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

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.

No Qualcomm inside the Apple iPhone XS

The latest Apple iPhones are a Qualcomm-free zone according to people who have taken them to pieces.

Technology repair site iFixit did its usual thing of carefully disassembling the new iPhone XS to see what’s inside and there was no sign of Qualcomm. No Qualcomm modem, baseband, RF transceiver or even sensors. There is an NXP NFC controller though (too soon?).

This doesn’t come as a great surprise as the move had been rumoured at the start of this year, when litigation between the two was especially vigorous, and Qualcomm had indicated it feared the worst in a subsequent quarterly call. But this outright snub by the world’s most significant smartphone player is still a pretty negative moment for Qualcomm.

The big beneficiary is Intel, which has been in the modem game since the acquisition of Infineon a few years ago but has struggled to steal significant share from Qualcomm. We wouldn’t be surprised to hear that Intel had almost given its components away to Apple, such is the importance of Apple’s switch to its mobile efforts.

As you can see from the following screenshots of the iPhone XS RF board from the iFixit site there is a complete absence of anything Qualcomm. The logic board is dominated by Apple’s own ARM-based chips, as has been the case for while, but until now Apple  had felt compelled to stick with Qualcomm for radio stuff. It will be interesting to see if users notice any difference in performance.

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eSIM smartphone market set for growth following Apple iPhone support

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Logan Armendone-Mowbray, Content & Communities Manager at KNect365, explores how with Apple onboard the eSIM market is set for accelerated growth and why the technology is likely to impact operator’s roaming revenues.

The benefits of Apple’s eSIM adoption in the latest iPhones will extend further than just consumers, who will be able to choose an operator dynamically. The decision to expand eSIM support to iPhones is expected to accelerate eSIM market growth in general, boosting deployment and development of the technology.

The eSIM smartphone market is set to reach 420 million units annually by 2022, according to ABI Research. This represents a shift in the eSIM smartphone market from one which was solely occupied by Google and its Pixel devices, which shipped 3.9 million devices in 2017.

“This is the moment industry players were waiting for. With both Apple and Google deploying eSIM enabled devices, this is only going to speed up the adoption of this technology. It is now more important than ever to refine profile portability and management, how greater connected devices can be added to user accounts and to have a clear customer journey mapped out,” says Tania Ferreira, Senior Producer for KNect365’s e-SIM Connect.

Analysts have started to put their bets on Samsung as the next OEM to integrate the eSIM technology to their devices. Phil Sealy, Principal Analyst at ABI Research, shared that “Samsung will likely adopt a tiered approach, integrating the eSIM into its S and Note range first, then expand into its A and C ranges later.” Other names on the ‘who’s next’ list include Huawei, LG and Xiaomi, all companies which offer a range of high-end smartphones. More localized vendors are also expected to come onboard, including OPPO, who are looking to expand beyond China.

As we contemplate which other devices might become eSIM enabled, it is likely that the technology will feature inside the multiple ‘smart’ devices in people’s homes, and shipping companies might start to explore the advantages of eSIM within IoT devices to track goods as they move along the supply chain. Ivan Laden, CEO at Blue Wireless, believes “IoT, 5G, eSIM are all developments which will offer major opportunities in the enterprise and government sector, enabling new applications around augmented reality, robotics and autonomous vehicles to name a few”.

Due to different eSIM solutions for different scenarios, like M2M and consumer market, “there’ll be more start-ups and small companies dedicated to different segmented areas, which could be too fragmented for traditional MNOs to tag in,” says Godfrey St. Claire, Chief Business Officer at Joy Telecom.

eSIM might impact operators’ roaming revenues as it might be incredibly easier for travellers to switch to a local operator when visiting a new country. On a Google’s 2017 blog post, Joy Xi, a product manager for Project Fi, highlighted the flexibility eSIM brings to consumers by explaining that “you no longer need to go to a store to get a SIM card for wireless service, wait a few days for your card to arrive in the mail, or fumble around with a bent paper clip to coax your SIM card into a tiny slot.” Adding that “getting wireless service with eSIM is as quick as connecting your phone to Wi-Fi.”

Joy Telecom focus on roaming and the outbound travel market in the APAC and Europe regions, specially travellers from China, Japan and Korea, is an interesting case study for operators and other MVNOs who might consider the flexibility brought by eSIM a threat to their roaming revenue. Joy combined MVNO and travel businesses together to best serve this niche customer group.

