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Why can Apple return to the trillion market value?

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Editor’s note: This article comes from Caijing, reporter Chen Wei, editor Xie Lirong, 36氪 authorized to publish.A price cut will return Apple to the trillion dollar market value.It’s been more than a year since Apple’s first trillion-dollar market value.On August 2, 2018, Apple’s market value broke through trillions of dollars for the first time. Since then, due to poor sales of the main business iPhone in the world, this market value has not been able to hold.On September 11th, at Apple’s annual conference held at Jobs Theatre, Apple’s new iPhone’s unprecedented pricing strategy caught people’s attention.From the product itself, the three phones in the iPhone 11 series have not much hardware innovation in addition to the three-camera lens and the more powerful A13 chip.However, the price of the new iPhone has greatly exceeded the expectations of investment banks.The iPhone 11 starts at $699 and costs $50 less than the previous generation iPhone XR 749.At the same time, Apple also introduced a discount policy for users to trade-in, and the incentives were unprecedented.In addition, the new streaming media service Apple TV+ is $4.99 a month, and users can subscribe for free for a year.As of yesterday’s close, Apple’s share price rose 3.2%, and the market value returned to trillions of dollars.Since 2016, Apple has rushed all the way to the market value of trillions, and the price trend is still the first time.The iPhone is the world’s highest-paid mobile phone and the longest-changing brand.Earlier this year, Toni Sacconaghi, an analyst at consulting firm Bernstein, said that the iPhone replacement cycle in FY 2019 has been extended from three years last year to four years.In other words, only 16% of the 900 million iPhone users are likely to upgrade their new machines.Before the iPhone 11, Apple’s innovation was getting slower and slower, and the price was getting more and more expensive.The average price of iPhone has increased year by year. It has increased by 20% in 2018 and has reached 742.12 US dollars (about 4,927.77 yuan), which is more than twice that of Huawei and five times that of Xiaomi.Smartphones are typically mature markets, and consumers have been educated very smartly.Especially in China.China is the world’s largest smartphone market, contributing more than 20% of its revenue to Apple. It is its third largest market, but its performance has shrunk.Morgan Stanley and a number of rating agencies believe that the new iPhone is expected to drive market demand growth in the second half of this year.Shipments may reach 70 million to 75 million units, with figures at least equal to last year.Why can price cuts change the market?In the past two years, although the iPhone has been ranked fifth in domestic mobile phone sales, its share has been shrinking.According to IDC data from third-party data organizations, Apple accounted for 9.1% of the market in mainland China in 2018, down 11.7% from the same period in 2017.By the second quarter of this year, Apple’s overall share has fallen to 5.6%.China is Apple’s third-largest source of income, and sales changes have affected revenue.In 2015, the Greater China region, including Taiwan and Hong Kong, contributed 29% of revenue to Apple. By 2019, this number has become 20%.Apple has to increase the unit price to make up for the revenue hole caused by the decrease in sales.However, in the case of lack of innovation, it is tantamount to relying on the price increase to stop the thirst.On the one hand, the old user’s replacement cycle is still prolonged as prices climb.On the other hand, Chinese companies continue to erode Apple’s innovative window with more competitive prices and hardware performance that is not behind.High-end users have more choices, further reducing Apple’s incremental space.According to data from another third-party market research firm GfK, the share of Apple in the high-end models of more than 4,000 yuan in the mainland China market has dropped from 84% in 2016 to 68% in 2018.Huawei has grown from 2% to 20%.This situation is exacerbated by Huawei’s shift of focus to China.In a conference call on the third quarter of this year, Cook said that compared to last year, the iPhone will have more inventory destocking this year.In the absence of innovative products across the era, and the opponents are chasing after, Apple chose to lower the unit price.Since the beginning of this year, Apple has launched a series of unprecedented price reduction policies in the Chinese mainland market.On January 11th, several major e-commerce platforms have lowered prices for iPhone 8/8P, iPhone XR, XS and XS Max.Apple’s 2018 new product pricing has been adjusted to a level similar to the 2017 model.From the data point of view, this measure has indeed achieved results, and the decline in revenue has greatly improved.Apple’s third-quarter report this year showed that Greater China’s revenue was $9.157 billion, down 4% year-on-year, compared with 22% last year.This shows that the short-term price reduction policy does help Apple release sales pressure.The new iPhone has adopted a more aggressive pricing strategy.The domestic first price of the iPhone 11 is 1,000 yuan cheaper than the previous generation XR, and the prices of the other two are