Apple

Catching up on my reading list, found these two interesting pieces on Apple Services:

Jean-Louis Gassée, in a Monday Note titled Misunderstanding Apple Services, on the wave of headlines touting Apple Services as a standalone company:

If Apple Services were a standalone company, its $27.8B in revenue would just squeak past Facebook’s $27.6 (although I’m not sure we’re comparing the same four quarters).

And:

Remove “Apple” from “Apple Services”…would this stand-alone “Services” company enjoy the same success were it to service Android phones or Windows PCs?

Apple Services is an important member of the supporting cast that pushes the volume and margins for the main act: Apple Personal Computers. These come in three sizes, small (iPhone), medium (iPad), and large (Mac). If rumors of the addition of a cellular modem true, we may even see the Watch, today an iPhone accessory, added to the cast as the newest and smallest performer.

Everything else that Apple offers has one raison d’être: Fueling the company’s main hardware act without which Apple is nothing.

It’s the ecosystem. Apple Services serves the ecosystem.

The second post is from Ben Thompson, titled Apple and the Oak Tree:

Apple’s attempt at services lock-in is steadily increasing: HomePod supports only Apple Music and Siri, CarPlay supports only Siri and Apple Maps, iOS still doesn’t let one change default applications. None of these decisions are based on delivering a superior experience, the key to Apple’s differentiation with a hardware-based business model; all are based on securing an ongoing relationship with the company that can be monetized over time.

Again, this all makes sense, particularly for the bottom line: every bit of lock-in makes Apple’s business stronger. Stronger, that is like an oak tree.

Ben goes on to relate the fable of the oak tree and the reed. The oak tree represents strength, the reed flexibility. The analogy here is that Apple Services are becoming more locked in. That lock-in brings financial strength, but moves away from flexibility. And the lack of flexibility was the oak’s downfall.

Interesting reads, both.

Vindu Goel, The New York Times:

At 41 years old, Apple is a respected elder of the tech industry. But rather than easing slowly into retirement, the company is going through another growth spurt.

On Wednesday, Apple’s stock surged 5 percent to a record high of $157.14 after it reported surprisingly strong financial results. It is now worth $822 billion, more than any other company in the stock market.

High praise from the New York Times. Interesting.

But:

For Apple, which is far more dependent on hardware sales than other tech leaders, the recent performance is all the more impressive after its dismal 2016, when quarterly revenue fell for the first time in 13 years and the company’s sales in China dropped through the floor.

There it is. That’s the paper I know and love.

And:

“Wall Street is waking up to the reality that the next great product might not be an Apple car or the TV or the Watch,” said Trip Miller of Gullane Capital Partners, which loaded up on Apple shares when they were below $100. “The services business is the next great product.”

See Jared White’s take on Services. At least the NYT recognized that positive.

Moving on:

“Any product they release this year would be successful. There is pent-up replacement demand,” said Amit Daryanani, a hardware analyst with RBC Capital Markets.

A dismal 2016, and it doesn’t matter what they release, it’s all the pent-up replacement demand, not at all a sign of innovation.

Oh, and two last parting shots:

But he said such growth is unlikely to continue in 2019, when excitement about the new iPhones has faded.

And:

The risk is that customers decide to move on from the decade-old iPhone.

Doomed.

CNBC:

If Apple were a foreign country, CEO Tim Cook might have considerable political clout in the United States.

That’s because Apple owns $52.6 billion in U.S. Treasury securities, which would rank it among the top 25 major foreign holders, according to estimates from the Treasury Department and Apple’s SEC filings released on Wednesday.

Apple would be 23rd in all countries. That’s just one measure of a company’s financial heft, but amazing nonetheless.

Jared White:

It’s very apparent there’s a product category that outshines all others in terms of growth. It’s one Apple has been understandably proud of in their earnings calls for several years now, and that is Services.

And:

The Services category encompasses all the stuff Apple does online, “in the cloud.” Things like the App Store. iCloud. Apple Pay. Apple Music. The iTunes store. In other words, Services is everything you buy from Apple after you buy your initial hardware.

And this business has been exploding.

Jared digs into the details, starting with the vast difference between Apple’s cloud business of 5 years ago and the stellar operation into which that cloud business has evolved.

Another point is the way, as a percentage of the whole, Apple’s services business is increasing as the iPhone business decreases. The point being, Apple’s services growth represents diversification, less (slightly) dependence on iPhone sales. Will there come a day when iPhone sales represent less than 50% of Apple’s total revenue? Seems likely.

Thoughtful read.

Did you enjoy Jason Snell’s page o’ charts? Want more? No worries, Philip Elmer-DeWitt has your back.

Even if you are not a finances wonk, click over to the charts and click one of the chart headers, watch them animate. Pretty.

Glenn Fleishman, Macworld:

Photos, like iTunes and iMovie, doesn’t have a great way for you to access the media and other items that it manages, but there are some workarounds.

Apple gradually changed its app design to rely on library “files,” which are a special kind of folder, called a package. To the Finder, and for the purposes of copying and moving items, the library is a single folder. Inside, it contains all the sausage-making ingredients used by the apps, including original media files, modified ones (in the cases of Photos), project components, and one or more databases that track what’s inside the library.

Packages have been around forever. As Glenn says, this is a change in the way iPhoto and Photos stored their media.

