Apple shares fall 5% on weak forecast

With Apple pointing the finger at fluctuating currency, poor performance in emerging markets and supply issues, its busiest quarter might not be as busy as investors had hoped.

While CEO Tim Cook has defended the soundness of the supply chain, worries over whether the business can keep up with demand over the final quarter leading into Christmas seem to have spooked investors. Combined with warnings over performance in emerging markets as well as volatile currencies around the world, the team has stated it might miss guidance over the next three months, sending share price down 5% in afterhours trading.

“The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia,” said Cook. “These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.”

India should be seen as quite a worry for the iChief’s as while the country has been undergoing its own digital revolution over the last 18 months, Apple seem to be missing out on the biggest rewards. With India now being the second-largest smartphone market in the world, but with half the penetration of China, the opportunities are clear. Despite attention from Apple, it’s opening new production facilities and shops across the country, according to data from Canalys it is yet to break into the top-five smartphone brands.

Shipments in India across the most recent quarter dropped by 1%, though Xiaomi grew 31.5% year-on-year to claim the number on spot, at the expense of Samsung, where shipments dropped 1.6%. Vivo, Oppo and Micromax complete the top five, while the ‘others’ saw shipments decrease 34%. The Chinese brands seem to have found the right recipe to appeal to the Indian user, while Apple is still searching for the sweet spot.

“To give you a perspective in of some detail, our business in India in Q4 was flat,” said Cook. “Obviously, we would like to see that be a huge growth. Brazil was down somewhat compared to the previous year. And so I think, or at least the way that I see these, is each one of the emerging markets has a bit of a different story, and I don’t see it as some sort of issue that is common between those for the most part.”

One market where this isn’t the case is China, with the business growing 16% year-on-year. On the money side of things, it certainly is a different story. Total revenues across the business grew to $62 billion, an increase of 20% over the same period in 2017, though guidance is not as positive. Cook expects Apple to pocket between $89 billion and $93 billion over the next three months, though Wall Street has generally been hoping $93 billion would be the bottom end of the guidance.

Looking at the explanation, CFO Luca Maestri has pointed to four areas. Firstly, the team have launched products in reverse order compared to last year. Secondly, with many international currencies depreciating against the US dollar, Maestri anticipates a $2 billion headwind as a result. Thirdly, due to the number of products Apple has pumped into the market, the team is nervous about supply/demand. And finally, at the macroeconomic level in some emerging markets consumer confidence is not as high as it was 12 months ago.

Heading back to the positives, Apple is making more money now than it was a year ago. Despite there being no shipment growth in any of the major product lines (iPhone was flat year-on-year, iPad was down 6% and Mac was down 2%), Apple is still a money making machine. iPhone revenue increased 29% thanks to ridiculously high unit costs, while the services business was up 17%. This is an area which will be of significant interest to investors, as there is only so much Cook and co. can increase the price of iPhones to compensate for flat growth.

As part of the services division, the App Store has been trundling along positively, though with companies like Netflix and Fortnite stating they would be circumnavigating both the App Store and Google Play, all involved will hope this does not encourage others to do the same. Cook pointed out that the largest developer only account for 0.3% of revenues at the App Store, losing one or two won’t matter, but if the trend spreads too far the product might find troubling times ahead.

Overall, Apple is still in an incredibly dominant position, though the inability to capitalise on opportunities in the developing markets should be a slight worry.

Apple Financials

Apple Products

Google ups the ante with Europe by charging Android manufacturers for its mobile products

Under pressure to be seen to comply with an EU antitrust ruling, Google has indicated that the only way to do so is to start charging for what was previously given away.

Earlier this year Europe fined Google €4.3 billion for abusing its dominance in the smartphone OS market to force the bundling of its commercial products such as search onto every Android phone. The EC found this practice to be anticompetitive since it made it harder for any other apps to compete and this reduced consumer choice.

Accompanying its inevitable decision to appeal the fine, Google CEO Sundar Pichai insisted that the existence of Android has in fact led to more consumer choice, not less – an assertion proven by all the great Android devices you can buy. Regardless Google was given 90 days to comply with the ruling or face further fines, and we now know the nature of that compliance.

