Apple Really Is in Trouble This Time
Apple haters love to predict the company's demise. Several times a year for more than a decade, skeptics have declared that Apple has lost its mojo, the company is failing, it has forgotten how to innovate, it's on the way out.
The haters are at again, following Wednesday's announcement from Apple Inc. (Nasdaq: AAPL) CEO Tim Cook. But this time it's different. This time, Apple really is in trouble. (See iPhone Upset Leads to Apple Crumble.)
One of the primary goals for any public company is to keep investors informed -- particularly of bad news. And Apple has failed in that responsibility.
Worse for Apple: its business challenges aren't going away.
Apple on Wednesday announced a significant shortfall in its holiday iPhone sales, expecting revenues of $84 billion for the quarter ending in December, down from previous expectations of $89-$93 billion. (See Apple Delivers Post-Holiday Turkey, Lowers Revenue Guidance.)
Apple has two problems here: failure to communicate expectations, and failure to innovate.
Failure to communicate
On communicating expectations: China's slowdown has been a long time coming, and Apple hasn't been paying attention, notes Bloomberg's Shira Ovide. On Wednesday, Cook blamed Apple's shortfall largely on slowness in China for the second half of the year. US President Donald Trump imposed tariffs on China in July, after months of threats. These problems were already boiling two months ago when Cook said China business was "very strong."
"Apple failed in the No. 1 mission of being a public company: being honest with investors about its business," Ovide says. "The company simply denied the reality that was staring it in the face, until denial was no longer an option."
Cook should not have been surprised by weak China sales. He should not have allowed investors to be surprised.
This is an area where Cook suffers by comparison to his predecessor, Steve Jobs, who was a genius at communicating with Wall Street -- particularly when he had bad news to deliver, says Apple blogger John Gruber. "Jobs's arrogance got him into trouble at times, but at other times it was his saving grace," says Gruber. Cook's "genuine and inherent humility holds Apple back on days like today. Apple needed less 'I'm sorry, let me explain' and more 'F*** you, this is bull****, let me explain'." (Only Gruber doesn't use asterisks.) Gruber thinks Apple's quarterly problem is a glitch, driven by problems in China that affect everyone. The iPhone itself is strong, says Gruber.
Here, Gruber falls down. iPhone sales have been essentially flat for 18 months, with Apple offsetting the trend with higher average iPhone sales prices, Ovide notes; that strategy wasn't going to last forever. Smartphone sales overall were down for four consecutive quarters in the third quarter of 2018, according to IDC. The smartphone market is a victim of its own success; consumers are happy with the phones they have and are in no hurry to upgrade. The iPhone accounts for 60% of Apple's business; if the smartphone market is in trouble, then so is Apple.
Next page: Apple can still innovate, but not in ways that matter