That iPhones were less than half their revenue, while still growing overall revenue, is a positive sign. Apple has done a good job of diversifying their revenue base over the last few years. It will be interesting to see how large wearables and services can become as revenue sources, I suspect they are still quite early in their growth.
And because the services have much higher margin, the earnings story is even better.
Products are 42.4 - 29.5 = 13 ish
Services are 11.5 - 4.1 = 7ish
If the iphone has the same margins as the other products, and about half the product sales are iphones, the services are producing more earnings than the iphone!
(To be clear: the services are delivered through the iphone, so its not like the iphone is not a key part of the services.)
They're big on services, which would point towards some AI thing but the next step that seems relevant in this area for an Apple-like product is probably general, reliable, human-like AI which is too far off. So my bet is on AR. VR went nowhere but its tech might push AR into something usable. I can totally see Apple producing a Google Glass like device and getting it right, somehow.
They do have ARKit going, which sets them up with a platform to do it on.
They also have the H1 chip in the AirPods, which could potentially be a stepping stone to streaming video from your phone to your headset via an H2 chip.
I don’t see them doing a stand-alone device, or a device with a cable, for awkwardness/dorkiness reasons.
Glasses that are indistinguishable from normal glasses but just pair with your iPhone is the play.
They will make a fortune on premium frames.
Seems like battery size is the limiting factor, but who better than Apple to squeeze a crazy amount of battery into a tiny space. Then there’s heat though. That’s a tough one.
Doesn’t feel like a “this year” thing to me. Feels like a “we’ll release it when the battery/chip tech hits a sweet spot” thing.
I recently read the book "The 22 Immutable Laws of Marketing" and it talked about how when a company adds more lines of business that long term it can have negative effects (lack of focus). Do you think Apple has over diversified?
Still, the company hasn't released an innovative hardware product since 2008. That's a long time for them. If Apple can't innovate anymore, regardless of whether they have continued financial success, are they still really Apple?
I'm not saying Apple isn't successful. In fact, that's my point: they're clearly releasing solid products. But they aren't the category-killers that the company's reputation for innovation is built on. There have been rumors of new innovations (reinventing TV, an Apple Car, augmented reality) but none have materialized.
Regardless of whether you agree they haven't been innovating, my question stands: if they stop innovating, but remain financially successful, will they still be Apple?
Again, I'm not saying the Watch hasn't been successful, or that it's a bad product. I'm saying it wasn't as innovative as many of Apple's other successful products were. It's much more an extension of the iPhone than a standalone innovation.
That's not relevant. Apple is one of the worlds most valuable company, and they're stagnating. They've been hitting home-runs with products before, and creating new markets.
Watch, even if it ends up eating the whole current market, but not creating new one, is a failure by Apple standards. Unless Apple is going to branch out and become company like Samsung, that makes everything from watches, to nuclear power plants. Apple success story was never about big portfolio of products - they were always about few products, but extremely focused and creating whole new markets for them.
So exactly what category of electronics do you propose that Apple can enter that has a larger worldwide penetration than the smart phone market - there are 2.72 billion smart phone users worldwide (https://www.bankmycell.com/blog/how-many-phones-are-in-the-w...)?
It's a market that they largely created, and that was their super-power. And now it's up to them to figure out next big thing, if they want to keep their lead and valuation.
They can still be very successful company without that. But not necessarily as one of the world most valuable companies.
They did not create the smart phone market. By 2004-2005 the average middle class American had cell phones. Cheap prepaid phones could be bought for less than $100 with minutes. The Nokia candy bar phone was already selling well in developing countries. The BlackBerry, Windows Phones, and Palm phones were already selling. It was already clear when Apple was entering the market that the cell phone was gaining ubiquity.
It was so obvious that Apple should be entering the smart phone market with a combination iPod + phone that people were already coining the name iPhone 3 years before it was introduced.
What market are you seeing with the clear growth trajectories that the cell phone had by 2002 that Apple should enter within the next 5 years?
How does that dovetail with Apple’s strengths as a vertically integrated consumer electronics company? What would they bring to the table that would help them compete with the other cloud players? Amazon had first mover advantage and Microsoft had a large enterprise base to draw from and an inside and outside enterprise sales force. Apple has none of that. Google is struggling in the cloud with large companies partially because of no enterprise sales experience and no reputation in the enterprise. Apple would be even less competitive.
I can see that this is the obvious reason why Apple is not doing this. It is a short-sighted view though. Is the Mac Pro (MacBook Pro, etc) a consumer electronics product? Not really. So why do they provide it? Yeah. Same reason they should provide a cloud based on Metal.
