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Technology Stocks : Apple Tankwatch
AAPL 230.62+1.3%3:59 PM EDT

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From: Jon Koplik3/6/2024 11:00:32 PM
   of 32570
Bloomberg Opinion : If Apple Has Something Up Its Sleeve, Now’s the Time ...............................


March 6, 2024

If Apple Has Something Up Its Sleeve, Now’s the Time

Sales of the iPhone are slumping in China, the App Store is under assault and the company is behind in AI. Worse, its reputation for having the next hot innovation is waning.

By Dave Lee

Dave Lee is Bloomberg Opinion's US technology columnist. He was previously a correspondent for the Financial Times and BBC News.


Last year, when I described Apple Inc.’s 2023 as “miserable,” my inbox took something of a battering. Many readers questioned how I could suggest such a thing: The stock was up 48% that year !

But just as a rising stock market does not necessarily indicate a strong underlying economy, a rising share price doesn’t always take into account, or take seriously enough, the vulnerabilities of the underlying business. To me, by the end of 2023, it had become quite clear Apple had problems sprouting all around it. At that point, though, investors seemed happy with Chief Executive Officer Tim Cook’s multiple reassurances.

Now, some 66 days into 2024, Apple is clearly at a crossroads, falling short on expectations of growth through innovation and facing urgent threats to its legacy businesses. Its shares are down more than 11% this year.

On Monday, the European Union issued a $2 billion fine as part of an all-out assault on the economics of the App Store. To protect its walled garden, Apple has come out fighting, but it will lose -- the only question being how badly and with what consequences to its bottom line. As my Bloomberg Opinion colleague Parmy Olson wrote on Monday, Apple is now in a new era of scrutiny that will be hugely costly -- the US is expected to file its suit against the company, on similar concerns, any day now.

Tuesday brought more bad news, this time out of China. New data from Counterpoint Research suggested sales of the iPhone were down 24% in the country in the first six weeks of this year in an overall smartphone market that fell by 7%. Part of this decline, Counterpoint notes, can be attributed to the fact that Apple enjoyed unusually strong iPhone sales in January 2023 thanks to pent up demand from 2022’s supply squeeze. But Apple’s drop in market share -- from 19% a year ago to 16% this year -- shows a shift. It’s now China’s fourth most popular smartphone maker after being on top a year ago.

Multiple headlines last year spoke to what was being seen as a shift in sentiment around Apple’s business in the country; consumers were growing more interested in buying smartphones from homegrown companies such as Huawei, which is banned in the US. Counterpoint’s data suggests these concerns may not be as overblown as they have been in the past, when rumors of an iPhone decline did not materialize.

It’s not just an issue of patriotism. While China is, in many respects, a tech trends silo, a possibly diminished interest in the iPhone crosses borders. It’s a product that has become a victim of its own quality. I was in an Apple Store this week, shopping for my own new device, when it occurred to me the last time I bought an iPhone was some five years ago. The quality of Apple’s hardware and its continued software upgrades mean the device feels every bit as capable as the day I got it ­ were it not for a recently cracked screen, a new device would not have crossed my mind. Counterpoint has observed this, too: “Consumers feel fine holding on to the older-generation iPhones for now,” it said.

As a result, the iPhone has become an item that people refresh in the same way they might buy a new television, refrigerator or car -- an expensive good that’s replaced once the existing model shows signs of aging rather than through an aspiration for the new technology of the most recent one. Price increases have offset this so far, but Apple will need to innovate its way to future growth. Minimal progress has been made so far.

Successful recent hardware, such as the Apple Watch and AirPods, are merely iPhone accessories. The Vision Pro mixed-reality headset remains a gamble. Judging by the sharp tailing off of demonstration videos on social media, it seems the only “killer app” the device has so far is the ability to make wearers go viral if they do something daft with it in public. If the company was hoping the Vision Pro would fill investors’ “what’s next?” void, it does not seem to have been the case.

For the longest time, Apple has traded on the belief that, at any given moment, it has something extraordinary locked away in a secret lab,
something it is perfecting with the help of its legendary design team. This perception is rapidly waning as symbolized by last week’s news that the company had abandoned efforts to build its own car, a project that had long suffered from a lack of direction.
The same could be said of Apple’s approach to artificial intelligence. Siri continues to be an embarrassment: The way many users feel about the voice assistant’s ability to assist was summed up by Larry David’s recent (very funny and very sweary) scene in the latest season of Curb Your Enthusiasm, in which Siri repeatedly misunderstands what is being asked of it.

Apple’s announcement that it would be redirecting resources from its car to AI comes as investors’ murmurs grow louder. Unlike Google, Inc. and especially Microsoft Corp. -- which is now more than $350 billion ahead of Apple in market value, having only overtaken it this past January -- Apple has yet to make any meaningful announcements about how AI will change its business other than to say it’s excited by the prospect.

It’s unclear what an AI strategy for Apple might look like. At a minimum, it could enhance the iPhone, but consumers will come to just expect that as standard in a new phone. And unlike the immense data centers owned by Microsoft, Amazon and Alphabet Inc., Apple has no enterprise-facing cloud business on which it can offer companies (other than itself) access to cutting-edge AI capabilities.

“Everyone is clamoring for Apple to have a story” on AI, one investor told the Wall Street Journal last week, and the company certainly seems eager to present one. This week it promoted its latest MacBook Air as the “world’s best consumer laptop for AI” -- by which Apple means that it’s a great computer on which to run other companies’ AI software. That may well be enough to keep selling devices, but the worst-case scenario for Apple is that this temporary weakness becomes a generational one, much like Microsoft’s lack of foresight on the smartphone, a mistake that put it on the backfoot for more than a decade.

© 2024 Bloomberg L.P.

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