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Edit | Li Shuiqing
Zhidong reported on April 23 that, according to Bloomberg reporter Mark Gurman, Apple is facing weak growth in multiple production lines and urgently needs to revitalize its business by developing new measures such as low-end iPhones and end-side large models.
iPhone sales in recent quarters have not been optimistic, with iPhone sales expected to fall by 10% in the first quarter of this year, especially in China, as Apple expands into new product lines and new regions.
However, after the initial sales boom, the demand for the Vision Pro, Apple's new product, which has attracted much attention, has dropped significantly, and its sales have decreased from a few units per day to a few units per week, making it difficult for it to take on the responsibility of the new growth curve.
Mark Gurman revealed that Apple is planning to develop a low-end iPhone, while exploring the potential of places such as Africa and Southeast Asia, and has expanded services in India, Nigeria and other countries to drive business growth.
At the same time, Apple is moving forward with its "next big thing" of developing a large language model that runs on the device side. The model will be powered by the processor inside the iPhone, rather than through the cloud.
Apple is also preparing to update its iPad lineup in early May, including an upgrade to the iPad Air and the introduction of an OLED screen for the iPad Pro. Currently, the retail inventory of the iPad Air is decreasing, suggesting that a new product release is imminent. And the fact that the iPad Pro stock remains abundant may indicate that the price of the new iPad Pro is relatively high, and the intention is to continue selling the current model.
In terms of software, the iOS 17.5 update introduced changes, with Apple adding the ability to install apps directly from the internet in its beta version. According to Bloomberg, the change could pose a threat to the App Store.
Finally, Apple will host the Worldwide Developers Conference (WWDC 2024) on June 10 for five days. Apple plans to unveil its detailed strategy and plans for the year at the conference.
First, iPhone sales are declining, and Apple's new product line is difficult to top
After a brief increase in the holiday season, iPhone sales are expected to decline again in Apple's upcoming earnings report. According to Wall Street projections, this could lead to a decline in Apple's total revenue of about 5%, which would also be the fifth decline in the past six quarters. In addition, IDC expects iPhone sales to fall by 10% in the first quarter of this year, despite an 8% increase in the overall market.
The sluggish iPhone sales in China have taken a toll on sales, but the problems in the Chinese market go far beyond that. Government restrictions on foreign brands and consumers' preference for homegrown technology have created uncertainty about Apple's business prospects. Apple's sales in China fell 13 percent in the most recent holiday quarter, the most significant decline in nearly four years. Analysts expect Apple's new quarterly results, which were announced on May 2, to continue this downward trend.
The good news for the company is that China's existing iPhone users are not changing their phones en masse. It seems to be more about attracting new users to the Apple product ecosystem and getting existing users to upgrade as quickly as possible.
Even with Apple's innovative strategies, the effects of those strategies are beginning to peak. Faced with stagnant sales growth, Apple urgently needs some transformative moves.
One solution is to launch a groundbreaking new product line, but at the moment, it seems unlikely that such a new product will be unveiled anytime soon. For example, Apple spent a decade and $10 billion in research and development to develop a car, but the project ultimately didn't come to fruition. It also took eight years and billions of dollars to develop the Vision Pro, a $3,500 premium product that is unlikely to be a major source of revenue for the foreseeable future. Until Apple is able to launch a lighter, lower-cost version, the product will remain confined to a niche market.
Second, Apple may violate the "ancestral system" and launch a low-cost version of the new iPhone
Apple also has a strategy to resume growth without launching a brand new device. One possible strategy would be to develop cheaper versions of the iPhone and refocus on emerging markets.
Since the release of the original iPhone, there has been a lot of demand for a lower-priced version of the iPhone, but Apple has not pushed this strategy aggressively. Apple's first attempt to reduce the cost of the iPhone was by $100 when the new model was released. In 2013, Apple introduced the iPhone 5c, which was mainly a repackaging of the old version with a colored plastic case, and the price was also reduced by $100.
By 2016, Apple tried again, launching the iPhone SE priced at $399, which was hundreds of dollars cheaper than the high-end model, but its design quickly became outdated. Currently, the price of the iPhone SE has been adjusted to $429, which is not particularly attractive considering its limited features. At the same time, brands like Xiaomi, Transsion and Oppo in China have been able to offer phones with larger screens and multi-camera systems for around $150.
It is reported that Apple plans to update the SE series next year with a full-screen design to make its appearance closer to the trend of modern smartphones. However, the new SE is expected to feature faster chips and use higher-quality materials, which means it's likely to sell for more than $400.
If Apple really wants to go deep into emerging markets, developing an iPhone priced at around $250 would be a smart choice. Although founder Steve Jobs may never have considered such a strategy, what Apple needs to consider now is how to effectively reduce costs.
Apple can open up emerging markets by launching an affordable iPhone with a series of cost-cutting measures. For example, a lower-cost, full-screen liquid crystal display (LCD) could be used instead of the more expensive OLED display currently used in the iPhone. In addition, reducing the number of cameras is also an effective way to reduce costs. The chip can be a slightly older but still powerful model, and at the same time, in order to further reduce the cost, Apple can also consider using a plastic case.