basically the same as last year.At the same time, users can enjoy discount service such as trade-in.A number of analysts, including Morgan Stanley and investment bank Wedbush, are optimistic about the sales prospects of the new iPhone.They believe that the global shipments of new iPhones in the second half of the year are expected to reach 70 million to 75 million, at least not worse than last year.The optimism of analysts is not without reason.A supply chain person told the Caijing reporter that although in the past two years in the hardware innovation posture, Apple is not as radical as the Android head manufacturer, nor has it pursued configuration parameters, but there are performances.Taking the lens as an example, the standard camera of the Android machine has increased from 3 to 4 shots last year.Only a 3-shot apple seems to be a slower step.However, the above person said that the essence of multi-lens is to increase the amount of light entering.The image quality is in addition to the lens, aperture, sensor and algorithm.Hardware configuration does not determine performance.Software algorithms are precisely Apple’s strengths.Apple is also strengthening the stickiness of the software ecosystem.Based on the App Store with 1 billion users, Apple has built a strong ecosystem that constantly expands the boundaries of the ecosystem, from medical and wearables to the recent march into streaming media.Despite the lack of sales of the iPhone, the revenue of the service business has steadily increased.In August of this year, the App Store’s net income increased by 25.8% year-on-year, a record high since the beginning of 2015.This shows that Apple’s ecosystem is growing.The new TV+ preferential policy has also made most industry people optimistic.Investment bank Needham said that Apple is constantly transforming its hardware into a comprehensive content owner with dedicated hardware/distribution, which increases the locking effect of its ecosystem.According to estimates by a number of industry organizations, nearly 200 million of the more than 900 million iPhone stocks have demand for replacement.This means that once the old user has the need to change the machine, it is difficult to leave the ecology of Apple.The friendly price has undoubtedly improved the overall competitiveness of Apple products and accelerated the user’s changing pace.What is the stamina for keeping the market value of trillions?Since the iPhone sales have weakened, Apple has been emphasizing the transition to services.This year’s third quarter report showed that the service and wearable business has contributed 52% of Apple’s revenue, which is growing rapidly.But iPhone revenue still accounts for half of the country.It is undeniable that the stability of the Apple software ecosystem still depends on the dominant hardware chassis of the iPhone.Powerful hardware is still the most effective entry point for the service ecosystem that Apple hopes to achieve.Therefore, the iPhone is still the most important role.In a short period of time, a series of sales stimulus policies can really help the iPhone to stabilize its performance.However, if the innovation continues to be weak, then, relying solely on adjusting the sales strategy, I am afraid that the stamina will be insufficient.According to data from third-party market research firm Canalys, domestic mobile phone shipments in the second quarter of 2019 were 97.6 million units, down 6% from the same period last year.The Chinese mobile phone market is still shrinking.Next, Apple will face the close combat with Huawei, Xiaomi, OPPO and vivo.Yan Zhanmeng, a third-party research institution counterpoint analyst, expects that the new generation of iPhones will have a good market competitiveness before the second quarter of next year due to price pragmatism.For Chinese manufacturers, there is no doubt that the pressure has increased.A senior domestic manufacturer said that the domestic market may become even more fierce because of Apple’s price cuts.It’s too early to judge.But the market is finally testing whether Apple can continue to introduce innovative products.In particular, on the 5G window card, Apple did not take the lead.So far, among the top six mobile phone manufacturers in the global market share, the only one that has not made time plans for 5G mobile phones is Apple.In contrast, domestic manufacturers are on the verge of deployment on 5G.In 2019, more than ten manufacturers including OPPO, vivo, Huawei, Samsung, Xiaomi and ZTE have launched 5G mobile phones.On July 23, ZTE launched the first 5G new Axon10Pro 5G.On July 26, Huawei released the first 5G mobile phone Mate 20 X 5G.In August, manufacturers such as vivo, OPPO and Samsung will be launched.On the one hand, these manufacturers have stepped up their research and development of 5G technology, and on the other hand, they are also building their own application ecosystem.In the case of a backward position, in July this year, Apple announced a $1 billion acquisition of the Intel smartphone modem business.Attempts to stabilize the future market position by controlling the upstream of the industrial chain.Cook said that this is an opportunity to accelerate future product development and an opportunity to own and control the “core technology” behind its products.After the price cut, it may be easy to return to the trillion market value, but it is difficult to maintain the stamina..