the double digits in the past few years, the highest year-on-year growth rate of more than 30%, to the current year-on-year 5%.Since the fall of last year, the software service sector has grown by only about 5% for three consecutive quarters, and has completely entered the “slow lane”.

In April of this year, Apple launched a savings function similar to “Yu’e Bao” based on Apple Pay in the United States. Users can deposit their cash balance into a virtual bank card and earn 4.15% annualized interest. Although Apple is only playing an “intermediary” role here, Goldman Sachs Bank actually accepts the savings business, but Apple can still get a part of the commission as income.
If you want to use one word to describe Apple’s current situation, it is “all the benefits are exhausted.”
The leading chip manufacturing process, the dividends in the smartphone market, and the sales of services and accessories brought about by high user stickiness, these engines that have driven Apple’s growth in the past few years, have been difficult to squeeze out more revenue. Now Apple must answer the question that plagues all technology companies: What’s the next big thing? (What is the next huge revolutionary technology?)

calm before the storm

Since the beginning of this year, Apple has relatively few product launches and publicity, and no spring new product launches have been held. This is also one of the reasons for the relatively flat performance in the past two quarters.
Everything points to WWDC in June. Previously, there were rumors that Apple would show the MR (Mixed Reality) headset that has been developed behind closed doors for the first time at WWDC in June. Later, the pattern on the invitation letter also seemed to be the “lens” that the head-mounted display device would use, implying that this conference would be related to the head-mounted display.
Apple’s MR head-mounted display device has been brewing for several years. As early as 2018, Tianfeng International analyst Ming-Chi Kuo had received news from the supply chain that Apple’s headset products had entered the hardware verification stage and might be released soon. It is not until today, 5 years later, that it is about to “come out after a thousand calls.”
For Apple, launching a head-mounted display device is undoubtedly a risky move. From hardware, software, to content and services, the current VR field has not yet reached the “ground zero” of popularity. The equipment is too heavy, too big, cumbersome to wear, and the display effect is not good enough, all of which lead to a very low market penetration rate of the headset category.
And there are already big companies “exploring the way” in this field. In October 2021, Facebook changed its name to Meta, claiming to build an all-in Metaverse around its Oculus VR device. But since then, the cost of the Meta VR division has remained high and sales growth has been slow. As a result, Meta’s stock price plummeted, and even shrank by more than 70% at its worst.
Perhaps it is precisely because of the lessons of Meta that Apple has “snow hidden” this mysterious head-mounted display device and has not released it. But this time, everything is on the line. However, things are not as simple as posting.
In March of this year, according to the Financial Times report, there was a lot of contradictions within Apple. The core of the problem was whether to release MR head display products.
The headset is said to have been in development for seven years, twice as long as the original iPhone. In the past few years, Apple management has put pressure on the industrial design team almost every year, hoping to release products as soon as possible. However, the design team has always believed that the current technology cannot make this headset light enough to be suitable for wearing, so it refused to launch it.
Until this year, COO Jeff Williams, who led the design team, insisted on releasing the head-mounted display product. In the end, CEO Cook supported Jeff’s decision, and the release time was set for WWDC in June.
According to media reports, Apple does not expect the MR headset to sell high sales in the first year after its release. However, as Apple’s “next-generation computing platform”, it will inevitably be an important source of Apple’s revenue growth in the next few years. Including user feedback after it was put into the market in the early stage, it will also greatly affect the capital market’s judgment on Apple’s future performance. Just like Meta for the past two years.
What is certain is that the release of the MR headset will bring huge uncertainty to Apple’s stock price performance in the next two quarters.
In addition to the layout of future headsets, another more recent “growth point” lies in the new iPhone in the fall.
According to Bloomberg, Apple is likely to launch a higher-end iPhone model this year, perhaps called the iPhone Ultra. If this product further raises the ceiling of iPhone prices, it will help the iPhone business return to growth in the fall.
The strategy of “raising the price of the iPhone to drive growth” is almost a fixed move of Apple, which has been tried and tested repeatedly in the past 10 years. From the price increase of the large screen of the iPhone 6 Plus, to the full screen of the iPhone X, and then to the later Pro Max models, the iPhone will always be the chicken that can only lay golden eggs.
But the market still has doubts about the iPhone’s pricing ceiling. Currently the most expensive iPhone 14 Pro Max model, the price has reached 13,499 yuan. If this figure is further pushed up to around 20,000 yuan, it is difficult to say how many users will choose to pay for it. In addition, there is also a question mark about what functions and value the new iPhone, which costs as much as 20,000 yuan, can deliver to users.
In any case, the remaining six months of this year may be the most turbulent and uncertain period for Apple since Jobs’ return, and it will also bring more variables to the earnings performance in the next few quarters.
It’s going to be an uphill battle, and it will be CEO Tim Cook taking center stage.