In a blog post Google VP of Platforms and Ecosystems Hiroshi Lockheimer detailed the concessions Google will be making in Europe while the appeals process is underway. In essence Google will now start charging any Android device OEM that ships into the EU for the use of its mobile apps. Furthermore it will charge separately for search and Chrome, since they’re the apps that seemed to upset the EC and, as a consequence, OEMs are free to muck about with Android itself if they want.

The justification given for this move is simple: Google needs to make up for the revenue it will lose by not being able to bundle its mobile apps with Android. “Since the pre-installation of Google Search and Chrome together with our other apps helped us fund the development and free distribution of Android, we will introduce a new paid licensing agreement for smartphones and tablets shipped into the EEA. Android will remain free and open source,” said the blog.

An underlying strategy, however, may be to illustrate Google’s point about all the benefits consumers have derived from Android. By charging what it previously gave away for ‘free’ (while making loads of money via the traffic through its mobile apps, of course), Google is saying that the consequence of the EU’s ruling will be for everything to become more expensive.

This is ultimately a fight over Google’s underlying business model of given stuff away and then monetising its users. But the EC does have a point the use of a dominant position to stifle competition via forced bundling and, as the former head of Internet Explorer and Windows at Microsoft notes in the tweet below, has a strong tradition of challenging this sort of thing.

One final thing to consider against Google’s claim that, if it can’t insist all its other stuff comes bundled with Android, it has to seek direct compensation is the matter of China. Google apps have been unbundled from Android there for some time and Google doesn’t seem to be getting any compensation there. If it can do that in China, why can’t it do it elsewhere?

Mobile processing efficiency is key to sustaining secondary device market success

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Alan Bentley, President, Global Strategy at Blancco looks at the success of the secondary device market but warns against data security complacency.

The secondary smartphone market continues to grow, delivering new revenues and new opportunities to every one of its stakeholders. In fact, according to Counterpoint Research, the market for refurbished smartphones is now growing faster than for new smartphones. A staggering 140 million used devices have now been collected for redistribution. Last year, according to Persistence Market Research, the secondary device market was worth US$19 billion, and is set to more than double in size and reach a valuation of US$44 billion by 2026. That’s impressive scale for a process that started to keep used old devices out of landfill (which remains a critical focus for the secondary market today).

Big business, but time is money

From an operator perspective, the secondary device market is big business. Revenues extracted by unlocking the latent value of old devices is one of the few revenue streams available to them which continues to grow. This is a big deal given how hard new revenues are to come by, and the cannibalisation that has impacted many of their core service revenues from voice, data and messaging.

Operators and OEMs that manage device BuyBack processes, either directly or through partners, can, on average, extract between $100 and $300 per smartphone according to its model, age and condition at the point of upgrade. Realising optimal value depends on how efficiently an operator can process a used smartphone. It begins at the point of collection, goes through diagnosis, repair and refurbishment before being prepared for re-distribution. Put simply, with mobile device processing, time is money. The longer it takes to process a used smartphone, the more of its latent value it loses. Operators, OEMs and the third-party logistics providers that serve them both are all incentivised, therefore, to make marginal gains at every opportunity to protect optimal value.

Efficiency matters, but not as much as customer data integrity

Operators, OEMs and third-party logistics providers have fine tuned mobile processing. While the process from device collection to re-distribution is very involved, it is not unusual to be able to process several hundred devices each day. Typically, the process includes automated device testing, identifying key locks and determining device value. It then quickly and securely erases data stored on each device using properly scoped hardware and configuration, all in line with the necessary certification guidelines. Ideally, each device will then be given a certified tamper-proof audit trail, backed by a certification of data erasure.

