TechNode

Apple’s Fall in China Could Show Its Great Decline

Apple needs to pivot or 2019 could be its worst year in a long while.

Apple and Samsung have both shown weakening in China sales as trade war rhetoric appears to have stimulated Chinese consumers to buy more local brands like Huawei.

It was not too long ago that Apple was the most valuable public company by market cap. Now it ranks 4th.

Apple has a new partnership with Samsung, but both appear losers to Chinese smart phone brands. Huawei and Xiaomi still show a very positive trajectory for their brands, as smartphone saturation and the upgrade cycle shows 2019 as a dip year.

Apple wants to pivot to “services”, which according to Tim Cook has ballooned into a $41 Billion cash-cow for the moment. One which Netflix already opted-out of. Apple’s ecosystem while impressive, isn’t that big. Apple Music is already being beaten by the likes of Spotify (better AI) and Tencent Music (bigger market). Apple needs to pivot into original content and advertising in a hurry. It’s not the innovation centric company their CEO claims it is and hasn’t been for a great many years.

Apple hasn’t been this unloved by Wall Street since 2005

Analysts have the smallest percentage of buy ratings on Apple stock since 2005, a contrarian indicator. Amid some very odd warnings and iPhone sales metrics changes, Apple is clearly not the company it used to be.

With an economic slowdown likely approaching in 2019 and a global recession in 2020, a luxury brand like Apple can’t hope to possibly do well in their chief cash cow of iPhones moving forwards. Apple’s stock has been hammered recently due to the bearish sentiment on FANG recently, and more indications that Apple’s internal culture of innovation is failing.

Apple’s sales warnings and weakness in China underlies the destructive power of the trade and tech wars between America and China. The markets are following sentiment and not data, and that’s never a good thing when politics impacts bottom lines too much. Apple now is cutting iPhone production by 10% between January and March, 2019.

Trump wants to punish China for IP theft and cybersecurity invasion, China knows its the next economic and technological superpower in waiting — strange times for the global climate where the developing world will be forced to choose China, amid this war of Titans.

Apple CEO Tim Cook sent a note to investors warning that first quarter revenue would reach about $84 billion, lower than the $89 billion-$93 billion the company had previously guided. The blaming of weak China sales is problematic for a company that has been unable to reinvent itself or grow its ecosystem in any considerable way the last few years. Smart speakers and not the AppleWatch appear to have gained mainstream traction. Apple’s HomePod appears little more than a glorified speaker with a somewhat limited Siri.

ApplePay did not realize its potential, though I think it’s safe to say the AppleWatch matured into a stellar wearable product, albeit a premium luxury consumer product. Stealth projects such as AR glasses and smart car innovation remain top secret with a low chance of being truly captivating of marketshare.

Some would argue that Apple needs to acquire something to keep its magic, but that’s not typically in Apple’s DNA. Would it even venture to acquire someone like Tesla or Snapchat? It’s not really clear if it would even with all of its spare cash. Apple is so rich, it could even acquire Netflix or Lyft. Even someone like Hulu or PayPal in 2019 would make a lot of sense.

But Apple’s future in China is over, it will lose marketshare in a significant way in 2019 I expect. If China can snuff out foreign competitors like Korean brands, there’s no reason to expect even successful brands like Apple or Starbucks have a long-term future in China. This is because they conflict with state sponsored companies such as Huawei and Luckin Coffee. The Chinese internet isn’t superior to the Western one by accident.

Apple is an awkward outdated luxury sector brand in a space where the repurchase cycle is will get hit hard by a global recession in the 2019 to 2021 period. Apple shares plummeted in the fourth quarter (late 2018), losing more than 30 percent. It’s been a crazy ride, yet Apple remains one of the biggest and most powerful companies in the world. It could be that multinational corporations are largely underestimating the impact of the U.S.-China trade war on their bottom lines. Nationalism isn’t good necessarily for the global economy.

Apple needs to untether itself from the past, and the iPhone to realize its next potential. Apple has incredible customer satisfaction and loyalty in the industry, but it has to convert that to the future with new products and real innovation. However, let’s not be naive, Apple’s decline in iPhone shipments poses an immense risk to its strong services growth. It’s a chicken-egg problem.

Tim Cook is a pragmatist, if not the visionary Steve Jobs was.

Apple’s ability to increase its average selling price for the iPhone is a boon and a curse to its brand reputation. In Apple’s last fiscal year, the company generated $100 billion in revenue not tied to the iPhone, Cook says. Still, it’s difficult to fathom what Apple could become in order to survive. It’s no longer a leader in artificial intelligence, its HomePod didn’t keep up with Amazon or Google — it’s neither here or there with the pace of the future.

Apple Needs a New Identity

The AppleWatch can flirt with AFib or ECGs but that’s not the kind of innovation one expects from a company with the kinds of talent and cash Apple possesses. Yes Tech is going into healthcare, but Amazon, Google, and even Facebook seem better placed to impact it. Apple has become more unloved by Wall Street analysts than at any time in the past 14 years and it should concern Apple geekdom and fanboys.

But how do you justify faulting a company with $63 billion in revenue? Sure Apple Services seem rosy. Apple’s services, which include the App Store, iTunes, Apple Pay, Apple Music and iCloud, have been growing rapidly quarter over quarter, but is that a definitive future? Apple Needs a new identity that isn’t just Apple.

Apple thinks it’s a leading and virtuous ecosystem, and that’s part of the problem.