AAPL - Apple Inc.

[texual]

I don't think the culture of Apple after Jobs is the same as before Jobs. As much as people want to think its preserved, Tim Cook doesn't want to imitate or copy his predecessor. Instead he has his own twist on things and his own management style. It will never be the Apple you claim to 'get' - you might be mistaking us not 'getting' Apple for the Apple during Steve Jobs' return. That was Apple as I knew it and today its very close but my opinion is Tim Cook isn't going to lead the company into risky times like Jobs. Remember Jobs brought colorful Macintosh computers with the circular mouse, and the ipod during a time when nobody thought those things could possibly sell. Even the iPhone was a colossal risk against entrenched companies. I'm not sure Tim Cook is the guy with significant vision or risk taking - I see him as preserving the status quo!

 

My other question was how can there be any benefit from India and China if they have agreed to not build a cheaper device. Either they lose those countries to the cheaper options like Windows Phone and Android, or they suck it up, build the cheaper iPhone and still make money (at a loss of margin). I don't see either scenario being great for Apple though...

 

[Guest valueInv]

I don't think the culture of Apple after Jobs is the same as before Jobs. As much as people want to think its preserved, Tim Cook doesn't want to imitate or copy his predecessor. Instead he has his own twist on things and his own management style. It will never be the Apple you claim to 'get' - you might be mistaking us not 'getting' Apple for the Apple during Steve Jobs' return. That was Apple as I knew it and today its very close but my opinion is Tim Cook isn't going to lead the company into risky times like Jobs. Remember Jobs brought colorful Macintosh computers with the circular mouse, and the ipod during a time when nobody thought those things could possibly sell. Even the iPhone was a colossal risk against entrenched companies. I'm not sure Tim Cook is the guy with significant vision or risk taking - I see him as preserving the status quo!

 

My other question was how can there be any benefit from India and China if they have agreed to not build a cheaper device. Either they lose those countries to the cheaper options like Windows Phone and Android, or they suck it up, build the cheaper iPhone and still make money (at a loss of margin). I don't see either scenario being great for Apple though...

 

Cook maybe changing the culture but he is keeping the values. They've even created ads to tell you so. They can enter lower priced segments and continue to grow their cash flow.  The former does not rule out the latter.

 

They have done a huge risky redesign of their product. Cook fired the second most powerful guy in Apple. They are completely revamping their supply chain, made their biggest capital expenditures and started the biggest capital return in history. And they are entering new product categories. Cook hardly seems to be preserving status quo.

[Palantir]

I don't think the culture of Apple after Jobs is the same as before Jobs. As much as people want to think its preserved, Tim Cook doesn't want to imitate or copy his predecessor. Instead he has his own twist on things and his own management style.

 

This is one of the problems with being a public company. The investor population doesn't necessarily get the culture or the philosophy behind the firm, know much about the product development process, and is more concerned with peripheral things like share price appreciation and capital allocation etc etc. (You think Steve Jobs woke up everyday worrying about capital allocation?). Apple is basically a private company that just happens to be public, and should always play by a different set of rules compared to other firms.

 

This comment is my opinion and is not aimed at anyone in particular on this thread. (Really)

[boilermaker75]

Apple to build solar array with Buffett’s NV Energy

 

http://www.pv-tech.org/news/apple_to_build_solar_array_with_buffetts_nv_energy

[Parsad]

I don't think the culture of Apple after Jobs is the same as before Jobs. As much as people want to think its preserved, Tim Cook doesn't want to imitate or copy his predecessor. Instead he has his own twist on things and his own management style. It will never be the Apple you claim to 'get' - you might be mistaking us not 'getting' Apple for the Apple during Steve Jobs' return. That was Apple as I knew it and today its very close but my opinion is Tim Cook isn't going to lead the company into risky times like Jobs. Remember Jobs brought colorful Macintosh computers with the circular mouse, and the ipod during a time when nobody thought those things could possibly sell. Even the iPhone was a colossal risk against entrenched companies. I'm not sure Tim Cook is the guy with significant vision or risk taking - I see him as preserving the status quo!

 

My other question was how can there be any benefit from India and China if they have agreed to not build a cheaper device. Either they lose those countries to the cheaper options like Windows Phone and Android, or they suck it up, build the cheaper iPhone and still make money (at a loss of margin). I don't see either scenario being great for Apple though...

