Shulou(Shulou.com)11/24 Report--

For Apple, the challenge lies ahead.

Text | Editor Guo Haiwei | VickyXiao

On February 2, the market finally waited for Apple's financial report for its first fiscal quarter (the fourth quarter of the natural year).

It was undoubtedly an ugly financial report: revenue, profit and sales fell short of expectations. Among them, apple's overall sales fell by about 5% compared with the same period last year, the first year-on-year decline since 2019. In addition, the key indicators in the financial report are falling mercilessly:

Earnings per share were $1.88, down 10.9% from the same period last year.

Revenue was 117.15 billion US dollars, down 5.49% from the same period last year.

IPhone revenue: $65.78 billion, down 8.17% from a year earlier

Mac revenue: $7.74 billion, down 28.66% from a year earlier

……

Apple's fourth-quarter performance was not a surprise. In 2022, after ushering in a peak market capitalization of $3 trillion, Apple encountered a series of "water adversaries": new products iPhone14 and 14plus encountered a Waterloo of product positioning, and downstream manufacturers were forced to cut orders continuously; geopolitical pressure was growing, Cook had to frequently appear on Capitol Hill and various imaginative events; two major innovative projects, MR and automobile, were postponed, and a number of executives left their jobs intensively. The stock price was unsatisfactory, and even Cook himself accepted a big pay cut.

As people continued to talk about the ever-accelerating decline in the terminal equipment market in 2022, a new testimony began to be added:

"even apples are not very good."

Over the past two decades, people have been used to using Apple as the benchmark for the entire IT market. But Apple itself is very special: it is high-end, closed, ecologically huge, perfectionist and a little arrogant; it walks between the two most powerful countries on the surface of China and the United States, affecting hundreds of billions of industrial capital flows; it has always been the correct benchmark for American politics, but it is inevitably politicized by the United States.

In the year of the Tiger, Apple may have launched a "very ordinary" iPhone, but this year is enough to be a "very unusual" year for Apple. We have found some key words to take you back to Apple's year of the Tiger.

01. "3 trillion and 1 trillion"

Apple's annual K chart | Source: snowball this is Apple's worst year in the capital markets since 2008.

In early 2022, Apple became the first company in human history to break through the market capitalization of $3 trillion, thanks to the Fed's loose monetary policy and continued optimism after the fall of 2021. In terms of GDP, Apple's market capitalization surpasses the UK, second only to Germany, and is equivalent to the world's fifth-largest economy.

But with the negative news coming out in the second half of the year, Apple shares entered a downward channel. It fell nearly 30% for the year, with its share price falling below $2 trillion at one point. As a result, there is a spectacular shadow line worth trillions in the picture above.

It's the equivalent of dropping a 2018 apple.

Cook released iPhone14pro and then rereleased iPhone13. "

If Apple's market capitalization plummeted can only find a real culprit, iPhone14 can not be ignored. As iPhone14 and 14plus roughly follow the shape and configuration of iPhone13, the popularity of iPhone14pro far exceeds the traditional main model 14 and 14plus. Sandalwood e-commerce market monitoring data show that bookings for iPhone14 standard edition have dropped by as much as 70 per cent compared with the same period last year. But 14pro has higher pricing and lower production capacity, which in turn drags down overall shipments.

Therefore, the direct result of this new knife method is that Apple ushered in its worst new product performance in years.

According to Counterpoint, the market share of the iPhone14 series after its launch reached its lowest level since November. If you wait until the release of 15, this figure may be further down than the current one.

Photo Source: counterpoint but iPhone14's strategy has pushed up the price band, which also contributed to Apple's barely positive revenue growth in the mobile sector in the second half of 2022. But many analysts and the latest earnings and market data suggest that this growth trend is not expected to be sustained in 2023.

In fact, in addition to iPhone14, Apple is also using a similar "new product strategy" in other products.

For example, ipad10 encountered a reputation Waterloo in the use of materials, only supporting the first generation Apple Pencil, equivalent to USB2.0 interface speed, screen quality compromise, but the price still maintained the level of 35K +. If users want a better experience, they have to pay more to buy ipad air or even ipad pro.

Products at the entry level are becoming more and more conservative and innovative points are used to strive for greater revenue and gross profit. This used to be a natural product of Apple's generational marketing, but now it will be used more in the official strategy of new product launches. This is not only the result of the difficulty of innovation, but also can be used to fend off the potential risk of declining sales.

After all, devices such as smartphones and PC have been declining. For smartphones, in particular, global shipments will remain at around 1.2 billion, down from 1.46 billion in previous years, according to IDC.