With so much focus on operational efficiency, there will always be a temptation to dispense with some of these key steps. At present, the secondary device market is light on regulation. In North America, the leading global market for used smartphone collection, there are the R2 standards. These unite the leading carriers, OEMs and third-party logistics providers behind some common rules – but they are not a mandate, merely guidelines. In truth, pretty much every player in the secondary device ecosystem is R2 compliant – they have to be in order to do business with each other. However, R2 guidelines were not created with the collection and processing of used smartphones in mind, leaving many to consider their relevance and applicability to the larger, much more significant ecosystem that exists today. For example, R2 states that performing a ‘factory reset’ on a device is sufficient in ensuring all data is fully erased. In some cases this is true, in many others it isn’t.

Not a time for complacency

Without a common, mandated and regulated rule book for smartphone processing best-practice, the ecosystem will be subject to abuse and malicious attack. Let’s be clear, the secondary device market has functioned perfectly well up until now. R2 and other standards have done their job, consumer data has, in the main, been preserved. The current ecosystem is made up of multiple stakeholders, who collect devices from various touchpoints and redistribute them to many other parties. Since the speed of device processing is the only critical success factor, and as more and more devices flood the market, the chances of data breaches or issues related to data misuse will become more and more likely.

If operators or OEMs want a lesson in the damage caused by data breaches and the misuse of customer data, they need only look at Facebook. Operators have built a strong sense of trust with their customers – they have historically been reluctant to offer freemium services in return for customer data that can then be resold. This leaves them ideally placed to capitalise on this goodwill, create a raft of new offers and partnerships and target their customers with new digital services. This opportunity will only exist if they remain diligent to all threats and focused on the responsible management of customer data. The secondary device market remains an amazingly lucrative and exciting opportunity for everyone, but only if it retains full consumer confidence – confidence that is built on trust and data integrity.

 

alan-bentley (002)Alan Bentley is President, Global Strategy at Blancco. He joined the company in October 2016 as VP of Sales, EMEA and more recently, has taken on the role of President of Global Strategy. In this role, he is responsible for overseeing sales efforts globally. As an industry veteran, Alan is responsible for leading the sales teams to develop sustainable and scalable revenue growth. Since joining the company, Alan has worked closely with Blancco’s many customers and partners to implement data erasure solutions to mitigate security risks and ensure regulatory compliance. This gives him a unique insight into the market and business requirements driving the needs of today’s businesses.

Android creator rumoured to be working on completely idiotic idea

Essential Products, the consumer electronics company founded by Android creator Andy Rubin, is reportedly working on a new smartphone that messages people for you and has a significantly smaller screen.

It’s an idea which sounds like something out of Hollywood, which is partly because it is. According to Bloomberg, Rubin has ditched efforts to follow up his first-attempt at a smartphone and also an entry into the smart speaker market for an idea which quite frankly sounds ridiculous.

The smartphone wouldn’t look like anything you would consider a smartphone today, featuring a much smaller screen with functionality relying on a voice user interface. Users wouldn’t even have to worry about reading or replying to messages as the AI would do this for you. In theory, should the AI be personalised enough, an entire conversation could happen without you even contributing to it once.

The idea itself seems to be a rip-off of the product which assists Jonny Depp in the movie ‘Her’. The device is smaller than anything you would see today, while connected earphones allow Depp to communicate with the AI seamlessly. While this might sound futuristic, it is a completely absurd idea, and the research team who validated such a preposterous proposal should be banned from working in the technology industry forever more.

Firstly, the voice user interface is not technology which has been perfected, and hasn’t been adopted by the general public. To drastically change the way we use mobile devices, the voice UI would have to be commonplace elsewhere. Smart speakers and infotainment systems in cars are a good start, but the idea is a long-way off normalisation. We’re not saying the voice UI will not become more important, but it is unfeasible to think it would overtake the touch UI in the foreseeable future.

Secondly, the AI would have to be incredibly personalised for the idea to work. Not only have we not seen an application which meets this criteria, but it would have to be trained by a huge amount of in-depth and incredibly personal information. Considering the world is turning against the technology industry because of the way data is being used and pro-privacy trends are gathering momentum, the credibility of this idea is completely undermined.

