Review: New Apple TV brings iPhone-like apps to big screen

29 Oct 2015 | Author: | No comments yet »

Apple could be the victim of its own success.

The iPod looked like just another music player – not a product that could transform Apple’s fortunes, then a computer maker struggling with generating profit. In fiscal 2015, which ended for Apple on Sept. 26, Greater China provided 25 percent of the company’s revenue, for the first time overtaking Europe, responsible for just 21.6 percent of Apple sales. “Frankly, if I were to shut off my web and shut off the TV and just look at how many customers are coming in our stores regardless of whether they’re buying, how many people are coming online, and in addition looking at our sales trends, I wouldn’t know there was any economic issue at all in China.

Apple Inc reported blockbuster iPhone sales in China, suggesting that worries about the company’s growth trajectory in the world’s second-largest economy are overdone. The stock has lost about 7 percent of its value in the past three months as investors fret that the slowing Chinese economy would derail Apple’s successful run in the country.

In the July-September period, sales of iPhones grew almost a quarter compared to the same period in 2014, even as rivals such as Samsung and LG saw slower sales. Apple’s sales in Greater China, including Taiwan and Hong Kong, nearly doubled in the third quarter, accounting for nearly a quarter of the company’s total sales. “If the Chinese consumer is pulling back on spending then it seems to be either at the very high luxury end or maybe on some of the everyday non-essential items,” Atlantic Equities analyst James Cordwell said. “I think the smartphone is increasingly viewed as an essential in China. Instead, the company posted monster growth, even when it was far from perfect. (ie, iPad sales continued to slump; iTunes sales falling.) It rolled out a host of new products — Apple Watch, Apple Pay, Apple Music, new Apple TV, iPad Pro (available in November) — whose full measure won’t come at least for another year. But in the meantime, here are some interesting bits and pieces in the filing, some just observations and others that we hadn’t noticed before, that underscore the notion that Apple remains a juggernaut: Total R&D expense was $8.1 billion in 2015, up from $6.0 billion in 2014, $4.5 billion in 2013 and $3.4 billion in 2012.

Few analysts changed their price target on Apple’s stock after the results and only Pacific Crest changed its rating, upgrading the stock to “overweight” from “sector weight”, according to Thomson Reuters data. In 2014, the new iPhone 6 wasn’t immediately available in China, so the fourth quarter didn’t benefit from the new product boost — and still sales were higher than in the previous three months.

The key challenge for a company looking for the next big thing is that “the smartphone is the most important consumer product ever,” according to Andy Hargreaves, a financial analyst at Pacific Crest. It’s the most widely distributed consumer gadget in history, with about 2.4bn in use, viewed as essential by everyone from Wall Street bankers to refugees trying to navigate a foreign land. This year, Apple felt obligated to add this warning to its disclosures: “Further, the Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact quarterly net sales.” Apple is still indirectly in the crosshairs of the European Union’s investigations into Ireland’s tax breaks it offered to the company.

And about 400m of them are iPhones. “Apple will continue to be the victim of its own success,” says Geoff Blaber, vice-president of US research at industry analysts CCS Insight. “The iPhone sells for vastly more than its competitors, but it’s unlikely there will be another product that can match that for price and volume.” For now though the numbers around Apple are stunning. Cook is banking on the future growth of the Chinese middle class, and that’s an obvious long-term bet to make, but under the current economic conditions, this growth is not likely to be explosive. Apple can be viewed as two companies: one selling iPhones, and one selling everything else – iPads, iPods, Apple Watch, iTunes downloads, apps, accessories and so on. Besides, Apple won’t even be able to grow its sales at the same rate because many Chinese consumers will opt for better-value devices from local producers, as they’re already doing, judging by the market share data. Video enthusiasts may complain that it doesn’t support a higher-quality video standard called ultra-high definition or 4K, as several other streaming boxes do.

Daniel Tello, who follows Apple’s financials closely, points out that over the past 12 months the iPhone business grew by 52% – but everything else, rolled together, shrank by 3%. The Apple TV remote doesn’t have a headphone jack, which other streaming devices like the Roku 3 and 4 and the Nvidia Shield offer to spare your family and roommates late at night.

Unless China’s economic troubles are miraculously cured over the next year or Huawei and Xiaomi stop making cutting-edge devices for a fraction of Apple’s prices, this growth engine has stalled. Cook’s bet on China was, of course, no mistake: It would be a crime for a device producer not to develop a strong presence in the world’s most populous country. Unless that starts growing fast, it won’t compensate for any slowdown in iPhone sales, though Colello says: “We remain optimistic that the device will take off at some point, especially as customer satisfaction metrics …are encouraging.” Influential technology companies often keep growing for a while after their influence peaks. This was the first full-year the iPad experienced an annual drop in sales, and only growth in China iPad sales is probably preventing it from being a total collapse at this point.

Allowing for inflation, Microsoft was worth even more than Apple in 1999-2000; now its dominance of the PC industry counts for little because smartphones outnumber them. Similarly, the mobile business of Finland’s Nokia ruled before the arrival of the iPhone and Google’s Android; now it is a lossmaking rump inside Microsoft. Now with the rise of Google and Facebook, the rules of the game are changing to a software-only focus, and new technologies such as “machine learning” process huge amounts of data from users. — You can control playback by asking Siri to rewind 45 seconds or jump ahead five minutes, though some services won’t let you forward past commercials.

Apple has for months been poaching employees from companies such as electric carmaker Tesla, motorbike maker Mission Motors, and battery maker 123 Systems. Sir Jony Ive, the design wizard who has put his imprint on the product’s hardware and software, implied as much in a New Yorker interview in February: “There are some shocking cars on the road,” he said. “One person’s car is another person’s scenery.” The car business is commoditised. This feature isn’t unique to Apple TV, but unlike the competition, Apple TV feeds you info without interrupting your video by sliding up results from the bottom of the screen. Earlier this month, Tesla’s Elon Musk dismissed Apple’s plans.“Cars are very complex compared to phones of smartwatches,” he said. “You can’t just go to a supplier like Foxconn [which assembles the iPhone] and say: ‘Build me a car.’” Musk may have tempted history but for now, Apple will have to keep relying on the iPhone.

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