 

Cook maybe changing the culture but he is keeping the values. They've even created ads to tell you so. They can enter lower priced segments and continue to grow their cash flow.  The former does not rule out the latter.

 

They have done a huge risky redesign of their product. Cook fired the second most powerful guy in Apple. They are completely revamping their supply chain, made their biggest capital expenditures and started the biggest capital return in history. And they are entering new product categories. Cook hardly seems to be preserving status quo.

 

Risky redesign of which product?  iPhone5...iPad Mini?  If this is risky, then I would hate to see what safe is. 

 

Also, there has been a bit of a backlash to the "Designed in California" ad...why not "Designed in the U.S.?"  Why the whole California, we're 60 year old hippies and cool, push.  It's been the lowest scoring Apple ad in history! 

 

http://bostinno.streetwise.co/2013/06/28/new-designed-by-apple-in-california-commercial-is-lowest-scoring-apple-ad-ever-videos/

 

The iWatch or iTV better be around the corner, otherwise things are going to get stale pretty quick.  Remember when DELL missed the advance of tablets or Microsoft missed the advance of Google Search...Apple better avoid any sort of similar complacency.  Cheers!

[texual]

They are going to keep making commercials like this.

[LC]

I interpret the new Apple commercials as a way to retain customers and continue to build brand identity, hence the made in California vs made in USA

[Parsad]

Apple rehires Yves St. Laurent CEO.  Hopefully some cutting edge design ideas for new and existing products sprouts from this.  Cheers!

 

http://www.bloomberg.com/news/2013-07-02/apple-hires-yves-st-laurent-ceo-for-special-projects.html

[Guest valueInv]

Risky redesign of which product?  iPhone5...iPad Mini?  If this is risky, then I would hate to see what safe is. 

iOS 7

 

Also, there has been a bit of a backlash to the "Designed in California" ad...why not "Designed in the U.S.?"  Why the whole California, we're 60 year old hippies and cool, push.  It's been the lowest scoring Apple ad in history! 

 

http://bostinno.streetwise.co/2013/06/28/new-designed-by-apple-in-california-commercial-is-lowest-scoring-apple-ad-ever-videos/

Yeah, we're all hippies in California. Every Sunday Zuckerberg, Page, Musk, Dorsey and me get together are my pad, wear tie dyed shirts and smoke weed.  ;D ;D ;D ;D

 

BTW, the data is from this source:

http://www.acemetrix.com/news/press-releases/ace-metrix-arms-samsung-with-next-generation-creative-effectiveness-platform/

 

Apparently, that ad is so bad, no one would be stupid enough to copy it:

http://news.cnet.com/8301-17852_3-57592033-71/googles-new-motorola-ad-one-ups-apple-its-i-all-i-american/

 

The iWatch or iTV better be around the corner, otherwise things are going to get stale pretty quick.  Remember when DELL missed the advance of tablets or Microsoft missed the advance of Google Search...Apple better avoid any sort of similar complacency.  Cheers!

 

Apple would miss out on what? Google Glasses?

 

BTW, iWatch is not going to move the needle financially. It is going to be a Fitbit on Steroids.

[Guest valueInv]

Apple sure has some "catching up" to do:

 

http://venturebeat.com/2013/07/02/iphone-has-better-quality-than-galaxy-korean-consumers-say/

[Guest valueInv]

Apple rehires Yves St. Laurent CEO.  Hopefully some cutting edge design ideas for new and existing products sprouts from this.  Cheers!

 

http://www.bloomberg.com/news/2013-07-02/apple-hires-yves-st-laurent-ceo-for-special-projects.html

 

And they also hired Adobe's CTO.

[Guest valueInv]

Apple sure has some "catching up" to do:

 

http://venturebeat.com/2013/07/02/iphone-has-better-quality-than-galaxy-korean-consumers-say/

 

And the iPad too:

 

http://venturebeat.com/2013/07/03/official-korean-customer-satisfaction-index-says-apples-ipad-number-one/

 

Straight from the Korean govt.

[Guest valueInv]

The global market for smart phones has not reached saturation.  That's really the market we're talking about here, and most folks would agree that there's a long runway for smart phone sales.  And remember, when it comes to getting a smart phone, a consumer has the choice of going for hardware on the high end, low end, or somewhere in between, and then he also has a choice of OS. 

