Better Apple Watch charging stands may finally be coming

23 Jul 2015 | Author: | No comments yet »

How the obsession over Apple’s stock plunge reveals our skewed view of the economy.

Only Apple (AAPL) can post sales and profits up more than 33% year-on-year and still disappoint investors. You’d think that Apple’s latest earnings report, released Tuesday, would be taken as unalloyed good news: Revenue increased 33 percent and profits increased 38 percent from last year, to $49.6 billion and $10.7 billion, respectively.

Apple kept quiet on exact numbers during its fiscal third-quarter earnings call, but the firm said that the wearable got off to a “great start” with sales “exceeding internal expectations” and trumping early sales seen by the iPhone and iPad at launch. And its Greater China region sales continued their momentum, more than doubling to $13 billion—representing more than one quarter of the company’s revenue. If capturing a remarkable 92% of global smartphone profits and accumulating $200 billion in cash reserves doesn’t prove the Apple ecosystem is working, I don’t know what does. While Apple’s numbers indicate market share gains in just about every product, there’s one device that still has everyone guessing: the Apple Watch.

And Apple’s revenue slightly missed the $51.13 billion that was anticipated. “Apple Plunge Erases $38 Billion as Product Concern Resurfaces” blared Bloomberg Business. But CEO Tim Cook said on the company’s earnings call this week (July 21) that iPhone unit sales there grew 87% year-over-year. “This is particularly impressive,” Cook added, “given IDC’s estimate of only 5% growth for the Greater China smartphone market.” Apple’s stolen share comes mostly at Samsung’s expense. In comparison, Apple’s closest challenger, Samsung, sold 400,000 smartwatches in the second quarter, giving it a 7.5 percent share of the overall market.

Other headlines included “Apple gives weak forecast, shares fall nearly 7 percent” and “Apple Profit Up 38 percent, but iPhone Sales Disappoint Wall Street.” In other words, the global juggernaut’s latest numbers were merely “really good” as opposed to “totally #AmazeBalls.” So suddenly everyone on the business news beat sees ominous thunderclouds on the horizon. But it is also taking a big chunk of the profitable, high-end of the market away from Chinese handset companies, which include Lenovo, Xiaomi, and Huawei.

It is the most successful smartwatch ever, selling twice as many units as the rest of the competition combined and it has only been available for three months, and in limited quantities.” Early smartwatch pioneer Pebble shifted 1m watches in three years, while Google’s Android Wear watches produced by a variety of manufacturers only sold 800,000 before the end of last year. One local firm, ZTE, has tried to compete by shamelessly ripping off the iPhone 6-style design for its Blade S6 Plus. “We were impressed with ZTE’s attention to detail in mimicking the iPhone’s looks,” a Jefferies analyst wrote in a recent research report, “including an inscription on the back saying ‘Designed by ZTE in California Assembled in China’.” The ZTE phone costs less than $350 in China, according to the report, while Apple’s iPhone 6 Plus retails there for almost $1,000. As an indicator, within three months of going on sale about 1.8% of Guardian app users with iPhones capable of supporting a smartwatch have viewed a piece of Guardian content on an Apple Watch. Rajeev Nair, senior analyst at Strategy Analytics, said: “We estimate Samsung shipped 0.4 million smartwatches and captured eight percent market share worldwide for second position. “Apple and Samsung together account for eight in 10 of all smartwatches shipped globally. It seems to be a combination of several factors, from the larger screen design of the iPhone 6 and 6 Plus to increased distribution and Chinese purchasing power.

However, Samsung is a long way behind Apple and it will need to launch multiple new smartwatch models and apps across dozens of countries if it wants to reduce Apple’s global smartwatch leadership in the coming months.” µ Apple’s entry into the market has also been good for the competition, raising awareness of smartwatches, showing that there is a viable market and piquing the interest of non-iPhone users. Wood said: “Apple has sold enough for other manufacturers such as Samsung and Google to persevere, but whether smartwatches will ever be a blockbuster hit remains to be seen.” For now, the smartwatch remains a niche product that has many scratching their heads as to why they would want to spend £150 or more on a smartphone accessory. The first lens is a broad and philosophic question that balances how much good you think Apple’s products do, versus the damage from its international labor practices, political lobbying, and other matters.