The landlord's house has no food left.

03. "even the display screen is going to be self-developed." in the face of the lack of innovation in the industry as a whole, Apple has developed more and more things on its own.

In 2022, Apple maintained the horizontal expansion of chip self-development. After beating Intel and Qualcomm, Apple turned to Broadcom. According to Reuters, Apple has set up a project to develop its own Wi-Fi and Bluetooth proprietary processing chips, which will combine cellular modems with Wi-Fi and Bluetooth into one component in subsequent versions.

In addition to self-research on the chip, Apple's microLed technology, which has been invested for many years, will also be tested in recent years. MicroLed is considered to be the next high ground of civil display technology, and the display effect will be significantly ahead of the current leading OLED screen, but it is also considered by the industry to be extremely difficult for mass production.

According to the latest news, Apple intends to first use the microLed on the next generation of watches.

04. "Zhengzhou and Bangalore iPhone14" this year, some Chinese consumers saw different iPhone14 boxes in Apple stores:

Designed by Apple in California,Assembled in India

Photo Source: the network iPhone14 pro max comes from Weituang's Bangalore factory. In addition to Wittronic, Foxconn has also set up an assembly plant in Chennai, India, and the Indian version of flagship Apple has finally arrived.

By 2020, more than 95 per cent of iPhone and nearly 100 per cent of AirPods, ipad and Mac were produced in China. For geopolitical reasons, Apple has been forced to shift supplier production lines to Southeast Asia and India. But take iPhone as an example, most of the production capacity outside the mainland is the previous generation of products. In 2022, India finally took off Apple's most advanced flagship models-although many of the parts for these devices still come from Chinese mainland.

According to Apple's latest statement, it will fight for more than 25 per cent of iPhone production in 2025. In addition, iPad, Apple Watch and AirPods will also be launched one after another, and India will compete with Vietnam and other places for capacity share of factories such as AirPods. According to Indian media reports, it expects that the iPhone produced in India will account for more than 50% after 2025.

It is worth noting that Apple's capacity transfer plan has been controversial.

In a recent report in the Financial Times, Apple's ability to "wean" China was unequivocally questioned. On the one hand, no producer is capable of undertaking such a complex electronics industry; on the other hand, Apple has invested too much money and engineering capacity in China. If Apple forcibly changes production sites because of political pressure, it will face a greater challenge to its engineering innovation ability. Therefore, some analysts believe that if the media attention drops, Apple may also quietly increase its investment in China.

Especially in the case of sensitive semiconductors, Apple still added the Yangtze River storage in the national version, which is considered to partly show Apple's strategic intention of "decentralization" rather than "transfer".

At the same time when Bangalore started production of iPhone, Zhengzhou also started a battle to defend apple production.

At that time, when the production of new iPhone14 products was climbing, many departments were involved in the factory's supply guarantee operation. According to local media in Henan, Foxconn alone offered a maximum of more than 15000 yuan for full attendance in November. Zhengzhou is trying to demonstrate official support for the world's largest iPhone plant-China is both the largest iPhone market and the most capable partner for large-scale, high-precision production.

In the next few years, Zhengzhou and Bangalore will continue to compete for the production status of iPhone. This competition will affect not only the GDP of the two cities, but also the engineering innovation ability of the whole Apple ecology.

05. "and Arizona and Kumamoto" the emergence of India means that Apple's long-term ALL IN Asia-Pacific supply chain strategy is over, and a global and decentralized Apple supply chain system is slowly taking shape.

In addition to smiling in front of the TSMC plant in Arizona, Cook made an intensive visit to Japanese suppliers at the end of 2022 and posted a lot of promotional tweets on iPhone. Many Japanese semiconductor and sensor factories in Kumamoto have been important technical and engineering support for Apple's underlying experience, and Cook is actively seeking support from core partners.

In the past, Japanese suppliers have experienced a round of Apple marginalization. According to the Global Times, the share of Japanese parts in the fruit chain has shrunk from 30-40% in the early days to 11-12% in recent years. Many observers believe that Japan's position in the fruit chain may be further enhanced, with Cook receiving key semiconductor industry support from China, Japan and Taiwan.

Especially for the "village hope" of TSMC's American Semiconductor in Arizona, Cook also expressed clear support recently that Apple's chips will be purchased directly from TSMC's Arizona plant in the future.