 

So let's take China, for example.  Here's Tim Cook on the CC:

China has a unusually large number of potential first-time smartphone buyers, and that’s not lost on us. We’ve seen a significant interest in iPhone 4 there and have recently made it even more affordable to make it even more attractive to those first-time buyers. and so we’re hopeful that will help iPhone sales in the future.

 

That doesn't sound like market saturation to me. 

 

Instead, what it sounds like is that in order to keep iPhone unit sales (with iOS 6.1 licenses embedded into the price) growing in the face of stiff competition from Android device manufacturers, Apple has to sell their OS in the form of lower end hardware.  These are disguised price cuts that are starting to show up in ASP.  In fact, as I pointed out in my last post, management specifically noted that iPhone ASP decline was driven primarily by product mix. 

 

So the question to ask is whether Apple will need to continue to lower ASP to keep iPhone unit sales growing and whether iPhone GMs will stay constant or go down.  ASP and gross margins are connected because of the operating leverage associated with selling iPhone. 

 

I don't disagree with you that component costs have probably had an effect on gross margins, especially since Apple is reliant on people like Samsung for components (e.g., displays).  But take a look at the CC transcript again.  Management is guiding for lower GMs next quarter despite having better costs next quarter.  How can that be?  They told us this would be the case because of: (1) "loss of [operating] leverage on sequentially lower revenue"; and (2) "a different product mix."  Sounds like we could see further ASP decline next quarter and that GM on a unit basis is declining due to product mix.

 

I'm gonna go with Apple management over Horace Dediu.

You were the one who brought up Horace.

 

There are typically three price segments: High-end, mid-range and low-end. Apple today plays only in the high end. The only other player with traction in the high end is Samsung. High end users are also adopt technology earlier that other price segments. It is the high-end that is saturating.

Most people who could afford a $600 phone have already bought one. Saturation of the high end segment is likely to cause a slow down in the overall growth of smartphones. That is what you are seeing in the Qualcomm numbers. People who ship 3G/4G phones need to buy licenses from them.

 

What Cook is talking about is entering the lower priced segments. Guess which segment first time buyers in China belong to? As they enter lower priced segments, you are going to see ASP decline. However, that is not the same as pricing pressure due to competition. They are two different things. If Prosche decided to enter the mid-range market, their ASP will decline too. That does not mean they are under pricing pressure from Ferrari.

 

If you ship or manage products, you will understand segmentation.

 

There is a difference between market segmentation and market saturation.

 

The market for smartphones, generally, has not been saturated.  I think we might be able to agree on that.  However, I also contend that the market for "high end" smart phones hasn't been saturated either and, in fact, will not be saturated due to the nature of the consumer electronics industry.  (I explain below.)  Therefore, I do not attribute Apple's focus on older iPhone models simply to high end market saturation.  Instead, it's a direct result of the commoditization of the OS layer.

 

I have yet to see data showing that "high end" smart phone sales are flat.  Instead, analyst reports are showing that growth in that segment of the market is slowing, while growth in the lower priced segments is accelerating.  That is not because of saturation in the high end, per se.  It is because of commoditization of the product (bundled OS and hardware), where there is a blurring of functionality in the price segments.  (Clayton Christensen's worries appear to be coming true.)

 

What that means, I think, is that we will continue to see increased sales of "high end" smart phones going forward, especially since ASP decline will make these "high end" devices more within reach as time goes by.  However, because there won't be as much difference between the high-end phones and the mid-range (or even low-end) phones, most sales will be made in the low-end and mid-range segment.  Or we could even see segmentation by high-end, mid-range, and low-end effectively go away.

 

For example, iPhone 5 now has to compete with the HTC One, the Nexus 4, the Galaxy S4 and S3, Lumias, Z10s, etc.  Arguably all of these are considered high end phones, but some would say that the Nexus 4 and S3, for example, are not high end phones and, instead, are mid-range phones.  Either way, all these devices are substitutes for each other, and the price points vary greatly among them (16 GB Nexus 4: $350; 16 GB iPhone 5: $650; 32 GB HTC One: $575).  So, again, what we're seeing, IMO, is a blurring of the price segments, where eventually everyone will be able to afford the high end features because there won't really be many truly high end features left on the device/OS level.  Instead, software and services is where the money will be made.