I'm not suggesting those were good ideas, only that they were rumors about innovative products that got a lot of attention, in part because everyone thought Apple must be up to something, because they hadn't made a big splash in a long time. Maybe the problem isn't that Apple's isn't innovating anymore, but that so many others now are as well, so innovation gets lost in the crowd. Companies like Tesla, Amazon, and Google share a space now that Apple had to itself for a long time.
What does any of this have to do with innovation, the topic of the thread? There are lots of very successful companies that don't release innovative consumer products. My point isn't that Apple is a bad company, it's not that other companies are 'better' companies. It's simply that the kind of 'home run' innovation for which Apple is famous has been missing for the last decade. The Apple Watch is a great product, it's very successful. I just don't think it was innovative the same way other Apple products have been.
But let's say it is. Going back to my original question (which I've been roundly downvoted for having the temerity to even ask): if Apple stopped innovating, would they still be the same company we love? Would fans still be so emotionally invested that they reflexively attack anyone who publicly criticizes the company, however obliquely?
I’m asking the same question. What possible home run could any electronic company create that could be a larger market than the phone market? There are 2.75 billion phones in use worldwide. Anything is going to pale in comparison to that market.
I'm not even looking for a financial home run. I'd settle for a Newton. If Apple had released Google Glass, at least it would show creativity and risk-taking. In fairness, it was easier at the time for Google to fail with Glass, though, because no one expects them to be great at consumer hardware (though they're in the process of raising that expectation). Apple has more reputation at stake, and maybe that's made them more conservative design-wise.
So you’re criticizing Apple for not releasing a product in a category that was a spectacular failure, but they don’t get credit for products - the Apple Watch and even AirPods - that are successful and profitable?
They don't get credit for innovating unless the product is innovative, no. Innovation is not synonymous with success, despite what appears in this thread as an overwhelming urge to conflate the two ideas. I'm observing that they haven't really innovated in 11 years. My original question, still unanswered, is if they stop really innovating but continue to be financially successful, will they still be the Apple we love? Can we love them just for releasing solid, evolutionary products (and now software services), or is the anticipation of some big new innovation an intrinsic part of the real Apple's identity?
I guess it depends on how you define innovative. The iPad was unveiled in January 2010, and while there were other tablets before it, and it was similar to the iPhone, it has now started to replace a regular computer for many people.
True, but the Microsoft Surface came three years before the Pro. And even if the iPad Pro were dominant, the iPhone and iPad are so closely related as products that counting the iPad 'innovation' is double-dipping a bit.
No, I'm not suggesting they're the same thing. But size alone is not innovation, in swimming pools or iPads. There just isn't enough distinction to say that the iPad is innovative compared to the iPhone. Internally, in fact, the iPad came before the iPhone, and inspired it.
Fair, but the Apple Watch has largely been an iPhone accessory rather than a standalone product. You could also point to AirPods. They sold a lot of them because a lot of people had iPhones. But neither is anything like the iPhone or the Mac in terms of defining a product category. Eventually, the Apple Watch is just going to be an iPhone on your wrist. More of a derivative, like the iPad.
The iPhone is a product that completely transformed the world and defines what a smartphone is. There are 3 billion of them so almost half the world owns a smartphone.
If your bar for "innovative" is seriously that incredibly high, prepare to be disappointed..
Agreed. But what are the contenders since 2008? The iPad and the Apple Watch. The iPad was really co-developed with the iPhone for all practical purposes, as the original iPad prototype inspired the phone. You can definitely make a case for the watch, but it's an extension of the phone in so many ways.
You need an iPhone to set up a cellular Apple Watch Series 4. After that, you can leave the phone at home and:
- Send and receive phone calls and messages
- Navigate using turn by turn directions
- Use Siri
- listen to synced music playlists with bluetooth headphones
- track activity and heart rate
- look at pictures
This is not that different from an iPhone prior to iOS 5, when you needed a computer to set up and update an iPhone.
Is the Apple Watch innovative? I would argue yes, it’s an incredible piece of technology. Will it be as successful as the iPhone? I would guess, probably not.
The phone started as an extension of the computer (iTunes was required for backup, app purchases, and syncing). The Watch is following that progression, iterating toward a stand-alone device.
I don't deny the Watch is a good product. And those who point out that you needed a Mac to use an iPod or an iPhone are correct. But the functionality of the devices themselves didn't overlap to the extent they do with the iPhone and the Watch. It's like Apple came out with the iPhone, then for an encore said "Hey, here's a bigger iPhone you can watch movies on! And here's one you can wear on your wrist!" I just don't see the Watch being on the same level as the Mac, iPod, or iPhone in terms of innovation (regardless of market success). I understand reasonable minds can differ.