Thirdly, even if people are embracing brevity when it comes to communications, they still want to be part of the conversation. People are social and enjoy socialising with other people, even if it is short back and forth messages. Why would anyone want an AI to have all their conversations for them and essentially become a hermit.

Finally, Rubin seems to have missed the point of smartphones. These are not simply communications devices or PDAs anymore, they are evolving to become entertainment centres where users can watch movies, play games and search through images for their next holiday. Removing the large screen removes the potential for all of these uses; what user would want to buy this device? Rubin does has stated in the past he would like to help people break-free of their smartphone addiction, but you have to create a product which people would want to buy. This is the most basic business principle you could ever come across, a nine year-old would know it, but Rubin seems completely oblivious.

After laying the foundations for the Google entry into the mobile world, Rubin founded Essential and launched his own smartphone. The smartphone, named ‘Phone’, was supposed to be an alternative for premium Android users, and was a complete flop. Rubin ditched any attempt at a follow-up, instead intending to build his own smart speaker, though this has also been dropped in favour of this ludicrous device.

Essential is backed by about $300 million in investment, though the backers must be pulling their hair out as rumours emerge of such ideas. This looks to be a complete and utter waste of $300 million.

Google adds some Pixels

Internet giant Google ramped up its involvement in the consumer hardware space with the launch of new Pixel branded smartphones and tablets as well as a home hub.

The Pixel 3 and its XL variant offer both an industrial design and spec upgrade on their predecessors. Initial impressions indicate the redesign is well received and the spec upgrades are significant. There also seems to be more AI stuff going on, including a call screening functions that taps into Duplex technology to save you having to interact with a caller if you’re not sure about them.

Google debuted a new device category in the form of the Pixel Slate – a tablet running Chrome OS that seems to be positioned as a direct competitor to Microsoft’s Surface product range, with an emphasis on hybrid laptop functionality. Once more initial takes seem positive, especially about its attempt to be the best of both worlds, although the full range of requisite peripherals and accessories does make it an expensive proposition.

Lastly we have the Home Hub, which is an AI-driven smart speaker with a 7-inch screen that will compete with equivalent products from Amazon and Facebook. One big difference is that Google is making a virtue of it not having a camera installed in an apparent bid for people to take it into the bedroom or even the bog. There’s also a physical mute switch to prevent the device listening to you, which seems like a good say to allay fears about being spied on by Google, but does call into question what the point of the device is.

“Our goal with these new products, as always, is to create something that serves a purpose in people’s lives – products that are so useful they make people wonder how they ever lived without them,” said Rick Osterloh, VP of Hardware at Google. “The simple yet beautiful design of these new devices continue to bring the smarts of the technology to the forefront, while providing users with a bold piece of hardware.”

The Pixel 3 starts at £739, with the XL coming in at £869. The Slate starts at £549 without peripherals, while the Home Hub will set you back £139. Google has managed to throw down the gauntlet to the majority of the consumer tech world with one set of launches, which is fun, but time will tell whether any of them are able to claim significant market share. Here’s a vid.

 

Nearly all UK workers muck about on mobile devices during meetings

UK VAR Probrand surveyed 1,000 UK workers about their use of tech in the workplace and found most of them multitask regularly.

89% of the people surveyed said they check devices during meetings, which may be indicative of poor attention spans or being over-worked but is more likely to be a coping mechanism for pointless meetings and tediously self-important presentations. Having said that 81% of them dick about on devices while they’re doing other stuff too.

The most popular activities for this tech multitasking are: checking email, social media and instant messaging, none of which is much of a surprise. Around half of those surveyed reckon this kind of multitasking makes them more efficient, while the other half think it’s wrecking their attention span. The two things aren’t necessarily mutually exclusive but focusing on just one task at a time seems to be an increasingly rare thing.

“The rise of multiple devices in the workplace in addition to the advent of remote cloud-based technologies mean that it’s never been easier for workers to be switched on 24/7 – but the research shows this isn’t always helpful,” said Probrand Marketing Director Matt Royle. “Some workers are being distracted by their devices during meetings, which can actually hamper productivity and focus.
“This is the workforce of the future, where a fully mobile workforce can collaborate and continue working when travelling or outside the office. This enterprise mobile movement is set to continue and those who fully embrace the multi-device environment will enable employees to work more flexibly and efficiently.”