In addition, Apple may choose to sell this budget phone only in emerging economies. This strategy requires Apple to move away from its traditional high-margin model and instead pursue greater revenue and market share. In this way, Apple is not only able to build and consolidate its brand image in developing countries, but also convert consumers in these markets into potential customers for higher-priced products over time. At the same time, it also helps to promote Apple's services and apps, which in turn attracts more users to become part of the Apple ecosystem.
Apple has been cautious about launching a lower-priced version of the iPhone, fearing that doing so could weaken its premium brand image. This concern stems from the insistence of Apple co-founder Steve Jobs, who has made it clear that "we don't offer inferior products." However, changes in the market environment have forced Apple to reconsider this strategy.
The rapid development of competitors and rising market expectations have forced Apple to be more open to new ideas. Apple began selling the MacBook Air with the M1 chip for $699 through Walmart, although the promotion was not heavily advertised in Apple's own sales channels.
There are still billions of potential users around the world who have not yet touched Apple products, and this is likely to continue if Apple can't offer more attractive price options. Among these potential users, the Indian market represents a huge business opportunity, and Apple has expanded its presence in the country.
With India's growing middle class, the number of people buying smartphones continues to increase every year. Apple has already opened two retail stores in India and plans to expand further. In addition, India is becoming an important manufacturing hub for Apple products, and Apple is increasing its iPhone assembly line in India and is interested in producing more devices in the country.
▲An Apple retail store in India (Source: Bloomberg)
Surrounding markets such as Vietnam, Indonesia, Thailand and Malaysia are also attractive. Apple has already opened two stores in Thailand and is about to open its first store in Malaysia. Last year, the company opened an online store in Vietnam. This move usually heralds a larger rollout in a certain region. Increasingly, these markets, like India, are becoming final assembly bases for this product.
It's no surprise that Apple CEO Tim Cook visited Vietnam, Singapore and Indonesia in Southeast Asia last week and pledged to increase investment there. In previous weeks, Cook had made a similar visit to China.
▲Tim Cook visits Indonesia (Source: Bloomberg)
In addition to the Asian market, Apple is also trying to expand its business in Eastern Europe and parts of Latin America. Further, Apple is expected to make significant progress in the African market. Despite some constraints on infrastructure development in Africa, Apple is already actively exploring the possibilities of this emerging market. They have expanded some of their services in Africa a few years ago and hired a new general manager for Nigeria last year, the second in the last three years.
Still, Apple hasn't given up on the Chinese market, which remains an important part of its global business. However, in order to reduce its dependence on a single market, Apple needs to diversify its market strategy, and the introduction of more affordable iPhone models is a key step in achieving this goal. Through such product line expansion, Apple will not only penetrate emerging markets, but also be able to strengthen its competitiveness and market share on a global scale.
3. Apple switched to AI, and the EU made regulations on the "monopoly" of the App Store
Apple is facing challenges on multiple fronts, including AI catch-up, new product development challenges, and declining iPhone sales, especially in the Chinese market. To address these challenges, Apple's "next big thing" plans to launch a large language model integrated on the device, update the iPad lineup, and make marketing adjustments to the Vision Pro. At the same time, due to the introduction of the European Union's Digital Markets Act, the beta version of iOS 17.5 introduced the ability to directly install Internet applications.
1. Apple large model: non-chatbot, the model is fully integrated on the device side
Apple's next big innovation could involve deploying large language models on devices. According to a report by Bloomberg on the 7th, Apple's "next big thing" project included augmented reality glasses and home robots. However, later this year, Apple is expected to enter the field of more advanced AI technology, which is undoubtedly a new journey full of challenges. While Apple's AI capabilities may not initially surpass those of pioneers like OpenAI and Google's Alphabet, how Apple applies this technology could have a significant impact.
Apple is developing a large language model, which is the core algorithm that underpins generative AI capabilities. All indications are that Apple plans to fully integrate this model into the device, rather than relying on the cloud. This design means that while Apple's AI tools may not be as powerful and knowledgeable as their competitors in some ways, their design approach will make the system more responsive. At the same time, this approach also makes it easier for Apple to maintain the privacy of its users.
Apple also intends to take a different approach to its marketing strategy. It will focus on bringing these technologies to practical help in people's daily lives. It is reported that at the Worldwide Developers Conference (WWDC) in June this year, Apple will reveal the full picture of its AI strategy.
2. iPad series: iPad Air has launched a new product, and iPad Pro is expected to be sold together with the old and new
Apple is about to update the iPad series in early May, when Apple is expected to upgrade the iPad Air and equip the iPad Pro with a new OLED screen. Bloomberg understands that retail inventory of existing iPad Air models is decreasing, which usually means that Apple is about to launch a new product in the line. At the same time, the iPad Pro is still well stocked, which means that Apple needs to dispose of existing inventory or intends to continue selling the current model after the new model is released.