There aren’t any thats my point. Its like they made the first ever car 10 years ago after lifetimes of horse carriages and you’re disappointed theres nothing else of that magnitude yet.
But it's not like nothing innovative has been released by others. There's the Echo, there's Google Glass, even the Pebble watch, which I would argue was more innovative (as watches go) than the Apple Watch two years later. Are any of them as financially successful as the iPhone? No, but I'm not saying Apple hasn't been financially successful, only that it has not been as innovative as it was in the past.
The iphone went from being a bit of a computer accessory to a standalone platform. The next watch OS release is likewise transitioning to not needing a phone in order to be set up.
I assume they want the watch to become a standalone platform (or at least, similarly to the ipod, a companion device to either an iphone or android phone), ultimately replacing your need for a phone at all.
That last statement of mine sounds absurd to me, but then again who would have predicted 10 years ago that many people would have a smart phone but no laptop nor desktop?
The iPod started off as a Mac accessory and ended up transforming multiple industries.
The iPhone was a Mac derivative and computer accessory that required iTunes to even work but became the most successful product in all of human history. You could call it just a ‘mac in your pocket’ but it would still be the most successful products
True. But the iPod and iPhone were functionally very distinct from the Mac. The Apple Watch seems more like a convenient extension that eliminates the need to pull your phone out, but not much more than that, at least in its first few years of existence. Apple is clearly gearing it up to replace the iPhone, but that trajectory has been evolutionary, not revolutionary.
Apple has sold as many AirPods as the echo. The AirPod is more functional and revolutionary then the echo. Are you kidding me? Echo is selling at a loss and that's what you claim as being revolutionary? The skill gap between alexa and siri is not high. https://loupventures.com/annual-digital-assistant-iq-test-si...
I don't think you can plausibly argue that the Echo is not a success for Amazon, I'm sorry. Apple would've loved to be in that market first, they just missed it.
You think Apple would have loved to sell a low margin $50-$150 product? Have you been following Apple for the last 40 years?
The only time Apple sold inexpensive electronics that I can remember were the iPod Shuffles and they were more expensive than other low end MP3 products.
But Apple wouldn't have needed to sell them at $50-150. They're Apple. They could've sold them for $399. They couldn't make the Echo because they lacked either the market insight to see the opportunity, or the technology to pull it off.
You mean like the HomePod? How is that working out? People will buy a $600-$1000 phone for two reasons - it’s highly subsidized/payment plans and the phone is considered a necessity. The number of people who would pay $400 for a smart speaker is minuscule. Heck iPads only started seeing an uptick when Apple started selling good low end models at $329.
The AppleTV was a decently early set top box and those didn’t change the world. It wasn’t until Roku and Amazon started selling them at basically break even or maybe a slight loss for $50 that those took off.
The HomePod isn't working out because:
a) it was way late to the market, and
b) Siri's technology lags behind Alexa.
Which supports my argument about lackluster innovation. I can say people won't pay $1200 bucks for a laptop with specs they could get for $800, either, but I'd be wrong because they do.
You might argue the AppleTV was innovative at the time it was released, but there were already very successful game consoles that had much the same functionality plus the games. Even if you count it as an innovation, it was announced in 2007.
Innovative products are not always successful. Now, if AppleTV had incorporated Alexa-level voice control technology back in 2013, that probably would've been innovative and successful.
People will buy a $1300 laptop because a computer is a necessity to get things done. Paying more for something you will use everyday. People will not pay $400 for a smart speaker. People just aren’t that into it b
Maybe so. But I still think if Apple had released an AppleTV with Alexa-quality voice control before the Echo came out, it would've been huge.
I'm wandering off-topic, but I keep imagining an alternative universe where Apple bought Nintendo and released an amazing Nintendo-AppleTV with fantastic voice control, leading to a game ecosystem today where you can seamlessly go from console-to-phone-to-watch playing the same game, with friends.
But in both cases, the overwhelming majority of people that get them have iPhones, because there is additional and important functionality that comes with the connection.
> It's not a tech company anymore it's just a financial engineering scheme for large shareholders. If you're a shareholder, good for you!
Not sure what point you're trying to make with this low-effort falsehood. Buy backs are purchased with operating profits, if most of their profits were derived from their massive cash hoard you could label them as an Investment arm or something, but it's coming from their successful business operations and Apple's goal with its Buy Backs and Dividends is to move to a net zero-cash balance, so they have no interest in transitioning into becoming an Investment company.
Why not? They can spend their money however they want, but Wall Street demands endless share buybacks over everything else.