This research coincides with the UK Health Secretary publicly wringing his hands about the mental health effects of social media use on children. “Unrestricted use by younger children risks being very damaging to their mental health. So I have asked the chief medical officer to bring forward formal guidance on its use by children.”

While the concerns are justified it seems unlikely that some arbitrary time limit advice from the man in Whitehall will do any good. Today’s parents may be under-informed about the effects of social media, so providing them with information to enable them to make their own parenting decisions would probably be more constructive.

Qualcomm points the industrial espionage finger at Apple

The long-running legal battle between Qualcomm and Apple has been stepped up a level as the chipmaker effectively accuses the iLeader of industrial espionage.

After Apple released the iPhone XS without a shred of Qualcomm technology inside, it was only going to be a matter of time before there was a reaction. In a filing with the Superior Court of California, seen by Bloomberg, Qualcomm suggests Apple leaked trade secrets to Intel to overcome performance and develop a more suitable alternative in its chips.

The accusations come as an amendment to a complaint filed in November, which again suggested Apple broke confidentiality agreements by sharing information with Intel. With the trial already scheduled for April 19, if the judge allows this amendment it could push back the courtroom date. Qualcomm are pushing for the timetable to remain the same however.

The filing states:

“Apple has engaged in a years-long campaign of false promises, stealth, and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating the time to market of lower-quality modem chips, including those developed by Intel. Apple used that stolen technology to divert Qualcomm’s Apple-based business to Intel.”

The initial complaint came from Apple blocking Qualcomm attempts to audit the iPhone maker’s use of Qualcomm’s trade secrets. At the time, Qualcomm suspected Apple was leaking information to Intel, though there was little evidence to support the claim. Apple had requested deep access to its software and tools, but with strict limits on how those products could be used. Apple’s reasoning was to improve the performance of the devices when using Qualcomm chips, though this is now being contested.

While this is the latest chapter in the long-running tale which has seen dozen of complaints and counter-claims lodged with the courts, it all comes down to a single issue. Apple believes the royalties charged by Qualcomm to use its technology in its products are too high. The original argument has blossomed into a complex tapestry, offering collateral damage to other companies in the supply chain, but keeping the legal team at both the technology giants in gainful employment.

Apple first began using Qualcomm chips in 2011, before eventually using them exclusively. In 2016, it started using some Intel chips though due to the difference in performance, it was unable to drop Qualcomm completely. After the legal back-and-forth started in early 2017, the relationship continued to deteriorate until the point Apple decided to exclusively use Intel chips in its devices.

While this is certainly a considerable customer for Qualcomm to lose it does not look like the relationship can be repaired. Reading between the lines, Qualcomm does seem to have accepted this and is looking to salvage something from the disastrous ending. For some, this could be seen as more pressure to force Apple into settling outside the courtroom.

That said, Qualcomm’s loss is Intel’s gain. Securing an exclusive supplier relationship with Apple is certainly a win for the business.

Ericsson and Qualcomm claim first 5G NR mmWave call to a smartphone

The incremental ‘5G first’ claims continue as Ericsson and Qualcomm say they’ve done the first 5G NR ‘call’ over the 39 GHz band to a smartphone-like device.

The test call was done in Ericsson’s labs in Sweden using the non-standalone flavour of 5G. It used Ericsson’s AIR 5331 5G NR radio and the test device (pictured) was running the Qualcomm Snapdragon X50 5G modem. It comes just days after Ericsson announced a pretty similar test with Intel, which presumably made Qualcomm feel slighted and jealous.

“Mobilizing mmWave for the smartphone has been seen by many as an impossible challenge, but this demonstration validates that we are on track to bring groundbreaking 5G mmWave experiences to consumers,” said Qualcomm President Cristiano Amon. “This successful lab call is a testament to our continued innovation and collaboration with Ericsson, and we look forward to further industry-leading milestones with them as we progress to 5G commercialization of networks and mobile devices in early 2019.”