 

This is standard fare in the consumer electronics space.  With consumer electronics, the distinction between low-end, mid-range, and high-end becomes much less relevant over time as ASP quickly declines and you reach an appliance-like level of functionality across the range of options.  Take a look at the PC market, and you'll see what I mean.  We're going to be seeing Haswell laptops/hybrids coming out this summer at awesome price points for consumers.  And that will be true of the "high end" as well, which will make those high end computers within reach of most people (if they want them).  But very few consumers care about the "high end" of the PC market now days because there is very little functional difference between high-end hardware and mid-range/lower-end hardware, which includes tablets. 

 

So what do we see Apple doing?  They are engaging in market segmentation. 

 

You're partially right that they are engaging in market segmentation because they have topped out in market share at the high end.  But they also have to engage in market segmentation by getting people into their OS ecosystem sooner rather than later, before commoditization (from the increased competition) screws them over.  I see their segmentation as price cuts where they are focusing on getting buy in to their OS and ecosystem for a future where software and services matter, rather than an embedded license business model.

 

Not saturated, huh?

 

http://mobile.pcmag.com/#!/article/51d86c2b93e8e4cb75066aac-samsung-misses-expectations-shares-take-a-hit

 

Any other theories?

[Liberty]

http://www.forbes.com/sites/roberthof/2013/07/07/has-the-smartphone-boom-peaked-ominous-signs-pile-up/

 

Has The Smartphone Boom Peaked?

[Guest valueInv]

The global market for smart phones has not reached saturation.  That's really the market we're talking about here, and most folks would agree that there's a long runway for smart phone sales.  And remember, when it comes to getting a smart phone, a consumer has the choice of going for hardware on the high end, low end, or somewhere in between, and then he also has a choice of OS. 

 

So let's take China, for example.  Here's Tim Cook on the CC:

China has a unusually large number of potential first-time smartphone buyers, and that’s not lost on us. We’ve seen a significant interest in iPhone 4 there and have recently made it even more affordable to make it even more attractive to those first-time buyers. and so we’re hopeful that will help iPhone sales in the future.

 

That doesn't sound like market saturation to me. 

 

Instead, what it sounds like is that in order to keep iPhone unit sales (with iOS 6.1 licenses embedded into the price) growing in the face of stiff competition from Android device manufacturers, Apple has to sell their OS in the form of lower end hardware.  These are disguised price cuts that are starting to show up in ASP.  In fact, as I pointed out in my last post, management specifically noted that iPhone ASP decline was driven primarily by product mix. 

 

So the question to ask is whether Apple will need to continue to lower ASP to keep iPhone unit sales growing and whether iPhone GMs will stay constant or go down.  ASP and gross margins are connected because of the operating leverage associated with selling iPhone. 

 

I don't disagree with you that component costs have probably had an effect on gross margins, especially since Apple is reliant on people like Samsung for components (e.g., displays).  But take a look at the CC transcript again.  Management is guiding for lower GMs next quarter despite having better costs next quarter.  How can that be?  They told us this would be the case because of: (1) "loss of [operating] leverage on sequentially lower revenue"; and (2) "a different product mix."  Sounds like we could see further ASP decline next quarter and that GM on a unit basis is declining due to product mix.

 

I'm gonna go with Apple management over Horace Dediu.

You were the one who brought up Horace.

 

There are typically three price segments: High-end, mid-range and low-end. Apple today plays only in the high end. The only other player with traction in the high end is Samsung. High end users are also adopt technology earlier that other price segments. It is the high-end that is saturating.

Most people who could afford a $600 phone have already bought one. Saturation of the high end segment is likely to cause a slow down in the overall growth of smartphones. That is what you are seeing in the Qualcomm numbers. People who ship 3G/4G phones need to buy licenses from them.

 

What Cook is talking about is entering the lower priced segments. Guess which segment first time buyers in China belong to? As they enter lower priced segments, you are going to see ASP decline. However, that is not the same as pricing pressure due to competition. They are two different things. If Prosche decided to enter the mid-range market, their ASP will decline too. That does not mean they are under pricing pressure from Ferrari.

 

If you ship or manage products, you will understand segmentation.

 

There is a difference between market segmentation and market saturation.