In Godfrey’s own words “for end customers, outbound travellers, telecom service is merely one part of their needs overseas, flight/cruise, hotel, attraction ticket, coupons… so many services they would want during the travel, and Joy wants to be an integrator of these areas.”

The eSIM form-factor is a transformative technology, which will undoubtedly impact the entire SIM value chain, including business models, sales channels, and processes across the smart card, secure IC, Mobile Network Operator and OEM vendor landscape. “This will mark the beginning of a significant required change in the SIM card hardware value chain,” adds Sealy.

Back in 2017, Joy Xi shared that whilst Google was piloting eSIM on their newest Pixel devices with Project Fi. They also looked forward to sharing what they learnt and “work together with industry partners to encourage more widespread adoption”. Now that Apple is onboard, eSIM integration into smartphones seems like fair game and widespread adoption looks much closer to reality.

But for Sealy, “today the market is not ready to completely embrace the eSIM for a number of reasons, and notably this is due to lack of MNO eSIM readiness. OEMs will need to remain mindful of this to continue supporting their respective global client base until all MNOs are ready to make the switch full time.”

The traditional SIM card is not going to disappear anytime soon, and Apple’s new range of iPhones is a testament to this fact, given its dual-SIM functionality. Yet, embedded SIMs present operators with multiple opportunities, including multiple devices subscription which could generate new revenue streams.

 

The e-SIM Connect 2018 is the only dedicated eSIM event. It’s your chance to meet with the eSIM industry leaders; including Kerrie Lenhart Hogan, Google’s Director of Business Development, Communication and Connectivity Products.

X marks the slot as Apple moves to eSIM

Every new Apple iPhone is an X thanks to the launch of the XR, XS and XS Max, with the pricier ones being the first iPhones to support eSIMs.

The latest launches mark the upgrade-and-tweak phase of the iPhone cycle, having unveiled the more fundamentally redesigned X last year. So we have the flagship XS, the over-sized XS Max and the cheaper XR (starting at $999, $1,099 and $749 respectively, with exactly the same numbers in pounds despite there being 1.3 dollars to the pound).

Apple’s marketing is focusing on the new A12 Bionic chip, which is apparently the first one made using the 7nm manufacturing process to ship (Huawei also has a 7nm one in the pipeline). There are the expected upgrades to the screen, camera and other key components, but perhaps the most intriguing to the telecoms industry is the imminent support for eSIM, which removes the need to swap out a physical SIM when you want to switch providers, thus significantly facilitating the process.

“[The] iPhone XS is packed with next-generation technologies and is a huge step forward for the future of the smartphone,” said Apple marketing head Phil Schiller. “Everything is state of the art including the industry-first 7-nanometer A12 Bionic chip with 8-core Neural Engine, faster Face ID and an advanced dual camera system that shoots Portrait mode photos with Smart HDR and dynamic depth of field.”

Mikaël Schachne, VP Mobility Solutions at BICS, reckons operators shouldn’t panic about the increased churn threat posed by eSIM technology. “Many operators will greet Apple’s introduction of eSIMs with apprehension, yet the move should be grasped as an opportunity, rather than feared as a threat,” he said. “This goes for telcos, device manufacturers, and other parties which stand to benefit from a globally connected IoT.

“For consumers, eSIMs present clear advantages thanks to the increased flexibility and seamless device roaming they support, meaning operators can curry favour amongst customers by supporting Apple’s decision.

“In addition, eSIMs provide operators with an opportunity to add multiple devices to subscriber contracts, on a global scale, creating valuable new revenue streams. Manufacturers and logistics firms also stand to benefit, as connected devices with embedded eSIMS can be produced in one region, and then easily shipped and tracked across in the world, giving them access to wider global markets.

“However, sourcing SIM profiles form multiple operators and managing the handover from one to the other presents a challenge. For eSIM strategies – including Apple’s – to be a success, a global eSIM profile must be used. Only then can eSIM’s benefits be full realised.”

Only the more expensive phones get all the latest tech, including the eSIM support that will come with an update to iOS 12 later this year. Apparently it won’t be supported in China for some reason. Here’s a quick spec comparison:

XS – 5.8-inch OLED, 448ppi screen; A12 chip, double 12MP camera, up to 512GB storage

XS Max – 6.5-inch OLED, 448ppi screen; A12 chip, double 12MP camera, up to 512GB storage

XR – 6.1-inch LCD, 326ppi screen; A12 chip, single 12MP camera, up to 256GB storage

Isn’t it amazing that you can now get half a terabyte of storage in a phone? It’ll cost you though, with the 512GB Max coming in at $/£1,449. The phones will start shipping on 21 September. At the same time Apple also refreshed its Apple Watch range and tweaked its HomePod smart speaker, but nobody seems to care.