Picture source: network 06, "Executive hesitation, Cook pay cut" the company has difficulties, capital dissatisfaction, and finally passed on to the management. Apple vice presidents have been leaving since the second half of this year:

According to statistics, at least 10 Apple executives above the vice president level have announced their departure in the past eight months:

Jenny Jane Horvath, Chief Privacy Director, Tony Blevins, Vice President of Purchasing, Evans Hankey, Chief designer, Mary Demby, Chief Information Officer, Anna Matthiasson, Vice President of online Retail, Peter Stern, Vice President of Services, David Morris, Vice President of Software Engineering, Interactive Media Software Engineering Vice President John Staver (John Stauffer), hardware Engineering Vice President Lucy Lawrence (Laura Legros)...

Apple's vice president team is large, but such intensive staff changes are still rare.

That doesn't include Apple's controversial changes within the chip team. According to several media reports, there has been a large-scale loss of Apple's internal chip team due to disagreements over issues such as A16 development, as well as a surge of external startups.

In addition to the frequent mobility of middle and senior executives, core executives such as Cook also announced salary cuts at the end of the year.

It received a total compensation of $99.42 million (669 million yuan) in 2022, and its target salary will be reduced "proactively" to "only" $49 million in 2023, a sharp reduction of 40%, and the compensation structure will be more dependent on stock market value performance. Cook's income is likely to decline if the general environment continues to slump in the future or if products such as Apple's MR perform poorly.

07, "Pigeon King's compromise" Apple is the fastest growing major technology company in R & D in the past decade.

When Cook took over in 2011, Apple was an excellent hardware company with a 2.2% R & D revenue ratio and $2.4 billion in R & D; by 2022, Apple has accounted for 6.7% of its R & D revenue and invested $26.2 billion (176.8 billion yuan) in R & D.

This is likely to be the first time that Apple has spent more on research and development than its old rival Huawei (1).

Photo Source: Bloomberg's rapid increase in R & D investment is described by Bloomberg as an important manifestation of Apple's efforts to "seeking the next big thing." However, the excess investment cost does not guarantee that Apple will be smooth sailing in the "super project".

Take Apple Car as an example, Apple has made a number of technical route changes since the launch of the project in 2014, and the estimated release date has been postponed or even rumored to be cancelled since 2019 at the earliest.

It wasn't until 2022 that Apple really abandoned the fully self-driving route in its first car, opting instead to launch an auxiliary driving vehicle with a "relatively traditional" car design. According to foreign media reports, the price will be around $100000 and will be launched by 2026. But even if there is a compromise, the Apple Car will still be Apple's most powerful terminal device, with a computing system several times that of the top Mac.

In the year of the Tiger, Apple's MR was rumored to have been postponed many times during the year.

It was not until the end of January this year that there was news from within Apple that the development of the hardware part was almost over and that the App was being built. According to foreign media reports, the price of the first terminal is expected to be more than $3000. This means that the MR device will be a very experiential initial product, but it is still a long way from the phenomenal "next iPhone".

Whether it is MR or automobile, there is no business that can take over iPhone in terms of business structure.

Cook will turn 63 this year. Although he took Apple to a more organizational level than Jobs and launched strong peripherals such as the AirPods and iWatch, the overall product strategy of the Cook era was still conservative. Perhaps Cook needs to launch at least one killer app during his tenure, which will give him a greater historical position in 3C history. 2023 will be a critical year for Apple's MR.

There is not much time left for Cook.

This is an enterprise standing at a crossroads, it is facing a complex supply chain transfer under political wrangling, a persistently depressed technology consumer market, a terminal design ceiling where innovation is gradually drying up, an indecisive next-generation hyperterminal exploration, and an ever-changing core team.

The last time Apple faced such a complex challenge was probably when Cook took over the top job in 2011.

At that time, Apple did not have such strong R & D barriers and ecosystems (no iWatch, HomePod, or even universal Siri), and there was a wave of competition and wild talk from the Android camp. People began to calculate when the soulless Apple will end and when the leader from Android will be able to buy Apple.

For quite a long time in the future, Apple will face countless "2022":

It may be the norm to deal with unusual challenges from all directions with countless slightly more mundane products.

Once I asked a colleague, "do you think Apple has anything special to look forward to in 2023?"

He thought for a moment and said:

"Severance, of course."

Photo Source: "Severance" Note: (1) Huawei's 2022 financial results have not been disclosed, but the market expects its R & D investment will not increase significantly compared with last year. In 2021, Huawei invested 142.7 billion yuan in research and development.

This article comes from the official account of Wechat: Silicon Man (ID:guixingren123), author: Guo Haiwei

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