 

The market for smartphones, generally, has not been saturated.  I think we might be able to agree on that.  However, I also contend that the market for "high end" smart phones hasn't been saturated either and, in fact, will not be saturated due to the nature of the consumer electronics industry.  (I explain below.)  Therefore, I do not attribute Apple's focus on older iPhone models simply to high end market saturation.  Instead, it's a direct result of the commoditization of the OS layer.

 

I have yet to see data showing that "high end" smart phone sales are flat.  Instead, analyst reports are showing that growth in that segment of the market is slowing, while growth in the lower priced segments is accelerating.  That is not because of saturation in the high end, per se.  It is because of commoditization of the product (bundled OS and hardware), where there is a blurring of functionality in the price segments.  (Clayton Christensen's worries appear to be coming true.)

 

What that means, I think, is that we will continue to see increased sales of "high end" smart phones going forward, especially since ASP decline will make these "high end" devices more within reach as time goes by.  However, because there won't be as much difference between the high-end phones and the mid-range (or even low-end) phones, most sales will be made in the low-end and mid-range segment.  Or we could even see segmentation by high-end, mid-range, and low-end effectively go away.

 

For example, iPhone 5 now has to compete with the HTC One, the Nexus 4, the Galaxy S4 and S3, Lumias, Z10s, etc.  Arguably all of these are considered high end phones, but some would say that the Nexus 4 and S3, for example, are not high end phones and, instead, are mid-range phones.  Either way, all these devices are substitutes for each other, and the price points vary greatly among them (16 GB Nexus 4: $350; 16 GB iPhone 5: $650; 32 GB HTC One: $575).  So, again, what we're seeing, IMO, is a blurring of the price segments, where eventually everyone will be able to afford the high end features because there won't really be many truly high end features left on the device/OS level.  Instead, software and services is where the money will be made.

 

This is standard fare in the consumer electronics space.  With consumer electronics, the distinction between low-end, mid-range, and high-end becomes much less relevant over time as ASP quickly declines and you reach an appliance-like level of functionality across the range of options.  Take a look at the PC market, and you'll see what I mean.  We're going to be seeing Haswell laptops/hybrids coming out this summer at awesome price points for consumers.  And that will be true of the "high end" as well, which will make those high end computers within reach of most people (if they want them).  But very few consumers care about the "high end" of the PC market now days because there is very little functional difference between high-end hardware and mid-range/lower-end hardware, which includes tablets. 

 

So what do we see Apple doing?  They are engaging in market segmentation. 

 

You're partially right that they are engaging in market segmentation because they have topped out in market share at the high end.  But they also have to engage in market segmentation by getting people into their OS ecosystem sooner rather than later, before commoditization (from the increased competition) screws them over.  I see their segmentation as price cuts where they are focusing on getting buy in to their OS and ecosystem for a future where software and services matter, rather than an embedded license business model.

 

Not saturated, huh?

 

http://mobile.pcmag.com/#!/article/51d86c2b93e8e4cb75066aac-samsung-misses-expectations-shares-take-a-hit

 

Any other theories?

 

And the WSJ on saturation and high-end:

 

http://online.wsj.com/article/SB10001424127887324260204578590412285883752.html

 

Highend - lowend. Thats segmentation.

[Guest valueInv]

I don't think the culture of Apple after Jobs is the same as before Jobs. As much as people want to think its preserved, Tim Cook doesn't want to imitate or copy his predecessor. Instead he has his own twist on things and his own management style. It will never be the Apple you claim to 'get' - you might be mistaking us not 'getting' Apple for the Apple during Steve Jobs' return. That was Apple as I knew it and today its very close but my opinion is Tim Cook isn't going to lead the company into risky times like Jobs. Remember Jobs brought colorful Macintosh computers with the circular mouse, and the ipod during a time when nobody thought those things could possibly sell. Even the iPhone was a colossal risk against entrenched companies. I'm not sure Tim Cook is the guy with significant vision or risk taking - I see him as preserving the status quo!

 

My other question was how can there be any benefit from India and China if they have agreed to not build a cheaper device. Either they lose those countries to the cheaper options like Windows Phone and Android, or they suck it up, build the cheaper iPhone and still make money (at a loss of margin). I don't see either scenario being great for Apple though...

