iPhone in urgent need of "new powder"

Burning Dimension (ID: chaintruth) original

Author | Lv Jingzhi

Edit | Cao Yang

In 2010, the iPhone 4 was born, allowing Apple (APPL.US, hereinafter referred to as "Apple") to occupy the top 1 position of smartphones.

It's just that with the disclosure of Apple's latest earnings report, people can't help but ask, "Is the Apple myth coming to an end?" ”

On February 2, 2023, Apple released financial data for the fourth quarter of calendar year 2022. In the data, Apple showed a rare growth fatigue - revenue, gross profit, net profit all declined.

Among them, Apple's total revenue in this quarter was $117.15 billion, down 5.5% year-on-year, the first revenue decline in four years since 2019; Gross profit was US$50.33 billion, down 7% year-on-year; Net income was $30 billion, down 13% year-over-year.

Data source/Apple earnings report Burning dimension collation mapping

Affected by the earnings report less than expected, on February 2, Apple's stock price fell $4.86, or 3.22%, in after-hours trading, closing at $150.82 per share, and then the stock price rebounded slightly, as of the close of U.S. stocks on February 9, Beijing time, Apple closed at $151.92 per share, with a total market value of $2.40 trillion.

Dismantling the earnings report is not difficult to find that iPhone sales, which have always been "dominant", declined in the quarter - iPhone revenue of $65.8 billion, down 8% year-on-year. In the third quarter after the release of the iPhone 14 series, iPhone revenue increased by only 10% year-on-year, a sharp decline from the 47% increase in the iPhone 13 series after the release of the year-on-year.

In this regard, overseas investment director Colin said that the current iPhone 14 in addition to the pro version, other versions of the innovation is obviously insufficient, compared with the iPhone 13 series there is no more improvement, the chip is also used in the past, but the price is much more expensive, "and the iPhone 13 has the positioning of 'increase in volume without price increase', the general consumer's attitude to the new product is that under the premise of the price remains unchanged, the memory capacity increase is more attractive to customers." ”

Or affected by the financial report data, on February 6, Phoenix and other media reported that Apple began to launch promotional activities on February 5, "All versions of the iPhone 14 Pro series ushered in a 700 yuan discount, and the starting price was only 7299 yuan." The campaign ends on April 1 and covers almost all authorized stores. ”

However, on February 8, Ran Dimension asked Apple Beijing Sanlitun official direct store, Beijing Sanyuanqiao official direct store, and Beijing Shunyi official direct store and other stores for verification, and got the reply that "the iPhone 14 series has not been notified of price reduction", and the official direct store clerk also emphasized that the product price is based on the official website.

Although the price reduction may not be true, the adjustment to Apple's other important business, mobile store charges, is real. On February 1, US time, Biden announced that he would reduce the charging standards of Apple mobile stores.

With hardware revenues falling, service charges being limited, and innovative businesses such as wearables slow, Apple seems to be having a harder time.

01 "Depowdered" iPhone

"Has anyone 'powdered' apples in the past two years? Let's talk? When Ran Dimension posted this question to the "omnipotent" circle of friends, in less than half an hour, the comment area "exploded".

Many post-90s and 95s told the whole process of their "depowdering" iPhone. The commonality between these "de-powdered" consumers is to find Apple's "unworthy".

Orange was born in 90 is a technology enthusiast who began to contact Apple products in 2008, starting with the iPhone and slowly buying iTouch and iPad with the rhythm of Apple's product releases.

"Because Apple is not open source, some software at that time could not be downloaded directly from the App Store, but needed to be 'jailbroken' and then installed locally, which was very interesting for me who liked Inverted Technology products." Orange recalls that because of this, Apple has much less than Android in terms of stuttering, memory garbage, data leakage, etc.

However, with the death of Jobs and Cook's takeover, Orange felt the decline in Apple's product power, "soaring prices and insufficient innovation." "It's Orange's evaluation of Apple's later products.

At this time, Huawei launched the Huawei Mate9 equipped with Kirin chip and Leica dual camera, and Orange decisively started, "At the beginning, I was still biased against the Android system, a little worried about its data security and running speed, but the performance of Mate9 completely exceeded my expectations." ”

Under the "Amway" of Orange, his family began to switch from Apple to Huawei. The parents replaced the mobile phone with a Huawei Mate30, and Orange later bought Huawei's watches, headphones and computers.

Now completely "climbing the wall" Huawei's orange said that in contrast, Apple's icould, iTunes and other complex operations, Huawei is much simpler in multi-device transmission, and there is no difference between speed and security and Apple, "I will not jump back to Apple's 'pit'." ”

The lag of the dual-SIM dual-standby function is the direct cause of Lin Shu in 95 and Xu Liang in 91 "depowdered" apples.

Lin Shu, who was "planted" by his roommate around 2014 for the iPhone6, gave the phone to his brother in only half a year, and he changed it back to Xiaomi.

"At that time, the iPhone 6 could not use dual cards, so I bought another Xiaomi in order to use two cards. More importantly, the iPhone 6 has not been able to make me 'amazing' from the system to the performance that it is worth going back and forth between two phones. So, after tasting the iPhone, I was completely out of the pit. Lin Shu recalled.

