On January the 2nd of 2019, the beginning of the end started for Apple. That’s what you might think after reading the different reports, analysis, comments, especially one comparing Apple to Nokia.
On the given date, Apple’s CEO Tim Cook sent a letter to investors cutting guidelines for the 4th calendar quarter of 2018. The revenue was cut down from expected $89 billion – $91 billion to $84 billion, with a gross margin of 38%. Apple blamed a few things for the guidelines cut – lower sales in China (that could be attributed to ever-improving Chinese competitors, but also the hostile position of the US towards Chinese companies, which could trigger a form of customer revolt there) and slower upgrades to new iPhone models. Mr. Cook also mentioned other factors like a strong dollar, release time of new iPhone models compared to calendar Q4 2017, etc. You can check the details is his open letter HERE.
Before going to the comment from Goldman Sachs analyst Rod Hall, comparing the slowdown of iPhone upgrades to slowdown of Nokia phones upgrades in 2007, let’s check an interesting Twitter thread from Counterpoint’s analyst Neil Shah. You can check the whole thread on Twitter here, while down below follow some Tweets I picked out.
3/ Chinese brands are are out-competing/out-marketing Apple on design, mobile-first innovations & value prop which is being recognized by brand-conscious Chinese consumers.
The current iPhones are great for older gen iPhone users but not enuf to attract mature non-iPhone users.
8/ Chinese market looks like a zero-sum game but winner is one with prudently priced well balanced portfolio and unique value prop, enough room to grow with mid to premium portfolio & expand user base.
I’m sure that Goldman analyst didn’t compare the overall position of Apple to those of Nokia before the fall. Based on a CNBC report, the comparison was limited just to the slowdown in upgrades, but merely putting Apple’s current situation in the same sentence with Nokia triggered an article spree with doomsday titles, and if you don’t read the actual article, you might really think that we’re in mid 2011, and it’s just a matter of months when the next profit warning will hit in. So, let’s compare a bit Apple’s current situation with the situation of Nokia when the fall started.
Technically speaking, Nokia’s biggest problem was that it had a technically inferior OS compared to competitors, mainly Android and iOS. It was harder to maintain it, add new features, support developers for apps, etc. Just to show how serious the situation was, the compile time of Symbian, some time before Nokia switched boats to WP, was around 48 hours, according to Risto Siilasmaa’s book about “Transforming Nokia”. To simplify it, this means that to test a change you made in the software on a device, you needed to wait for 48 hours for the OS to compile. Another problem was Nokia’s relationship with operators. An average Android and iOS phone consumed much more mobile data than an average Symbian phone, which means operators can sell more Internet data with Android and iOS devices, thus increasing their sales. That was bad news for Nokia, because Symbian smartphones became less attractive to operators. Another big hit happened in China, when operators switched to CDMA technology, while Nokia was almost exclusively investing in GSM.
Apple, in comparison, probably has the best operating system in the technical sense. I was impressed with the new iPad Pro tablets and how well did they handle heavy tasks of editing videos or music, as demonstrated by YouTuber Jonathan Morrison here and here. In no sense is iOS obsolete, so maybe the biggest problem Nokia had – the lack of an ecosystem and futureproof OS, is something Apple doesn’t suffer from.
I would also point out that when Nokia’s sales started declining somewhere in 2008, so did the profitability of the company. In 2011, Nokia’s smart devices average selling price was 140 euros and declining, while Apple’s iPhone ASP was around 750 euros in 2018 and has been rapidly growing in the last 3 years, together with the iPhone price increase.
In 2018, Apple probably reached the peak of iPhone shipments with the peak price they can ask for. We all agree that 800 euros for a budget iPhone XR, or 1200 euros for an iPhone XS is a bit too much for most people. Still, this doesn’t mean that Apple will run out of money and face the same scenario Nokia faced. Apple can sell a lot less iPhones and still be profitable with such high gross margins. I don’t expect them to experience a spectacular sales decline as Nokia did. They will probably stagnate or experience a smaller decline in shipments with current strategy, but if you think iPhone sales could reach ZERO as Symbian sales did, you’re wrong.
Some options that Apple has to bounce back and improve its market share position (and maybe the stock value) is to announce a cheaper iPhone. Digital content is becoming a big source of Apple’s revenue and software usually has a higher margin than classical hardware business. A cheaper iPhone, priced in the 500 euro category, will surely increase Apple’s shipments and offer more market to sell their services, but it will bring down the impressive ASP.
Contrary to Nokia back then, Apple has so many options to get out of this “crisis”, that it is silly to compare the company’s position in a general sense to Nokia’s. Two different worlds, they are…
If you’re interested in the story about Nokia’s decline as a mobile phone vendor, I really recommend the book Operation Elop, available on a public domain. If you’re even more interested, especially from a corporate point of view, Nokia’s Chairman Risto Siilasma wrote “Transforming Nokia“, which I also recommend if you’re into such subjects. 🙂