 

Cook maybe changing the culture but he is keeping the values. They've even created ads to tell you so. They can enter lower priced segments and continue to grow their cash flow.  The former does not rule out the latter.

 

They have done a huge risky redesign of their product. Cook fired the second most powerful guy in Apple. They are completely revamping their supply chain, made their biggest capital expenditures and started the biggest capital return in history. And they are entering new product categories. Cook hardly seems to be preserving status quo.

 

Risky redesign of which product?  iPhone5...iPad Mini?  If this is risky, then I would hate to see what safe is. 

 

Also, there has been a bit of a backlash to the "Designed in California" ad...why not "Designed in the U.S.?"  Why the whole California, we're 60 year old hippies and cool, push.  It's been the lowest scoring Apple ad in history! 

 

http://bostinno.streetwise.co/2013/06/28/new-designed-by-apple-in-california-commercial-is-lowest-scoring-apple-ad-ever-videos/

 

The iWatch or iTV better be around the corner, otherwise things are going to get stale pretty quick.  Remember when DELL missed the advance of tablets or Microsoft missed the advance of Google Search...Apple better avoid any sort of similar complacency.  Cheers!

 

I wonder what ratings this ad got?

 

http://www.youtube.com/watch?v=uhM-DuM2WgE#action=share

[txlaw]

The global market for smart phones has not reached saturation.  That's really the market we're talking about here, and most folks would agree that there's a long runway for smart phone sales.  And remember, when it comes to getting a smart phone, a consumer has the choice of going for hardware on the high end, low end, or somewhere in between, and then he also has a choice of OS. 

 

So let's take China, for example.  Here's Tim Cook on the CC:

China has a unusually large number of potential first-time smartphone buyers, and that’s not lost on us. We’ve seen a significant interest in iPhone 4 there and have recently made it even more affordable to make it even more attractive to those first-time buyers. and so we’re hopeful that will help iPhone sales in the future.

 

That doesn't sound like market saturation to me. 

 

Instead, what it sounds like is that in order to keep iPhone unit sales (with iOS 6.1 licenses embedded into the price) growing in the face of stiff competition from Android device manufacturers, Apple has to sell their OS in the form of lower end hardware.  These are disguised price cuts that are starting to show up in ASP.  In fact, as I pointed out in my last post, management specifically noted that iPhone ASP decline was driven primarily by product mix. 

 

So the question to ask is whether Apple will need to continue to lower ASP to keep iPhone unit sales growing and whether iPhone GMs will stay constant or go down.  ASP and gross margins are connected because of the operating leverage associated with selling iPhone. 

 

I don't disagree with you that component costs have probably had an effect on gross margins, especially since Apple is reliant on people like Samsung for components (e.g., displays).  But take a look at the CC transcript again.  Management is guiding for lower GMs next quarter despite having better costs next quarter.  How can that be?  They told us this would be the case because of: (1) "loss of [operating] leverage on sequentially lower revenue"; and (2) "a different product mix."  Sounds like we could see further ASP decline next quarter and that GM on a unit basis is declining due to product mix.

 

I'm gonna go with Apple management over Horace Dediu.

You were the one who brought up Horace.

 

There are typically three price segments: High-end, mid-range and low-end. Apple today plays only in the high end. The only other player with traction in the high end is Samsung. High end users are also adopt technology earlier that other price segments. It is the high-end that is saturating.

Most people who could afford a $600 phone have already bought one. Saturation of the high end segment is likely to cause a slow down in the overall growth of smartphones. That is what you are seeing in the Qualcomm numbers. People who ship 3G/4G phones need to buy licenses from them.

 

What Cook is talking about is entering the lower priced segments. Guess which segment first time buyers in China belong to? As they enter lower priced segments, you are going to see ASP decline. However, that is not the same as pricing pressure due to competition. They are two different things. If Prosche decided to enter the mid-range market, their ASP will decline too. That does not mean they are under pricing pressure from Ferrari.

 

If you ship or manage products, you will understand segmentation.

 

There is a difference between market segmentation and market saturation.

 

The market for smartphones, generally, has not been saturated.  I think we might be able to agree on that.  However, I also contend that the market for "high end" smart phones hasn't been saturated either and, in fact, will not be saturated due to the nature of the consumer electronics industry.  (I explain below.)  Therefore, I do not attribute Apple's focus on older iPhone models simply to high end market saturation.  Instead, it's a direct result of the commoditization of the OS layer.