3. Vision Pro: Sales have declined sharply, and the product lacks core applications
As Apple's VR headset, the Vision Pro experienced a sales boom in the early days of its launch. However, according to feedback from Apple retail stores, the demand for the Vision Pro has dropped significantly. Users who booked experiences often didn't show up, and sales decreased from a few units per day to a few units per week. In response to this trend, Apple has stepped up its online marketing efforts for the Vision Pro and increased the publicity exposure on its official website.
▲Vision Pro at Apple retail stores (Source: Bloomberg)
It's unclear if existing users of the Vision Pro are still using the device frequently. According to one user who owns a Vision Pro, while they started using the Vision Pro almost every day, the frequency of use has decreased significantly over time. He believes that the Vision Pro is too cumbersome for everyday use, where the process of connecting the battery, booting up the device, and the operator interface often doesn't feel like it's worth it.
Moreover, there is yet to be any application that really fascinates users. As a result, he prefers to watch videos on a computer or TV with simple operation.
Although Apple has fixed some of the vulnerabilities in the initial stages of VisionOS, it seems to be lacking in improving the user experience. The Vision Pro still lacks two "ambient modes" for displaying nature and other visual backgrounds, while many of Apple's apps aren't optimized for the platform, and the app store is lacking.
However, it is worth mentioning that Apple has recently introduced the Space Persona feature, which allows users to feel the experience of being in the same virtual space as other Vision Pro users, which is especially effective when making new friends.
4. iOS 17.5: Apple accepts third-party installations, and the App Store faces challenges
The iOS 17.5 beta adds a feature mandated by the European Union, which poses a threat to the App Store. The European Union's Digital Markets Act, which went into effect last month, requires devices like iPhones to install apps directly from the internet. The aim is to make smartphones more like personal computers. But for Apple, this represents a huge change that has the potential to shake up its App Store business, especially if the approach is rolled out outside of Europe.
▲European Commission President Vestager unveiled the Digital Markets Act in Brussels (source: Pool)
Apple is more receptive to another EU requirement to "allow third-party app stores." But setting up and running these markets is cumbersome, so few of them actually land. And, the experience may not be very pleasant for consumers. Users must first launch the store app, sign up for an account, and search for the app they need in an unfamiliar environment. In contrast, downloading directly from the web is relatively straightforward.
Even though Apple was reluctant to offer an online download feature, the feature is still present in the second beta of iOS 17.5. Now, there are still some hurdles to download the app. The software needs to be authenticated with an active developer account, and before the app is installed, the iPhone will pop up a license agreeing to download. Moreover, developers pay half a euro (about 3.9 yuan) for more than 1 million installs per year. As a result, Apple has not embraced this new approach entirely.
4. WWDC 2024 will be held on June 10, and all Apple's main line products will be updated
Apple will host the Worldwide Developers Conference (WWDC 2024) on June 10 for five days. At that time, Apple will release iOS 18 and new versions of its iPad, Apple Watch, Vision Pro, and Mac software. Internally, the new iPhone operating system is considered the most significant upgrade in the device's history, and the Vision Pro will also receive its first major software update since its release. Apple is expected to showcase its new AI strategy in 2024.
▲Craig Federighi, head of software engineering at Apple, speaks at the virtual WWDC (source: Reuters)
Apple is about to release its financial second-quarter earnings report in early May, when it is expected to release the new iPad. These tablets obviously won't be part of the retrospective financial results, but we'll get a first look at the sales of the Vision Pro. The quarter also included the launch of the M3 MacBook Air, which, while relatively low-key, may have contributed to some of the demand for the Mac.
▲Apple CFO Luca Maestri (center) (source: Reuters)
Overall, Apple's sales remain sluggish. Wall Street expects Apple's revenue to fall 5% from a year earlier to $90.3 billion.
Conclusion: Apple's sales continue to be sluggish, and diversification may become a turning point
Apple is at a critical stage of development, facing multiple challenges and opportunities. With the decline in iPhone sales and the slowdown in the growth of the Chinese market, there is an urgent need to explore new growth points. Against this backdrop, Apple plans to move towards AI models and is also considering more economical iPhone versions to better penetrate emerging markets.
Apple's Vision Pro VR headset has seen a strong initial sales performance, but demand has weakened significantly recently. But Apple is still improving its system, VisionOS, by adding new features to enhance the user experience. At the same time, Apple is also paying close attention to the possible impact of the EU's Digital Markets Act on the App Store and the relevant features added in the beta version of iOS 17.5.
In early May, Apple will announce its Q2 financial results, when the market will get its first glimpse of Vision Pro sales. In addition, Apple will also release new iPads, and although these new products will not be reflected in the financial report, their market performance will be critical to Apple's future growth. Despite the challenges, Apple continues to innovate and adapt its strategy to stay ahead of the curve in a highly competitive market.