As faster networks have finally opened up—China Mobile reported 190 million 4G subscribers in June, up from 14 million a year prior—the iPhone is an increasingly attractive option. “China Mobile has become Apple’s most important business partner,” Neil Cybart, a former Wall Street analyst, writes on his Above Avalon blog. And according to Re/Code, a report that Watch sales are decelerating that was widely picked up by the tech media failed to take all sales channels into account. Moving the bings, bongs and buzzes of smartphone alerts from the pocket or bag onto the wrist is the primary purpose of a smartwatch, but that perceived convenience isn’t a big enough draw for many to shell out £300. Francisco Jeronimo from research firm IDC said: “In one year, after Apple puts several million devices out there on peoples’ wrists, we will have much more detailed information on what people like, what they do with smartwatches, and what people want; it will completely change the shape of the category.” For smartwatches to enter the mainstream a killer feature or three will be required.

Here’s what determines the health and sustainability of any given business model: Does it bring in enough revenue — presumably because it provides a socially useful good or service that people are willing to pay for — to pay its workers and management, finance its operations, and maintain its needed capital? Meanwhile, Apple sold about 15 million iPads and roughly 5 million iPhones during a comparable period following their respective launches, so the Watch is expected to outsell those venerable products during its first year of production. In Apple’s case, as those topline revenue and profit numbers show, the answer is “hell yes, with plenty of room to spare.” The company’s cash reserves are gargantuan.

And while the smartwatch category is just getting started, IHS expects Apple to exit 2015 with 56% market share for the year with Samsung, LG, Pebble, Motorola and dozens of others fighting over what’s left. More broadly, China represents Apple’s most immediate, massive growth opportunity, as growth slows in its more mature markets, such as the Americas and Europe. Despite recent stock-market volatility, “nothing that’s happened has changed our fundamental view that China will be Apple’s largest market at some point in the future,” Cook said. In exchange, the investors get a cut of the company’s profits. (Keep in mind profit is just the gravy left over after you take care of all those essential business matters mentioned above.) Wall Street and the stock market are where investors go to buy, sell, and trade equity, and leveraging differences and trends in equity prices is how investors make their money: Buy when a stock is down, sell when it’s up.

For a new product in a relatively new market, I think customer satisfaction and reviews matter just as much as, if not more than, early sales and market share numbers. So how profits perform and how that moves equity markets is understandably their bread and butter, as are good performances that aren’t as good as the expectations they may have built into their investment strategy. Angela McIntyre, of research firm Gartner, said: “We could think of smartwatches as the evolution of the digital watch – they’ve been around for decades with a digital display, but now they have the capability to be connected. “According to Statistics Brain, 1.2bn traditional watches are sold every year and 23% of those are digital watches. While early reviewers mentioned the watch’s steep learning curve, how weak and slow the third party apps were and that the first version may not be for everyone, the iPhone also had more than its share of initial detractors. If just a small percentage of digital watches become connected, that’s a lot of smartwatches.” Technology companies are focused on watches with fancy touchscreens, but they are not the only ones looking at the sector.

Believe it or not, CNET said Apple’s first smartphone didn’t live up to the hype, recommended that folks wait for the sequel and gave it just 3.5 out of 5 stars. Traditional watch manufacturers are also eyeing up a lucrative new market that could attract buyers who have stopped wearing watches. “In the gifting market, as we head to Christmas, there could be a big uptake within cheaper, more basic smartwatches. Casio already has watches with Bluetooth connections to smartphones, while luxury watch makers such as Mont Blanc have entered the category with smartstraps that add screens to existing analogue watches.

So what investors and Wall Street analysts make of a company’s performance really has little to do with whether it’s “successful” in any meaningful sense. It’s not ideal, but a private, for-profit company can theoretically operate, provide jobs, and remain useful to society in perpetuity, with no profits at all.

There’s nothing malicious about this: Investment and stock trading are perfectly legitimate activities in the economy, and they deserve their own brand of reporting. While a hallmark of Apple is its laser-like focus on very few products – and it’s principally an iPhone company – it’s got a lot more going on than it did back in the day. But it’s instructive to imagine a world in which the journalism that services investors is just another set of trade publications, like those that report on biotechnology or construction. There are new platforms like CarPlay, HomeKit and HealthKit and new services such as Apple Pay, Apple Music and the long-awaited streaming TV service. Instead, the interests of investors dominate the business and economics reporting at major outlets like Reuters, Bloomberg, and The New York Times in outsized ways reminiscent of the Times’ well-known Style section.

If this is Apple’s way of toning down the hype until it comes into its own as a product deserving of the limelight, I think that’s actually a fairly sensible strategy, assuming it doesn’t dampen the enthusiasm of third-party app developers. If the watch just gives users another reason to remain in the fold or iSwitch from Droid to iOS, I’d call that “mission accomplished.” Steve Tobak is a management consultant, columnist, former senior executive and author of the upcoming book, “Real Leaders Don’t Follow: Being Extraordinary in the Age of the Entrepreneur.” Contact Tobak.

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