 

I have yet to see data showing that "high end" smart phone sales are flat.  Instead, analyst reports are showing that growth in that segment of the market is slowing, while growth in the lower priced segments is accelerating.  That is not because of saturation in the high end, per se.  It is because of commoditization of the product (bundled OS and hardware), where there is a blurring of functionality in the price segments.  (Clayton Christensen's worries appear to be coming true.)

 

What that means, I think, is that we will continue to see increased sales of "high end" smart phones going forward, especially since ASP decline will make these "high end" devices more within reach as time goes by.  However, because there won't be as much difference between the high-end phones and the mid-range (or even low-end) phones, most sales will be made in the low-end and mid-range segment.  Or we could even see segmentation by high-end, mid-range, and low-end effectively go away.

 

For example, iPhone 5 now has to compete with the HTC One, the Nexus 4, the Galaxy S4 and S3, Lumias, Z10s, etc.  Arguably all of these are considered high end phones, but some would say that the Nexus 4 and S3, for example, are not high end phones and, instead, are mid-range phones.  Either way, all these devices are substitutes for each other, and the price points vary greatly among them (16 GB Nexus 4: $350; 16 GB iPhone 5: $650; 32 GB HTC One: $575).  So, again, what we're seeing, IMO, is a blurring of the price segments, where eventually everyone will be able to afford the high end features because there won't really be many truly high end features left on the device/OS level.  Instead, software and services is where the money will be made.

 

This is standard fare in the consumer electronics space.  With consumer electronics, the distinction between low-end, mid-range, and high-end becomes much less relevant over time as ASP quickly declines and you reach an appliance-like level of functionality across the range of options.  Take a look at the PC market, and you'll see what I mean.  We're going to be seeing Haswell laptops/hybrids coming out this summer at awesome price points for consumers.  And that will be true of the "high end" as well, which will make those high end computers within reach of most people (if they want them).  But very few consumers care about the "high end" of the PC market now days because there is very little functional difference between high-end hardware and mid-range/lower-end hardware, which includes tablets. 

 

So what do we see Apple doing?  They are engaging in market segmentation. 

 

You're partially right that they are engaging in market segmentation because they have topped out in market share at the high end.  But they also have to engage in market segmentation by getting people into their OS ecosystem sooner rather than later, before commoditization (from the increased competition) screws them over.  I see their segmentation as price cuts where they are focusing on getting buy in to their OS and ecosystem for a future where software and services matter, rather than an embedded license business model.

 

Not saturated, huh?

 

http://mobile.pcmag.com/#!/article/51d86c2b93e8e4cb75066aac-samsung-misses-expectations-shares-take-a-hit

 

Any other theories?

 

And the WSJ on saturation and high-end:

 

http://online.wsj.com/article/SB10001424127887324260204578590412285883752.html

 

Highend - lowend. Thats segmentation.

 

From the Forbes article linked above:

 

* The thrill is gone. The latest smartphones, even the high-end ones, aren’t disappearing off the shelves. Indeed, one of Samsung’s key problems is that the new Galaxy S4 phone didn’t sell as well as expected. Meanwhile, cheaper smartphones increasingly are looking good enough, at least for the minority of phone owners who haven’t yet stepped up to higher-end models.

 

* Apps look more exciting than the phones themselves. Not only are a succession of apps such as Angry Birds, Instagram, Vine, and many others more cause for user excitement than the latest phones, they’re also the focus of investors–both venture capitalists and corporations, winning big slugs of funding and billion-dollar-plus exits. When software becomes the more important factor in a technology product, you know the hardware is likely to take more of a back seat in years to come.

 

So it's more than just segmentation -- we're also seeing commoditization of hardware (and the OS).

 

Commoditization is causing the distinction between "low end," "high end," and "mid range" to disappear, and the "low end" and "mid range" market could swallow up the "high end" fairly soon.  Which is why Apple has to engage in segmentation -- because if they don't, their unit sales could drop dramatically. 

 

The only saving grace I see for the "high end" is if we begin to see hardware that plays dual roles, where we start running desktop OS's off of the phone.

