Zhizhi Analysis | Is the iPhone still dragging Apple’s hind legs?


Text | Ouyang Weikang, Cecilia Xu no 5G, no price cuts, the appearance is full of controversy, before the Samsung Note 10 + 5G, followed by Huawei Mate 30, this iPhone can be as easy as in previous years?This is not only the question of whether the iPhone can hold the status of smart phones, but also the fate of Apple. Once the iPhone collapses, the foundation of the Apple Empire will be loosened like never before.Just before the release of the iPhone 11 series, the iPhone has already experienced the “depression” from the lead brother to the dragging leg in the Apple system.The iPhone fell, Apple stalled in the Jobs Theater routinely released the iPhone 11 series, presumably the center of the Apple CEO Cook is not as calm as a year ago.Since the iPhone XR/Xs series launch conference on September 13th, 2018, Apple’s “acceleration myth” has officially ended.Apple’s turning point occurred in the fourth quarter of 2018. Before that, Apple released its new iPhone for two consecutive years. The revenue growth rate increased from 3% in the fourth quarter of 2016 to 20 in the third quarter of 2018.%, acceleration is synonymous with Apple in this period.However, in the fourth quarter of 2018 after the release of XR/Xs, Apple began to fall into a quagmire. The revenue growth rate quickly dropped from 20% in the previous quarter to -5%, and it did not start to recover slowly until the second quarter of this year.Compared with the grand occasion, it is still a bit bleak.Source: Corporate earnings (as of June 30, 2019) * Unstated fiscal year statistics are natural quarters compared to the past 11 quarters of Apple’s three major business revenue year-on-year growth rate and total revenue growth rate changes,Apple’s revenue growth rate suddenly fell into a quagmire in the fourth quarter of 2018, which was highly correlated with the sharp decline in iPhone revenue during the same period. During this period, the revenue of services and other hardware remained good.The most important engine of the iPhone, from “acceleration” to “stall”, became the “culprit” of Apple’s revenue decline.Source: Corporate earnings (as of June 30, 2019) (External iPhone includes iPad, Mac, wearable, smart home and accessories business) Why the iPhone is no longer the same, the iPhone has been good, but in 2018In the fourth quarter, I encountered Waterloo, and the revenue growth rate dropped sharply from 29% to -16%. What is the contrast of such a big one?Is the change of the tide waning the back pot?Looking back, we can find that the rapid growth of iPhone revenue is inseparable from the rise of smartphone replacement, but with the increase in the popularity of smart phones, this dividend began to decline at the end of 2017.According to data released by IDC, global smartphone shipments continued to shrink in the fourth quarter of 2017, and the “growth dividend period” for smartphones officially ended. This has ushered in a difficult and long “stock competition period”.However, observing the performance of the iPhone, we can see that although the global smartphone market has already shrunk in the fourth quarter of 2017, the global shipment of iPhone remains in the fourth quarter of 2017 to the third quarter of 2018.Outperformed the market until the turning point of the fourth quarter of 2018.This means that even in the bad times, the iPhone can still be favored by consumers with its excellent products.In contrast, after the fourth quarter of 2018, the global shipment growth of the iPhone was significantly higher than the overall market level, especially in the first quarter of 2019, global smartphone shipments decreased by only 7%, but the iPhone dropped significantly.%.Obviously, the end of the smart machine bonus period is not the main reason for the iPhone to encounter Waterloo in the fourth quarter of 2018.Source: IDC (as of June 30, 2019), the biggest source of new product sales came from the iPhone XR/Xs series that was released at the time.The market has started to deteriorate, and the under-competitive iPhone XR/Xs series has left Apple with the most important weapon to continue its anti-market downtrend.Different from the past, the release of this series has changed the iPhone’s style assessment from “innovation leader” to “price increase leader”, and “luxury” has become a common word for Tucao iPhone.Compared with the price of new iPhone products, it can be found that the price increase did not start from the iPhone XR/Xs series, but originated from the iPhone X period, but why did the iPhone’s revenue growth slow down during the XR/Xs period?Source: Apple’s press conference compares iPhone sales, average price and revenue growth rate. From the fourth quarter of 2017 to the third quarter of 2018, due to the price increase of iPhone X/8/8P series products, the overall revenue growth is alsoSales were generally stable during this period as the average price rose.However, in the XR/Xs period, although the price of new products continued to increase, the average price of the iPhone declined in the fourth quarter of 2018. Compared with the decline in the same period of shipments, we can see that the average price has fallen.It is the main reason for lowering the growth rate of iPhone revenue.Source: The company’s financial report, IDC (as of June 30, 2019) Why the price of new products is still soaring, but in the peak season of new product sales, the average price of iPhone has dropped significantly?It is speculated that this is mainly caused by the price reduction of the old model products after the new product is released.Under normal circumstances, after the new product is released, its sales volume continues to increase, while the sales volume of the old model products is gradually reduced. Under the premise of the new product price increase, the average price will increase accordingly, just like the 2017 iPhone X/8/8P series products.The effect is the same when the price increases.However, if the new model is sold at a loss and the old model is sold at a reduced price, it may lead to a decline in the overall average price despite the new product price, just like the fourth quarter of 2018.This means that the products