Part of this is due to the nature of that media. Used to be, all photos produced a single jpeg. Over time, things got complicated, with live photos, bursts, undoable image editing, etc. Hard to not wrap that sausage making in a package.

As he does, Jason Snell pulled together a host of charts laying out Apple’s financial results six ways from Sunday. Lots to process here.

My favorite is the very last chart, Apple revenue by product category. Some things I see:

• Look at the difference between iPhone and the rest of the revenue categories. Great visual snapshot showing the incredible importance of the iPhone to Apple.
• Look how tightly clustered the iPad, Mac, and Services are. They all depend on iPhone as an anchor, but all make critical contributions to the ecosystem and bottom line. Good to see the relative contribution of the Mac there.
• Interesting how the labels were done. Each label was placed on an outlying part of its labeled line. Works well. Wondering if this was Jason’s handwork, or a smart chart app. Either way, nice detail.

Great work, Jason. Thanks.

The Independent:

Apple and Google have removed hundreds of trading apps from their online stores after an intervention by the Australian Securities and Investments Commission (ASIC) to crack down on online fraud.

In a statement on Tuesday, ASIC said it had conducted a sweeping review of mobile app stores focusing on those associated with so-called binary options trading. It said that the review highlighted over 330 apps that were offered by entities and individuals that appeared to be unlicensed.

Terrible scam, some reports of people losing their life savings.

Motley Fool:

Apple is also the only major smartphone manufacturer left that uses standalone modems. Other smartphone vendors use either integrated applications processor and baseband solutions from third parties (e.g., Qualcomm) or make their own integrated parts (e.g., Samsung and Huawei).

And:

On Apple’s job board, the company says it’s looking for a “Sr. Digital IC (PHY) Design Engineer.” Under the “job summary” section of the listing, Apple says the individual chosen for this position “will be part of a silicon design group responsible for digital baseband logic design in state-of-the-art wireless ICs.”

That’s not the only related listing on the company’s job board. Apple also has multiple positions related to RFIC design and layout. RFIC stands for “radio frequency integrated circuit.”

In another listing — this time for a “Sr. RFIC Design Engineer” — Apple says whoever fills the position “will be at the center of a wireless SoC [system-on-a-chip] design group.”

Tricky business, but follows the pattern of Apple trying to own as much of the stack as possible.

Horace Dediu:

The evidence suggests that Apple prefers to keep average pricing for all products constant. Individual variants are priced so that, as the category matures, the changing mix leads to consistency in price ownership.

Thus the iPhone can be seen as controlling the $650 point, the Mac $1200, the iPod $200 and the iPad $450. This pricing signals the product’s value and the value of the brand.

The signaling is not just to buyers but also to competitors. Ownership of price forces competitors to occupy adjacent brackets.

And:

The overall pattern looks like a staircase with a widening price range where the lowest price remains constant and the upper price rises every three years by $100.

The “floor” of the range is a consistent $400 while the “ceiling” has expanded from $700 to about $950.

This year’s ceiling is due for the fourth leg up and if the pattern persists, we should expect it to reach $1100.

Interesting look at Apple’s pricing models.

Apple announces their third quarter financial results, via converence call, today at 2p PT, 5p ET. You can listen live on Apple’s official earnings call page.

For your reading pleasure:

• Dan Frommer for Recode: Today Apple will reveal its confidence in this year’s iPhone launch timing

And:

• Mike Murphy for Quartz: The most important numbers in Apple’s earnings this quarter won’t be iPhone sales

Key is Apple’s forecast for the fourth quarter. From Dan Frommer’s post:

It’s the mid-year trough of the current iPhone cycle, so expectations are modest. Wall Street expects Apple to report $44.9 billion of June quarter revenue, representing 6 percent year over year growth. That’s somewhere around 40-41 million iPhone shipments for the quarter, with some analysts — notably, Above Avalon’s Neil Cybart, at 38.8 million — expecting fewer.

But the real question is how Apple will forecast its fiscal fourth quarter, which ends in September — and carries some clues for this year’s iPhone launch timing.

Most years, the new iPhone launches in late September, with a nice, big launch weekend or two of shipments to end the quarter. This year, however, there’s buzz that the anticipated super-high-end flagship iPhone might not launch until October or later, and could ship in limited quantities.

Some big fourth quarter clues coming today.

ExpressVPN blog:

We received notification from Apple today, July 29, 2017, at roughly 04:00 GMT, that the ExpressVPN iOS app was removed from the China App Store. Our preliminary research indicates that all major VPN apps for iOS have been removed.

Users in China accessing a different territory’s App Store (i.e. they have indicated their billing address to be outside of China) are not impacted; they can download the iOS app and continue to receive updates as before.

And:

We’re disappointed in this development, as it represents the most drastic measure the Chinese government has taken to block the use of VPNs to date, and we are troubled to see Apple aiding China’s censorship efforts. ExpressVPN strongly condemns these measures, which threaten free speech and civil liberties.

Apple’s notice to VPN developers in the China App Store says, in part:

We are writing to notify you that your application will be removed from the China App Store because it includes content that is illegal in China.

Not sure how Gruber got ahold of this footage. A real coup.

Another sign of the times. Sadly, Kirk McElhearn has just turned in his last Ask the iTunes Guy column for Macworld. Another sign that the publishing market is shrinking, the indie publishing market more than most. Feh.

Side note: Kirk is a great writer with deep Apple knowledge and is looking for work. If you’ve got a gig, give him a shout.