Cook’s curtain call

In Apple’s entrepreneurial history for nearly half a century, all the turmoil it has experienced is often “human” turmoil.
In the beginning, it was Steve Jobs and Wozniak who jointly created the miracle of the Apple II, allowing Apple to start a business from 0 to 1.
But as the two new products that the company placed high hopes on, the Lisa and the Macintosh, both failed, Woz and Jobs both left the company, and Apple fell into a trough that lasted more than a decade. It wasn’t until 1997, when Jobs returned to Apple and formed a new partner with Jony Ive, that there was a miraculous bottoming out and the golden age of Apple began.
The problems facing Apple today seem to be evolving into “people” problems.
Since the departure of chief design officer Jony Ive in 2019, Apple has been in constant turmoil. For example, the conflict between the design team and COO Jeff Williams about whether the MR headset should be released may have led to the decision of Evans Hankey, the vice president who led the industrial design team, to leave.
Evans Hankey, Apple’s vice president of hardware design (left)
In addition, as recently as April, The Information also reported on the turmoil in Apple’s internal Siri team. Several former employees who worked on the Siri team said that the reason why Siri has been underperforming and improving slowly for many years is that the leadership is too conservative. Compared with delivering more and better functions for users, they will spend more time considering meeting the conservative requirements of their superiors regarding privacy compliance.Many engineers even chose to jump to Google because of this to do the LLM (Large Language Model) development work they wanted to do.
Similar turmoil exists in nearly every business group at Apple. In March, according to Bloomberg News, since this year, there have been a series of unusual management personnel changes within Apple, including resignations and job transfers. The departments involved include online retail, procurement, marketing, hardware development, software development, music, etc. Services, cloud business…
Internal turmoil, superimposed external pressure, everything gathered on CEO Cook.
Since taking over the CEO position from Jobs in 2011, the outside world has never stopped questioning Cook. Various voices say that he “does not understand the product” or even “no longer innovates.” Cook never responded, but just changed Apple’s market value from about US$350 billion when Jobs died to 2.75 trillion today, and at one point exceeded 3 trillion.
But it must be said that Jobs participated in the formulation of the initial blueprints of these products, from iPhone, iPad, to Apple Watch.Cook as a former COO, has operated Jobs’ product legacy to the extreme, whether it is technology, design, manufacturing, or supply, it has been integrated to a near-perfect level. But he has never pointed out the direction for Apple’s “next generation products”.
Considering Cook’s age, he may consider retiring, or at least stepping down from the CEO position, in 3-5 years. For Cook’s career, the last journey may be a very difficult one, and it will be the final day of his career.
Some reports in the past, including the author of the book, mentioned that Cook was “not that interested in the product.” His focus has always been on the operation of the company. choose”. This may be related to the general environment of the technology industry in the past ten years. In the era of smartphones, he really does not need to make any decisions.
But now, that “defining moment” is approaching Cook. Whether it is the emergence of disruptive AI technologies such as external GPT, or the internal debate and turmoil about headset products, these pressures are forcing him to make a “decision”, which will eventually affect the fate of Apple as a company and define its future.
Apple in this quarter has experienced the last “breathing breath” quarter in a short period of time. The future is more uncertain, which means more possibilities.

Ewen Eagle

I am the founder of Urbantechstory, a Technology based blog. where you find all kinds of trending technology, gaming news, and much more.

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