Apple warns of higher prices with looming Chinese tariffs

Apple’s relationship with the White House looks to be straining at the seams as the iLeader continues to criticise the impending trade war, while the President offers little knowledge of how supply chains actually work.

Using his favourite means to spread tripe, President Donald Trump took to Twitter to hit back at a filing make by Apple with the US Trade Representative. In the filing, Apple argues the tariffs would lead to higher consumer prices, slower economic growth in the US and Apple being exposed to higher competition from foreign rivals.

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive,” the President wrote in a tweet. “Make your products in the United States instead of China. Start building new plants now. Exciting!”

While some of Apple’s products have been hit by the current tariffs placed on Chinese exports, the iPhone, which accounted for 56% of revenues over the second quarter of 2018, is yet to be effected. As a company which manufactures the majority of its good in China, Trump’s next tariff proposal, essentially covering everything coming out of China, would have a very negative impact.

On the surface, forcing Apple’s manufacturing process back onto US shores would be a political PR win for the President, though the move could be disastrous for Apple and iLifers. There might well be tax incentives in moving the manufacturing process back to the US, but cost of building the factories would be incredibly high, while labour costs are also much higher. Tax incentives might compensate for these incurred costs, as would a price hike to consumers, but there is a bigger issue at hand which the President doesn’t seem to understand.

Managing a supply chain in the manufacturing trade is more than simply understanding how much labour costs. It’s access to raw and manufactured materials, cheap energy and real estate and finally, skilled workers. Once the plant has been built, the transportation and logistics puzzle to access materials will have to be addressed. Finding the right plot will also be tricky, as real estate will have to be cost effective, but it will also have to be close enough to a large enough workforce. This in itself is perhaps the biggest challenge as important aspects of this workforce do not actually exist at scale in the US.

Precision tooling is an excellent example of one of these skills. Precision tooling is a trade which requires years of training, combining artisanal craftsmanship with precision engineering skills. Apple CEO Tim Cook pointed out a couple of years back at a Fortune conference China actually stopped being the low-labour market and instead has a skilled workforce which enables the manufacture of smartphones and other advanced electronics. There are of course cost savings to be made in Chine, but these skills are critical in the smartphone manufacturing industry, and simply cannot be created overnight in the US.

The risk for Apple when it comes to moving the manufacturing process into the US, isn’t simply the cost as President Trump is suggesting. There are immensely complicated supply chain issues which will take months and years to perfect, this was the case for China as well, but the manufacturing industry here has evolved with technology industry. Skills have been taken forward and adapted to the manufacturing process as more complicated techniques and processes become commonplace. The learning process in the US will have to be much sharper.

When you take these elements into consideration, the risk is much more than financial. Apple could probably absorb a couple of years of heightened manufacturing costs, such is the profitability of the organization, but what it cannot allow is for a glitch in the supply chain. This is an incredibly well-oiled machine which produces hundreds of millions of devices every single year. Poking, prodding, moving and shifting this machine will impact Apple’s ability to meet consumer demand.

On one side of the coin, this is not worst case scenario. Less products on the market create a sense of exclusivity, which is turn increases the value of the products. Many luxury brands limit supply to create this sense of exclusivity which inflates prices. Some in the accounting department might like this idea, but Apple is a different beast. Somehow, Apple has managed to create the image of an exclusive, luxury brand, while flooding the market with supply and still maintaining incredibly high prices. Its contradictory and defies logic in the branding and price game.

If there is money to be made, Apple will profit. If it can offer a customer an Apple product, it will make the offer. When there is an opportunity, Apple usually capitalises. However, this saga threatens to impact Apple’s ability to supply the masses with their iFix.

Most of the time, disagreements are about money. But President Trump doesn’t seem to understand anything more than surface complications here. Tax incentives and price hikes will not compensate for the massive issues the Apple supply chain could face.

Turkey President threatens iPhone boycott

The Turkish President, Recep Tayyip Erdogan, has threatened a boycott of US electronics in response to tensions over a US citizen imprisoned in Turkey.

A couple of years ago Erdogan arrested a bunch of people after an apparent attempted coup and American Pastor Andrew Brunson was among them. He has been locked up since then and US President Donald Trump recently decided to increase the pressure on Erdogan to let him go, sanctioning a couple of politicians and increasing some tariffs, resulting in big falls in the value of the Turkish currency.