[Guest valueInv]

People with money are more technology literate and adopt new technologies quickly. The lower end is populated with late adopters. That is why you see the high end saturated and the low end still growing. The emerging markets are low end heavy. Apple is introducing a cheaper phone to mid range customers because everyone who is on the high end has already bought a smartphone. Its 5 years since the first iPhone was introduced.

 

See the saturation now?

[Palantir]

You say software and services is where the money will be made. But who exactly is making money selling software and services on mobile?

[rohitc99]

for whatever it is worth, iphone sales are picking up in india. I am seeing more people carrying and buying iphone now.

 

it is being priced at around 400 dollars (25000 rs) and there are special discounts (students get 5000 rs off) and EMI schemes. as a result, there are a lot more people buying iphones now.

[Guest valueInv]

 

Tim Cook:

 

http://www.digitalspy.com/tech/news/a458338/apples-tim-cook-we-will-make-iphone-more-affordable.html

 

Affordability has to do with ability to pay, not commoditization. If high end phones were getting commoditized, the S4 will sell less than the S3.

[txlaw]

People with money are more technology literate and adopt new technologies quickly. The lower end is populated with late adopters. That is why you see the high end saturated and the low end still growing. The emerging markets are low end heavy. Apple is introducing a cheaper phone to mid range customers because everyone who is on the high end has already bought a smartphone. Its 5 years since the first iPhone was introduced.

 

See the saturation now?

 

I agree that there is saturation on the "high end," at least in the biggest markets (NA, Europe, etc.).  What I don't agree with is the notion that the "high end" market will remain static.  IMO, the "high end" will become a smaller market and the "mid-range" segment will swallow up a lot of those customers who were previously on the "high end."

 

The reason why Apple generated such astounding levels of growth over the last 5 years is because people who wouldn't traditionally be "early adopters" bought the latest and greatest iPhone.  This is a testament to the value proposition that the iPhone was and still is, despite being a very expensive product.  However, as the technology becomes "good enough," the high end segment becomes smaller.  Many who bought this "high end" product will go with "mid-range" or "less high end" products on their next upgrade.

 

We even see that the true "early adopters" who gravitate towards the latest and greatest are increasingly willing to trade the highest of the "high end" devices for what one might call "mid-range phones" or "less high end" phones.  They're also deferring upgrading their devices to get the latest OS. 

 

I had a PM conversation with another board member who is very technologically savvy, and we discussed whether or not we would pay to upgrade to iOS 7.  We both agreed that we would not.  That's not good for Apple, at least with respect to iPhones.   

[jeffmori7]

 

 

I had a PM conversation with another board member who is very technologically savvy, and we discussed whether or not we would pay to upgrade to iOS 7.  We both agreed that we would not.  That's not good for Apple, at least with respect to iPhones. 

 

txlaw, could you explain a bit why you are not interested in iOS 7? I'm just curious, as it was presented as a major upgrade compared to the latest versions. Thanks.

[txlaw]

 

 

I had a PM conversation with another board member who is very technologically savvy, and we discussed whether or not we would pay to upgrade to iOS 7.  We both agreed that we would not.  That's not good for Apple, at least with respect to iPhones. 

 

txlaw, could you explain a bit why you are not interested in iOS 7? I'm just curious, as it was presented as a major upgrade compared to the latest versions. Thanks.

 

It's not that I'm not interested in iOS 7.  I will probably upgrade my iPhone 5 to iOS 7 when it is released, as it will be a free upgrade.  (Although if it makes my battery life worse because of the multi-tasking update, I might not update my phone at all.  I'm right on the line in terms of acceptable battery life.)

 

However, I certainly would not get a new version of the iPhone (call it the iPhone 5S or 6) solely because I want a device that runs iOS 7 comfortably.  It's not that great of an update to warrant paying for new hardware.  It borrows a lot from all the other OS's out there, and I'm waiting to see if Key Lime Pie will be just as good -- or even better.

 

As to what I would pay to upgrade to iOS 7 on my iPhone 5, if there are no battery life issues, I'd probably pay some small amount to upgrade similar to what it costs to upgrade OSX when they release new versions.

[hardincap]

"We even see that the true "early adopters" who gravitate towards the latest and greatest are increasingly willing to trade the highest of the "high end" devices for what one might call "mid-range phones" or "less high end" phones.  They're also deferring upgrading their devices to get the latest OS.  "

 

How do you figure? Wheres the evidence?