Do you think there is any downside to just transferring wealth to the (already rich) shareholders over and over and over again? Seems to be their top priority nowadays.
Camera tech seems to be an obvious choice. But, they could go as far out there as doing drug research. Apple is a giant multinational corporation, they could get into any market.
Drug research? Really? There is no part of Apple that is optimized for drug research. Even with the iPhone, they already had an OS that was the basis for it.
As I said, cameras or something similar would be working to their strengths. Hell, build a game console, Microsoft eventually pulled that off and Apple has a huge leg up.
But, the thing is they don’t need to be good at something. Giant companies regularly expend into new areas. Employ the right people, make some investments, and suddenly they are competitive.
I am not saying Apple should diversify like this. However, it is an option.
Game consoles are also not hugely profitable. In fact they are sold at a loss for the most part for the first few years. Microsoft loss billions selling game consoles on the first two or three generations. Even now, the mobile app market is larger and more profitable than the console market for Apple with them taking a 30% cut.
On top of that, Apple already announced the subscription Apple Arcade service and their games will run on iPhones, iPads, AppleTVs and Macs.
Between Microsoft and Sony, they sold a little over 100 million of the current generation consoles during their entire existence (https://www.cinemablend.com/games/2417541/ea-reveals-how-man...) - many of them at a loss. Apple sells 50-70 million iOS devices every quarter.
Heck Apple will probably sell more Watches (at a profit) than that during its first 5 years.
People are already spending more time on mobile devices than consoles.
As far as cameras, the standalone camera market has been declining for years because of the smart phone. There is only so much you can do with cameras in phones because of both physics and the cost has to be low enough to make the entire phone affordable. I’m sure no one at Apple is thinking about releasing the Apple QuickTake 2.
The point of this exercise was to find areas they could have spent that 17 billion on R&D. A few billion losses for a few years for a net long term gain is the point of investing in R&D.
Further, as I have listed areas they could be investing in but are not that you have had zero objections to. I think it's clear they have less focus on R&D than was possible.
Yes and every area you posted is about them getting into declining markets - most of which are declining because of the smart phone.
Microsoft made $10 billion in revenue last year on the XBox - they don’t mention profit (https://www.geekwire.com/2018/microsofts-record-setting-10b-...). Microsoft still probably hasn’t recouped their losses in the Xbox division and the console market isn’t expected to grow.
Apple made about 24 billion on the Mac during the previous four quarters (https://sixcolors.com/post/2019/07/apple-third-quarter-2019-...). You know Apple doesn’t sell a single Mac where they don’t make a healthy profit. The Mac is nowhere near their best performing segment.
Smartphones also largely killed off the watch industry but they where happy to jump into that market. It’s just a question of positive ROI not the ultra long term.
Yes and the Apple Watch is a wearable computer that does a lot more than just tell time. What do you propose they bring to the standalone console, TV, or camera market that will make a declining market make money?
Do you know what apple did in the 80s? Overextend by following foolish ideas like yours, focus is what led to them reaching their success, and focus is what will extend them to the next product that, guys like you will complain about not being innovative.
It's impossible to evaluate the marginal return to Apple on increasing R&D by $1 versus increasing $1 in spending buying back stock in light of a tax windfall. They are both sources a potential value, neither is obviously correct, and the value of each dollar spent is highly non-linear.
Also who do you think the top shareholders of Apple are? Apple making a profit doesn't necessarily hurt the Vanguard ETFs my government-employeed middle class American family members sock retirement saving into...?
What is exactly wrong with share buybacks? Clearly they have more capital than they can deploy effectively right now, so they plan for the future by putting some powder in their gun. Share buybacks serve three main purposes:
1) increase the share price (as you mentioned)
2) signal to investors that the company is bullish on it's future (they wouldn't buyback shares if they thought the shares would be lower in the future)
3) Give the company the option to sell the shares in the future in case the extra capital can be used for a prudent use.
It's really mystifying why people are so against share buybacks while no one talks about dividends. They share a lot of similarity, but buybacks provide more options and greater tax efficiency so they should be preferred over dividends in most cases.
> Do you think there is any downside to just transferring wealth to the (already rich) shareholders over and over and over again? Seems to be their top priority nowadays.
That's not what's really going on (see above). Also, I would hazard to guess that most people who have exposure to the stock market have direct market exposure to Apple. Moreover, about half of households have direct (non-pension) exposure to the stock market. So I don't think your claim about it only benefiting the "already rich" shareholders hold much water. Hell, I would bet that 90% of HN users have direct exposure to equity markets.
