Will Apple Panic?

Their latest quarterly results are out, and they aren’t what some might have hoped. Sure, they beat the street estimates in some key numbers, but one telling bit of data is down again: iPhone sales.

iPhone 7 Didn’t Save Them

You had to wonder when Apple said they weren’t going to announce opening weekend sales for the iPhone 7. Their logic was that, since it always sells out anyways, why bother? It isn’t like it is really all that informative.

The problem is, of course, that it is informative, because what we might have found out is that, while Apple sold every phone that was available, they also sold fewer than on their previous new opening weekends. Historically, Apple has managed to sell more iPhones at each new launch than the year before. But without this sample, we can’t know for sure if they beat their 2015 opening weekend sales numbers or not.

Instead, we had to wait for the end of the quarter. The result? iPhone sales were down 13% compared to the same quarter last year (which included the iPhone 6S/6S Plus launch). Sure, they were up 17% from the previous quarter, but given that it ended shortly before expected launch of the new model, that isn’t entirely surprising.

What’s disturbing here are the remarks by the Apple team: they are seeing higher-than-expected demand for iPhone 7, and are pleased with the results. Others have said that iPhone 7 should help them in the next quarter. But it’s the release quarter that typically has the biggest impact in terms of sales and growth. If Apple is pleased with iPhone 7 sales, then they must have had some rather low expectations.

Sales Down(ish) Everywhere

The iPad sales were flat compared to the previous year, possibly signalling that tablet sales have levelled off. The Macintosh was down 17%, meaning it appears to now be tracking with PC sales in terms of decline. Up until recently, the Macintosh was the only PC not showing a sales slowdown. The last piece of business in decline was “other”, which includes the Apple Watch, which was down 22% from the previous year.

Their lone year-over-year increase was in “services”, at 24%, which includes iTunes and Apple Music. Their app sales and media business is now the lone bright spot. But that can’t offset the fact that sales and profits are down everywhere else, and trending in the wrong direction.

Despite rosy words from Tim Cook, the reality is that these numbers should be chilling to everyone who looks at them. The iPhone 7 didn’t move the needle in a positive direction. The Apple Watch (along with all smartwatches) continues to be largely irrelevant, and isn’t a growth product for them. The iPad is moribund and the Mac isn’t the PC darling it once was, at least not from a sales perspective.

What To Do?

Like the cover of the Hitchhiker’s Guide To The Galaxy says: Don’t Panic. All is not lost. The ship hasn’t slipped beneath the waves just yet. But they cannot pretend that Apple is not in some kind of trouble. This is now a full year of declining sales and profits. It is a full year of lower unit sales of every important hardware product they make.

What won’t work is cutting costs, trying to move down-market, or scrambling around buying up other stuff in the hopes it reverses their course. You cannot cut your way to prosperity. Mergers and acquisitions don’t always help as much as you think.

What they need is a new product, something in a market that features robust volumes and a market segment that will pay a premium (which means more profit). That market is not cars, or anything to do with the automotive world (directly). Yes, the car business is big. But this isn’t like the music business. There, Apple needed the active participation of the music labels, and got it because the labels knew they would be in trouble. The car manufacturers are not in trouble. GM, Ford, VW, Toyota et al have a grip on an industry that is very, very hard to change from without (and, no, Tesla isn’t disrupting anything). Change only really ever comes from within. Car sales have slowed, and the moment OPEC realizes their price manipulation is killing their economies, then the market will change again.

Here is what I think Apple needs in the short and medium-term: they need a new CEO, one who understands and cares about product. It isn’t that Tim Cook doesn’t care about product in a general sense. But if he was truly a product guy, he’d be doing the product demos, and not MC’ing tired and dusty presentations that have largely lost the sheen and gloss they had under Steve.

Tim Cook’s art and passion (based on what he does) is supply chain: he’s they guy you want when you need to grind every nickel and dime out of getting a product from raw materials into something a consumer buys. But he is not the guy to figure out what that product is, and his team isn’t either. These are the guys that killed the one feature that 99.99% of all users still use actively, every day, and they had the gall and audacity to call it “a courageous move”.

A Product Person First

Whoever Apple hires has to be prepared to make some hard decisions, but they also have to care about the product with a passion that goes beyond what we’ve seen to date. They have to be confident enough to carry an entire product announcement, talking about the technology and demonstrating the features as if they created them themselves (because, if they are truly committed to the product, they will have in a sense).

This person has to be willing to sow a little chaos. They have to ask for the impossible, and then support the team when they get close but not quite. They have to rely on guys like Tim Cook or Craig Federighi to say “here is what you want, but here is what we can deliver”. But it has to be someone who will push them, and even piss them off a bit, to get what they want.

But above all, they need someone who can craft a new vision and take the company in slightly different directions. Apple didn’t abandon the Macintosh when they went into music and mobile. It just had a different place in the pantheon, further from the centre.

And no, an AI interface on everything isn’t the saviour, either. Sure, it’s going to be important, and even necessary, but it will not represent a multibillion dollar industry, because all of the smart bits are in the back-end, not the end-user devices. That means that the smart AI has to help you sell other stuff. Amazon will benefit, because like the Kindle, it will allow them to ship more stuff from their warehouses. A better AI won’t sell more iPhones and iPads, and we are long, long way off from people caring about having smart voice-controlled virtual bots at their disposal.

What’s The Next Big Thing?

So, what would make sense? Frankly, I have no clue. That’s why I’d never be the right guy to run Apple. I’m at a loss. Sure, I’d be passionate about the product, but that isn’t enough. They need someone with ideas for the future, not just improvements on the past. And whatever it is, it has to be big enough to move the needle, which makes for a bigger challenge.

Of course, maybe it is a lot of smaller things that, together, move the needle. There is this obsession that the company has to create something new on the sale of the original Macintosh, or the iPod or iPhone. Maybe 2-3 new things might still add up to the equivalent to a single big, new market. But those things have to be new in a way that matters. So far, the two little things in hardware (the watch and latest Apple TV) haven’t made a difference.

Whatever it is, I’m not convinced that the current team at Apple will come up with whatever they need. Again, they are smart and imminently capable people, but they lack real vision or imagination at a grand scale. Until Apple can find someone to lead who cares about product, has some good ideas, and can push the rest of the leadership, I think we can expect to see a general decline in Apple’s performance over time.