“Today’s data call milestone with Qualcomm Technologies shows the importance of building the 5G ecosystem,” said Ericsson networks boss Fredrik Jejdling. “We’re also making headway on commercial 5G by performing interoperability tests on new mmWave bands, giving our customers wider deployment options and the consumers, faster speeds.”

Elsewhere Ericsson has been quick to promote the fruits of its recent transport announcement involving Juniper. It has won a deal with Swisscom to deliver an ‘end-to-end 5G transport solution, that will feature both Ericsson and Juniper kit. Ericsson will now run the whole of Swisscom’s 4G and 5G networks, including all the latest virtualization cleverness.

“We have selected Ericsson’s transport solution for our 5G network,” said Heinz Herren, CIO and CTO at Swisscom. “Partnering with Juniper Networks, Ericsson has extended its transport coverage and can now take end-to-end transport responsibility all the way from the Radio Access Network to the next generation core. Seamlessly managed and orchestrated, this reduces our complexity and affords a more efficient, high-performing network.”

“Ericsson has stepped up and taken responsibility for transport,” said Arun Bansal, head of Erisson in Europe and Latin America. “This deal is an important proof point for the end-to-end 5G transport solutions that we recently launched. The ease of use of our one-stop shop reduces not only complexity for Swisscom but also their total cost of ownership.”

Here’s a photo of a bloke looking at some servers that Ericsson thought was apposite to the latter story. He clearly has more flexible knees than some of us.

Ericsson server bloke

International markets pay off for Xiaomi

Xiaomi has released its quarterly figures with breakthroughs in the Indian and Indonesian markets paying off for the budget smartphone manufacturer.

Over the last three months, Xiaomi reported total revenues of roughly $6.6 billion, a year-on-year increase of 63%, while profit stood at $826 million, a rise of 46%. Comparisons for the first six months accounted for an even healthier boost to the coffers, with total revenues up 75% and profits boosted by 57%.

Looking at the individual business units, smartphones accounted for the lion’s share of cash. The second quarter brought in roughly $4.5 billion, a year-on-year rise of 58%, with the team pointing to both an increase in volume of shipments and average selling price. Sales volume for the quarter reached 32 million units, up 43% compared to Q2 2017, with IDC estimating the brand was the fastest growing of the major global brands.

Over the last couple of weeks, Xiaomi has been claiming headlines with victories in the developing markets. Firstly, usurping Samsung for top spot in India was somewhat of a coup, but capturing 22% of the shipments across the second quarter in Indonesia (compared to 2% in 2017) perhaps indicates Xiaomi is going to be a genuine contender on the global scene. Progress can also be seen in Western Europe with launches in France and Italy, and the team claiming shipments across the continent grew 2700% compared to the same period in 2017. Overall, the international markets accounted for 36% of total revenues.

While Xiaomi is attempting to build foundations in the budget markets internationally, in China the premium smartphone market is the big target. In mainland China, average selling price of devices increased over 25% year-on-year in the second quarter of 2018, led by the Mi 8 launch, which sold over 1.1 million units in the first month. This might be a market which has gone through a tough couple of months, though Xiaomi believes China will return to growth in 2019, and is keen to streamline the portfolio to maintain progress in the premium devices segment.

Over in the smaller business units the story was still a successful one. Revenue from the internet services segment grew 63.6% year-on-year to $580 million, primarily focused on the Chinese domestic market. The IoT and lifestyle products segment grew 104% year-on-year in revenue to roughly $1.5 billion, with  smart TVs growing over 350% year-on-year. The team also claim to have about 115 million connected Xiaomi IoT devices, excluding smartphones and laptops, representing 15% quarter-on-quarter growth. 1.7 million users own more than five Xiaomi IoT devices, offering the beginnings of a successful convergence model.

For some time there have been questions over whether Xiaomi can offer a genuine threat on the global stage, though these numbers do seem to offer credibility to the challenge.