Xu Liang, who also needs to use dual SIM for work reasons, changed to vivo from iPhone 11, "In addition to dual SIM dual standby, Android system phone quick input, App junk file selective deletion and other settings, but also make me feel more humane." Xu Liang said.

Lin Shu, who is still using Apple's MacBook Air, added that there is no inconvenience in file transfer and system switching between Xiaomi mobile phones and Apple computers, "Perhaps many consumers recognize the concept of 'Apple series must be used as soon as it is used', which is just a marketing gimmick." ”

Huang Jin and A Chai, who are also post-90s, feel that Apple's design sense has not improved in terms of details.

"In 2009, when I was in college, the iPhone's battery life was not even a star and a half stronger than that of Samsung, the biggest rival at the time. But now, I have used Huawei, Xiaomi and other brands of mobile phones, can be a day and night without charging, but the iPhone needs to be mobile power to keep in hand. Huang Jin said that in terms of battery life alone, other products are improving, but Apple is standing still.

Ah Chai said that whether it is the Huawei mobile phone he uses or other Android mobile phones that his friends are using, it is very good to use in terms of marking and displaying the attributes of unfamiliar numbers. "Like delivery, takeaway, or plain harassment calls. I am in business, inevitably have to answer strange calls, number marking this function is very user-friendly, but Apple just does not. ”

Photo: Huawei mobile phone number marking interface Source: Photo courtesy of Ah Chai

In addition to the above-mentioned consumers who clearly pointed out the shortcomings of the iPhone, there are many users who "powder" the iPhone said, "There is no specific dissatisfaction, just simply feel that the price of the iPhone exceeds the value." ”

"Today's demand for mobile phones is telephone, WeChat, brushing dramas, playing games, and occasionally shopping, and Android with a thousand-yuan machine and Apple with nearly 10,000 yuan are almost the same in these aspects, so there is no reason to buy an iPhone." One of the users spoke bluntly.

02iPhone in urgent need of "new powder"?

Post-90s consumers can be said to have experienced the most glorious era of the iPhone. Many loyal "fruit fans" have been chasing Apple all the way since the iPhone 4, and finally gradually "depowdered" under the lower and lower cost performance.

At this time, Apple seems to be in urgent need of new consumer groups, but the millennial generation with gradually increasing spending power does not seem to have established its brand recognition of Apple.

Bai Xi, who was born in 2000, told Ran Dimension that he had never used Apple, and after trying Samsung and Huawei products, he had been using Huawei and Honor's mobile phones and computers. The reason, Bai Xi said, "I have no requirements for brands and premiums, mainly hoping that the hardware performance of the product is good and cost-effective." At the same price, the configuration of Android phones and computers is almost comparable to Apple's. ”

Xiao Wei, who was born in 2006 and is studying in Singapore, said: "Almost 85% of my classmates used Apple phones in the first two years, but recently, almost less than 50% of my classmates are still using Apple." Xiao Wei told Ran Dimension that even he was ready to use the money to buy a vivo mobile phone.

The "mainstay" of the post-90s generation has begun to "lose powder", and millennial consumer loyalty has not yet been cultivated, which may be one of the main reasons for the year-on-year decline in iPhone revenue.

According to Apple's financial data for the fourth quarter of 2022, iPhone revenue is facing negative growth for the first time in the past 8 quarters. Moreover, the year-on-year growth rate of the iPhone in the first and third quarters of 2022 was 6% and 10%, respectively, much lower than the 65% and 47% in the same period in 2021, which also shows from the side that the influence of the iPhone 14 series is much smaller than that of the iPhone 13 series.

Data source/Apple earnings report Combustion dimension overall mapping

For the decline in iPhone revenue, Zhang Yi, chief analyst of iMedia Consulting, analyzed, first, it is the well-known end of 2022, Zhengzhou Foxconn stopped production.

On November 6, 2022, a statement released on Apple's official website mentioned that "the epidemic restrictions have temporarily affected the main assembly facilities of the iPhone 14 Pro and iPhone 14 Pro Max in Zhengzhou, and the current production capacity of the Zhengzhou plant has been significantly reduced." ”

"As we all know, compared with the iPhone 14, iPhone 14 Pro and Pro Max are more popular products for consumers, and the interruption of its parts directly affects the sales of the iPhone 14 series. However, to say that Foxconn wants to "carry" all the "pots", I think it is also a bit extreme. Zhang Yi added that the current iPhone series has encountered a bottleneck in hardware innovation, and the attractiveness of the product itself is declining, which is also an important reason for affecting its sales. Moreover, this will continue to affect the future revenue of the iPhone.

Colin said that not only the Chinese market, but also North America has weakened demand for electronic products due to inflation and other reasons, and in seasonal promotions such as "Black Friday" and "Christmas", the demand for services such as travel is also higher than the demand for hardware products.

But in stark contrast to flagging iPhone sales, iPad sales reached $9.4 billion in the quarter, up 31 percent year-over-year.