Multiple media have reported Erdogan as saying the following at a press conference. “We will implement a boycott against America’s electronic goods. If they have iPhone, there is Samsung on the other side and we have our own telephone brands. We are going to produce enough for ourselves. We have to serve better quality goods than we are importing from them.”

Yeah, good luck with that Recep. These threats seem to have been largely discounted but they do illustrate once more how easily US companies such as Apple can become collateral damage when politicians use trade as a diplomatic weapon. If we assume Erdogan wasn’t just drunk, he was probably chest-beating because that has proven to be the language Trump understands.

It’s quite possible that Brunson is merely a proxy for Trump to have a go at Turkey, which seems to be chummy with perennial US antagonist Russia. “We view the policy of sanctions as unlawful and illegitimate, driven mostly by a desire to dominate everywhere and in everything, dictate policies and call shots in international affairs,” said Russian Foreign Minister Sergey Lavrov.

Apple demonstrates its conflicted position on smartphone addiction with iOS 12

Gadget giant Apple made its devices more addictive while at the same time offering some tools to help people cope in the latest version of its mobile OS.

The latest version of iOS – 12 – has a bunch of novelty features apparently designed to appeal to children, including adjustable animated emojis, novelty camera effects and shared augmented reality experiences. At the same time it seemed to acknowledge its responsibility for ensuring kids occasionally leave the house and interact with the real world by introducing more tools to help limit smartphone use.

“We’re very excited about the new communications features we’re bringing to iPhone and iPad with Memoji, a more personal form of Animoji, fun camera effects and Group FaceTime,” said Craig Federighi, Apple’s SVP of Software Engineering. “With iOS 12, we’re enabling new experiences that weren’t possible before. We’re using advanced algorithms to make AR even more engaging and on-device intelligence to deliver faster ways to get things done using Siri.”

“In iOS 12, we’re offering our users detailed information and tools to help them better understand and control the time they spend with apps and websites, how often they pick up their iPhone or iPad during the day and how they receive notifications.

“We first introduced parental controls for iPhone in 2008, and our team has worked thoughtfully over the years to add features to help parents manage their children’s content. With Screen Time, these new tools are empowering users who want help managing their device time, and balancing the many things that are important to them.”

Here are the main things introduced in iOS 12:

  • Faster – Apple chucked out various suspiciously rounded-off percentages to show how much faster everything is when you use the new OS.
  • Shared AR experiences – persistent AR experiences tied to a specific location, object recognition and image tracking are all part of the second generation of Apple’s ARKit for developers.
  • Fun stuff – Memojis are Animojis that you can personalise, just when you thought they couldn’t get any funner. There are also new camera filters and things you can superimpose onto images to make them yet more fun.
  • Group FaceTime – group audio/video calling.
  • Siri shortcuts – suggestions and shortcuts to Siri commands that the Apple AI reckons you might want to use at a given time and place.
  • Saving you from yourself – giving users more power over things like notifications and augmenting the ‘do not disturb’ function to stop people getting in touch when you’re trying to concentrate on stuff.
  • Saving your kids from themselves – Screen Time is the feature that allows you to monitor how much time you or your kids spend on the device and on specific apps. It also allows you to limit the amount of time spent on an app and block access to the whole device at certain times.
  • Privacy – a tweak to the Safari browser are designed to help block social media “Like” or “Share” buttons and comment widgets from tracking users without permission.

“It came as little surprise that Apple introduced a suite of apps to address the growing levels of addiction to mobile devices,” said Ben Wood of CCS Insight. “The tools specifically designed to analyse and manage the amount of time kids spends on Apple devices will be a welcome, but potentially alarming new feature for many parents.”

“Apple’s focus on social responsibility closely followed that of Google at I/O and illustrates a new appreciation among the tech giants of their role in helping people manage their daily engagement with technology”

“It’s a smart move for Apple to reflect the current concerns around security and privacy with new tools to prevent web companies from actively tracking your browsing activity. Although it will be largely transparent to most consumers, it will help further Apple’s efforts to differentiate its products from rivals with strong security credentials.”

These tools are all well and good but if parents are looking to Apple to teach their kids balance and moderation then they might want to consider the extent of their own reliance on devices. A decade after the start of the modern smartphone era people seem to be increasingly questioning their relationship with these ubiquitous gadgets and how insidiously reliant on them we have become. That’s healthy and Apple is wise to accommodate it.