sold in the current season are still dominated by the old models, and the sales of new products are really sluggish.From this point of view, behind the collapse of the average price is actually the poor sales of the new iPhone XR/Xs series at that time, which is the most fundamental reason for dragging down Apple’s overall performance.Why did the XR/Xs series suddenly lose its charm?Why have the iPhones that have always been sought after suddenly lost their charm after the release of the XR/Xs series?Compared with the simultaneous competing products of the iPhone XR/Xs series, the technical advantages of the iPhone series products have gradually weakened.In terms of configuration, the simultaneous Huawei Mate 20 Pro and Samsung Note 9 have exceeded the iPhone XR/Xs series in terms of frame width, screen resolution, RAM capacity, rear camera, battery capacity, etc., but the priceBut far lower than the latter.The new iPhone’s competitiveness in both configuration and price is not the main reason for its poor sales.Apple apparently also discovered this problem and tried to make up for it by price cuts and subsidies.From the follow-up market performance of Apple, after the e-commerce channel drastically cut prices and increase the subsidies for old-for-new, the sales of new iPhone products have also turned a little.Take the Chinese market as an example. During the Jingdong 618 period, Apple, which was unable to enter the list in previous years, was stimulated by this year’s sharp price cuts. Both iPhone XR and Xs Max entered the top five cumulative sales of single products.This shows that the iPhone new product has not completely lost its charm. In the iPhone XR/Xs generation, Apple continued the iPhone X’s large price increase strategy, but did not come up with enough product competitiveness, configuration and price to support this price increase.The mismatch will keep potential customers out.In the early morning of this morning, the price of the iPhone 11 as the XR replacement model was actively reduced to 699 US dollars, which was lower than the XR starting price and the forecast before the conference. It became a big surprise at the press conference. Apple has realized the price.The problem of decoupling from the product, and in enhancing the competitiveness of the product, due to the lack of 5G and the appearance of the stick, this generation of iPhone will focus on the same camera that Android phones are equally keen on.Unlike the smart machine change period, consumers who have to change machines are gradually reduced, and replaced by wait-and-see consumers.Therefore, in the absence of absolute technology leadership, “cost-effective” is an important factor in consumer purchasing decisions.From this point of view, as long as the iPhone price cuts, consumers are still willing to pay for it, but can Apple really control the price of the iPhone?Price increase = make more money?Overall, the mismatch between configuration and price has caused the sales of new products to be sluggish, so why is Apple still obsessed with the iPhone price increase?In stark contrast to the continuous rise in iPhone pricing, the gross profit margin of Apple’s products business is declining.This means that the increase in pricing does not give Apple more money.Source: Corporate earnings (as of June 30, 2019) *3Q18 is the estimated data, Apple officially has not announced one of the most important reasons is that Apple’s price increase, stimulate revenue growth, but also face cost increasesThe pressure coming.According to the change in the total material cost of the iPhone products in the public information, it is in the iPhone X period when the price increase is most obvious. Apple is suffering from a substantial increase in cost. It is also from the iPhone X that Apple uses the screen from the standard LCD screen.Turn to an OLED flexible screen with higher price and more difficult process.Source: According to TechInsights, IHS Markit and online public information (as of December 31, 2018), it is worth noting that although Apple’s product gross margin experience continues to decline, it is compared with similar companies such as Xiaomi (Samsung, Huawei)The mobile phone/consumer business cost has not been announced, and it is not considered here. It is still listed in the consumer electronics/Apple supply chain concept listed on the Hong Kong A. Apple’s gross profit margin is still in a leading position, which means that the Apple product business stillThere is a lot of room to reduce gross margin (product price cuts) in exchange for revenue growth.Source of data: company financial report, straight flush (as of June 30, 2019) Therefore, compared with Xiaomi and other companies that are forced to raise prices because of limited gross margin space, Apple is facing the decision whether to increase the price of products.There is more room for manoeuvre, whether it is to bear the pressure of rising costs, to exchange higher prices for lower revenues, or to transfer a certain amount of cost to consumers, thus maintaining the gross profit margin above a level.Apple’s pricing strategy has also reached a crossroads.From the starting price of the iPhone 11 $ 699, Apple has already wanted to use the price cut to stabilize the growth trend, but the starting point of this move is whether the cost is reduced or Apple’s initiative to reduce the gross profit margin, pending further observation.What can be known at present is that the rising cost, the need to maintain the iPhone’s flagship product positioning and brand image, and the double reasons, let Apple spend a long time on new product price increases, users pay for the bill, in exchange for revenue growth.A good time, but this time is over, what Apple is facing next is how to maintain the market value of the trillions of dollars if the iPhone revenue continues to stall.After the decline of the iPhone, how does Apple survive three new iPhones? The two Pro models will use the upgraded camera to design and 5G melee with the Android flagship phone. In the high-end mobile phone market, the impact of 5G on consumer decision-making will also beReflected in the competitiveness of these two iPhone 11 Pro, but want to stabilize the iPhone business, the