Source/Apple Financial Report Combustion dimension summary chart

The reason, Colin analyzed, on the one hand, the iPad supply chain has not been affected, on the other hand, in 2022, Apple launched an upgraded version of the iPad, "but such growth is seasonal and not sustainable." ”

Zhang Yi added that the fourth quarter of the world has ushered in major festivals, such as New Year's Day, Christmas, Spring Festival, etc., which are the peak period for gift-giving, and in the case of the iPhone is not so "powerful", the iPad has become a better gift choice. "But compared with the iPhone 14, the iPhone 14 Pro and Pro Max are more popular, which may also show that the iPhone as an electronic product, its basic demand users are declining, but the high-end, gift demand users are rising."

"To put it bluntly, Apple products have slowly turned from electronic necessities into gifts. In the long run, this has the potential to completely change Apple's consumer profile. Zhang Yi further added.

03How long can you sit in the top spot?

Attracting traffic with hardware and earning high profits through services is the "routine" of most electronic product companies at present, and Apple is no exception.

Compared with the decline of hardware products, Apple's service business has maintained year-on-year growth, and has always maintained a higher gross margin than Apple's other businesses. Taking 2022 as an example, Apple's overall gross margin in the four quarters was at the level of 42-44%, while the gross margin of the service business has reached the level of 70-71%.

Source/Apple Financial Report Combustion dimension summary chart

However, Apple's "lying profit" business also seems to be about to be challenged. On February 1, US time, US President Biden announced that he asked Apple and Google's parent company to reduce the charging standards of mobile app stores.

In fact, developers have long been very unhappy with the 30% fee charged by Apple's mobile store, but Apple has hardly budged on this. Including the previous objections raised by the European Union and the lawsuit between EPIC and Apple in the United States, Apple basically did not reduce the proportion of commissions, but made a slight concession in 2021, and the percentage of small businesses and individual developers with annual revenue of less than $1 million was reduced from 30% to 15%.

High mobile store service fees increase the cost of developers, and the "wool" eventually comes from the "sheep", which directly leads to Apple users buying paid apps at a much higher price than Android phone users.

Although it is unknown whether Apple will make concessions to the commission ratio this time, it is foreseeable that if Apple gives in, it will have a certain impact on its revenue.

In this regard, Colin said that in the short term, the revenue of the service-oriented business dominated by the App Store will slow down. In the long run, this change will also make Apple's determination to increase customer stickiness stronger. "Because the reduction in the unit price of App revenue customers can be compensated for by increasing the repurchase rate (increasing the frequency of customer repurchase) and increasing the customer paid conversion rate (the large active device base, the potential paying users will be more), so increasing the engagement of paying customers and the number of active devices may be the focus of Apple's next phase."

The limited commission ratio will "force" Apple to improve the quality of existing users. But at this time, Apple will face another problem, that is, what about incremental users?

In the case of weak existing hardware, hope for the upcoming AR headset, or one of Apple's solutions.

On January 31, a number of media reported that Apple's "RealityPro" headset, which will be released in the spring, is expected to be worn around the clock, and even in the future, "AR/VR headsets will replace the iPhone and become a new pillar of Apple's revenue." ”

Expanding AR/VR headset wearing scenarios, and even hoping to replace mobile phones, this "dream" Meta has also done, but from the data, Meta seems to have not succeeded.

After the launch of the first generation of Quest as early as 2019, the revenue of Meta reality labs (including hardware devices within Quest) did achieve a year-on-year increase of 127% in 2020. However, by the end of 2021, the revenue growth rate of this business fell to 100%. In the first three quarters of 2022, its growth rate was 30%, 48% and -49%, respectively. In the third quarter, there was even a situation of both month-on-month and year-on-year declines.

The gimmick is big, but the stamina is insufficient, which seems to be the current status of most XR devices on the market.

In this regard, Xiao Yu, a senior electronics industry observer, analyzed that the sales and content development of XR equipment have a great linkage relationship. At present, most XR device users are still limited to entertainment, games, fitness and other pan-entertainment industries. Even though Meta has said that the wearing scenarios of the latest generation Quest can be extended to the office, the challenges are self-evident.

"First, whether there is a comprehensive match in terms of content; Second, compared with a few hours of entertainment, long-term wearing requires higher comfort requirements for the headset, and how to ensure long-term wear without dizziness requires technological advances in hardware. Xiaoyu concluded that although Apple does not currently have a released device as a reference, the challenges are similar to those of the Quest. Therefore, how to solve this problem is the key to whether Apple's XR device can break through.

As far as the current data is concerned, the growth rate of Apple's wearable device revenue in the four quarters of this year has fallen sharply compared with last year, and there has also been an 8% year-on-year decline in the second and fourth quarters.

"It's understandable that Apple wants to use the headset to tell another incremental story, but if it wants to replace the iPhone, I'm afraid it's hard to say in three or five years." Xiaoyu said.

Source/Apple Financial Report Combustion dimension summary chart

With limited commissions and weak existing hardware, how long can Apple sit in the "trump card" position?

*In the text, Colin, Huang Jin, Orange, Lin Shu, Xu Liang, Baixi, and Xiaowei are pseudonyms.

*Disclaimer: Under no circumstances does the information in this article or the opinions expressed constitute investment advice to anyone.