AOC presents a good argument against Buy Backs from Big Pharma which incentives CEO's who's compensation is tied to stock price, which as a result she attributes as the cause of rising costs of health insurance:
Although Big Pharma doesn't operate in a natural economy where products are priced at optimal demand / supply for max Revenue. Instead their cost is hidden from the end-user, absorbed by insurance companies and amortized across all plan holders with rising cost of health insurance.
In the long-term Buy Backs shouldn't increase a companies value as it's just trading one Asset for another, i.e. it's cash reserves for shares in their own stock, they'd choose to do this if they've maxed out their R&D budget (very healthy at $14B) and if they believe their share price is undervalued, which at a 17 P/E is significantly lower than all other FANG stocks.
They could try and follow in AMZN's footsteps and try to expand into all areas outside of their core competency, but it's not their style which is to do a few things and do them well. IMO it's due to protecting and not wanting to dilute the high appeal of their Brand and Products.
The result of which they've ended up with an excessive amount of capital and no effective place to invest it, although IMO they should've invested a lot more in content like Netflix a lot sooner than they have with Apple TV+.
> Are we taking AOC seriously on anything related to economics?
AOC has at least studied economics at Boston University and has made it a goal to go after corruption and corporate greed. Just because the source isn't coming from Wall St or Corporate America doesn't make it invalid.
It's not clear how much of the research behind her reasoning and arguments come from her or her team, either way if you have a counter argument that contradicts her points make them, you've added nothing of value with your prejudices in trying to disparage the source.
Parent was asking what's wrong with Buy Backs, to which she's presented a negative side-effect of them that you wouldn't hear from Wall St who stands to benefit from them.
> Another presidential candidate said he would “clear the swamp”. How did that work out?
She's never been a presidential candidate, but what do the words of a pathological liar have to do with anything? That no-one can be trusted and everyone will always do the opposite of what they say they'll do?
If you've followed the House meetings AOC has participated in you would've noticed that she's been committed to exposing corruption and corporate greed that she's brought to light. She's also taken a public pledge to refuse any corporate PAC money that she's highlighted (in another House Meeting) was a common cause of corruption.
So I'll take her word over a serial liar who's been favorable towards companies, lobbyists and foreign nationals that frequents his hotels and earned him more than $80M in revenues.
Regardless this thread has become unnecessarily political. Her point was about the negative consequences of Buy Backs.
Okay. Let’s make it a little less political. When good intentions meet reality where each house of representative member spends more time fundraising than working (https://www.termlimits.com/congress-fundraising-priority/) and since more states are Republican than Democrat - meaning that the Senate doesn’t represent the people in proportion to the population (every state has two Senators regardless of population), what are the chances that a Democratic President will get anything done?
Obama’s administration had almost no personal legal issues, was much more popular than the current administration and still couldn’t get much done after the first two years.
> Okay. Let’s make it a little less political... What are the chances that a Democratic President will get anything done?
This has instead segued into predicting the hypothetical effectiveness of a unknown future Democratic President...
I'm Australian so it's not going to affect me, but from the outside it looks like the U.S. has, with the assistance of a foreign adversary, unknowingly elected a corrupt, cheating, racist, inept pathological lying demagogue as its head of government. If he's elected again after showing his true colors, the rest of the world's going to think the majority of the US population is complicit and in-support of his views. Personally I'd say give a Democratic President a chance at restoring decorum to US politics.
In terms of effectiveness, IMO U.S. major problems with cost of Health Insurance, Gun Laws and frequent Massacres wont be resolved within my lifetime. They might have a chance with Health Insurance as Obama was able to implement ACA and it looks like its one of Sanders and Warren's major campaign promises to implement Medicare for all, but they should be able to make progress on their other campaign promise of reducing Wealth Inequality. Warren is especially motivated on reining in Wall Street [1].
They might have a chance with Health Insurance as Obama was able to implement ACA
Just barely, but it was still a half measure and while better than before, they couldn’t go all in even during the first two years because to keep the Democrats on board who were just as beholden to the insurance lobby as Republicans they had to work with private insurance companies. It is still slowly being eroded by both the President and red states that are trying to get it overturned by the judiciary.
They might have a chance with Health Insurance as Obama was able to implement ACA and it looks like its one of Sanders and Warren's major campaign promises to implement Medicare for all,
And no Republican in the Senate or House will go for it and many Democrats are afraid to stand up to the insurance lobby. Even if the Democrats keep control of the house and gain control of the senate, it’s unlikely they will have the 60 vote filibuster proof majority to pass anything. Even if they do, Republican states will fight it tooth and nails in the courts.
Inequality. Warren is especially motivated on reining in Wall Street [1].
She can be “motivated” all she wants, but both parties are in the pocket of Wall Street. She probably won’t even get Democratic support for it.