iPhone 11 that inherits the iPhone XR is the focus. If you extend the timeline, Apple Arcade and Apple TV+ will appear before the hardware.It is a long-term solution that truly represents Apple’s response to the iPhone’s risk: from the iPhone-based hardware driver to the service driver.Hardware ceiling is just before Apple clearly divides its own business into products and services. After contributing to revenue, Apple’s hardware products also assume the task of acquiring Apple’s ecosystem, and occupy the core position of iOS ecosystem.The iPhone is weak, and Apple will also face the risk of a significant reduction in business ceilings.Data Source: According to the company’s financial report, in fact, the wearable, smart home and accessories (including Apple Watch, AirPods, HomePod, etc.) that are currently leading the hardware growth outside the iPhone are positioned closer to the iOS ecosystem.Only Apple Watch and HomePod can become user information processing centers and connect other devices, and together with iPhone, iPad, Mac, become the main force of Apple hardware at this stage, only Apple Watch.Source: IDC (as of December 31, 2018) Apple’s problem is that in addition to Apple Watch’s smart wearable market is still in a high-speed development stage, the rest of the smartphone, tablet, PC market capacity has beenAt the top, even with revolutionary technological stimuli (such as 5G for smartphones), these three major markets are more likely to be brought about by the stock exchange, and there will be no incremental dividends brought about by the expansion of the market.And Apple has never obtained such monopoly market shares as Microsoft’s desktop operating system/office software, Amazon’s e-commerce, and Google’s search in these markets. Apple’s market value is nearly trillion, but the competitive environment facing its products.But it is much worse.The iPhone has made Apple’s position in the mobile Internet era, but iPhone dependence is also reducing Apple’s ability to resist risks. After basically touching the ceiling of existing hardware products, Apple is also turning more energy into mining other hardware.Sex, the rumored AR equipment and even the next car are trying to find a new breakthrough in the hardware business.However, compared with the new hardware exploration that has been under the surface of the water, expanding the service revenue scale for the existing users is the best way for Apple to stabilize revenue, improve profitability and mitigate iPhone risks.Apple’s “temptation” to “request” growth services from existing users is obvious. High-margin, high-revenue growth, and some service markets are facing far less competition than the smartphone market. Compared with these, Apple is servingThe reason and enthusiasm for the transformation is that there is a huge potential market brought by nearly 1 billion iPhone users. This is a gold mine that is far from being fully developed.Source: Corporate earnings (as of June 30, 2019) Source: Corporate earnings (as of June 30, 2019) *3Q18 is the estimated data, Apple official has not announced the third-party application, mobile game monitoring agency Sensor TowerThe announced Apple App Store revenue, you can see that the App Store revenue growth has been continuing to decline, in theory, this is the total amount of Apple iOS eco users (ie the number of new iPhone / iPad users + inventory iPhone / iPad users – lossAccording to the number of users, since the fourth quarter of 2018, the continued decline in new iPhone shipments will affect the new effect of the total number of iOS eco users. Can Apple retain the stock in the iOS ecosystem as much as possible before the iPhone turns around?It is the key to the income of the App Store.Source of data: According to the company’s financial report and SensorTower data, other service revenues are the future that the service business depends on.Apple’s four new services, Apple News+, Apple Card, Apple Arcade and Apple TV+, launched in March this year are the first to dig deep into the gold mine.However, as of now, Apple Card has only opened applications for US users in August, Apple Arcad will be launched on September 19, Apple TV+ will wait until November 1, Apple News+ in the morning line is disclosed by foreign media that revenue is less than expected..However, for other service businesses such as Apple TV+, Apple will compete with Internet companies such as Netflix and Spotify. How to enhance the appeal of services will be an important task as much as hardware technology innovation.In addition to Apple Music has become an important player in the music streaming market, the performance of Apple News+, Apple Card, Apple Arcade, Apple TV+ still needs to wait for the service to be fully rolled out for further observation.If these new services can be expected by Apple, then Apple’s service business is likely to usher in a growth inflection point in 2020, and provide a positive margin for expanding Apple’s revenue and improving overall gross profit margin.The caveat is that new services such as Apple TV+ and Apple Arcade can bring more incremental revenues, but developing new services will inevitably mean new investment.Take Apple TV+ as an example. According to Macrumors, Apple has invested more than $6 billion in original TV shows and movies. In contrast, Apple’s total service cost in the first half of 2019 was only $8.3 billion.Content costs are a potential threat to the company’s overall profitability.Back to the Apple Autumn New Product Launch Conference on the morning of September 11th, Beijing time, Apple is no longer obsessed with using price increases to stimulate the growth of iPhone revenue. Relatively sincere pricing and camera upgrades have made the iPhone 11 series competitive.There is a certain increase in strength, but these three new iPhones still can’t change the market ceiling of Apple’s market, and then spread new services, expand service revenue scale, and verify that Apple’s hardware eco users accept the paid subscription service.Apple’s key work at this stage.As for the metamorphosis engine of the iPhone business, it is still handed over to the iPhone 12 that will be able to eat the 5G change bonus.(Cover image source: Unsplash).