Apple’s Last Stand

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Apple was the first to a trillion dollars in today’s money but underneath this impressive valuation is a lot of really bad news as the company has put itself into a hole that looks nearly impossible to dig out of. Most of their revenue is tied directly or indirectly to the iPhone. And the iPhone, particularly in China, is facing a nightmare of delayed advancement, competition, and increasing sales resistance.

Let’s talk about the nightmarish “last stand” that Apple will likely face in the next two years.

The Ramp To 5G

5G is the news of the year. Everyone and their brother are talking about the roll out. Whether you go to IBM, Dell, any of the carriers, the US Government, or particularly Asia, 5G is presented as one of the most massive technology roll outs in history. It is coming next year and in China particularly everyone is all in. Well, everyone but Apple who is a about to be a dollar short and at least a year late. They appeared to be initially depending on Intel to dig them out, but Intel is having huge issues.

The allegations of intellectual property theft could contaminate the Intel technology they plan to use for a timely 5G roll out and that technology is already a year out from where it needs to be. Intel has yet to name either a new CEO or CMO, and concerns about the firm’s ability to execute appear to be driving Apple to suddenly hire a bunch of ex-Qualcomm employees. They have already signaled they are moving their PC emphasis to the iPad Pro which is ARM, not X86 based which suggests they have lost faith in Intel and plan to blindside the firm in the next year. Not that they haven’t done that before.

Rumor is that Intel is going to call on ex-Qualcomm executive (he was passed over there and left) Dr. Venkata (Murthy) Renduchintala. This could help focus Intel on the problem but given Intel has been accused of taking Qualcomm’s technology for the effort this might further contaminate (certainly by appearance at least) Intel’s intellectual property and if there is a connection to that theft, Murthy likely will quickly follow Intel’s last CEO, Brian Krzanich, out the door rapidly.

Given the Chinese Government is going to be making a huge deal about 5G leadership and likely backing Huawei, whose latest high-end phones are considered both better and less expensive than Apple’s, Apple could be largely forced out of that market—at least with regard to new sales—unless they can bring a 5G product to market more quickly then they currently appear to be able to do.

Cook’s Last Stand

Tim Cook, Apple’s CEO, is a logistics guy not a product guy. He has been doing a solid job cutting costs and raising prices. But that strategy only works if he can maintain customer lock-in because the competition out of China and South Korea continues to heat up. Both Samsung and Huawei have passed Apple in market share which is likely one of the reasons Apple has announced they will stop reporting unit sales and just focus on revenue and profit (something the SEC should likely object to because it obfuscates what looks to be a potential massive competitive growing financial risk for the firm).

Apple employs a lock-in strategy which means they design their ecosystem so that users have a great deal of difficulty moving to an alternative platform. They have been accused of crippling their older products in the past in order to force their users to move but been caught making it very difficult and extremely dangerous to do that again.

Qualcomm could likely bail the firm out, but there is so much animosity between the two firms (Apple has been aggressively trying to put Qualcomm out of business) that it is unlikely that the firm will come to Apple’s rescue—though Apple does have the funds to attempt a hostile takeover. Given Apple partner Broadcom already tried and failed at this I don’t give it much hope, but we are talking crazy amounts of money and a CEO that is likely approaching panic, so I would anticipate the attempt.

And, just like you wouldn’t ask General Custer to guide the army out of the Native American massacre he got that army in, you likely can’t depend on Cook to get Apple out of this mess.

Wrapping Up

Apple lacks product diversity. The company largely lives and dies on the iPhone and they have been dropping share and influence in that segment. They did grow revenue but only because they raised prices and their users had no choice but to accept the price increases. However as other firms have found out, lock-in isn’t absolute and if users conclude they are being cheated they will not only stop buying the firm’s products–they’ll abandon the vendor. I watched this happen at IBM in the late 1980s and the firm’s fall was almost terminal. (And now the company has flipped to an Open-Source Interoperability model that is far more attractive to customers and far less likely to kill the company).

Cook who was selected specifically because Jobs thought he was wrong for the job (Jobs always intended to return) has done a surprisingly good job given his mismatched skill set. But you can’t compete with just the tools of cost cutting and price raising, you have to bring out successful products and misnamed offerings like the Apple Watch, follow me products like the Home Pod, and not investing in products like their PCs has put the firm into a nasty single product mess.

I expect, unless Apple can find a way to do a hostile takeover of Qualcomm, Apple is going to find itself on the wrong side of a massacre in the second half of next year and—I’m pretty sure—Steve Jobs isn’t coming back to bail them out this time.

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About Author

As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

4 Comments

  1. By increasing the selling price and decreasing the numbers of iPhone sold. they are reducing the numbers of users in their eco system. which in turn reduce their potential income on their so called new revenue on services offered. to be able to sell services they need iPhone or Mac users. but increasing the price will kick user to other hardware platform like android or windows.

    The mistake was to increase price to get profit when sales numbers was down to gain higher margin. its like killing the golden goose which lay the golden eggs. Nowadays its all about users. if their users fall. i think even google will renegotiate their price for putting the default search engine. which is also quite a sum.

  2. Pingback: Is Apple Evil? You Betcha!

  3. When Microsoft was a “so-called” Monopoly in the late 90s because something like 94% of all of the world’s computers were running on Windows and Microsoft was abusing its power to develop and issue products such as Internet Explorer for FREE, which put Netscape out of business. And they were integrating other third-party developers’ Apps (an Apple term short for Application – which makes LOTS more sense) programs directly into extremely beneficial areas of MS Office and more. So let me ask you, is Google EVIL? Is Amazon EVIL? Because Apple, Microsoft, Google, Amazon, and even Samsung to a small but growing degree do the EXACT, EXACT same thing. How many companies can Amazon get Alexa forced into when they (Bose, JBL, Denon, Alpine, Blaupunkt, iHome, Logitech, and MANY, MANY more) weight the pros and cons of integrating a Google Home Assistant or Alexa? Because both Google and Amazon are doing that. And I am ONLY taking the time to share with you one hotly contested market where Apple, Google, and Amazon all want to become THE standard for our Living Rooms and our Kitchens, and our cars and everywhere else. Our workplaces. It goes on. And BIG BAD MONOPOLIZING MICROSOFT who was SOOO dominant, and in such a position that it was unimaginable that another company EVER could come along and fairly compete with them. They were just too SWARMINGLY POWERFUL. Well, things do change. They can’t get a smartphone OR an MP3 player to catch on to save their lives. They also can’t seem to gain ANY market share (ANY!) for their AI Assistant Cortana, which is every bit as good – or better – as the others. Because what those are is talking search engines. And MSN, The Microsoft Network, and now Bing have been in this game collecting the workd’s information for decades. So, is APPLE EVIL? No! They are damn good at not letting their painful past repeat itself. And each of these companies would have to be called EVIL if you want to call even ONE of them EVIL.

    Incidentally, I’m sure nobody noticed that when you clicked the image link to arrive here, the URL shown at the top BRIEFLY, and I mean briefly, said, “Techspective Net is a Google site for the purposes of promoting only Google products.” It then quickly switched to a palatable URL/Domain for all to view without being angered about them.

  4. Agreed power leads to abuse and Microsoft got hit by both the US DOJ and the European Commission pretty hard for their alleged bad behavior. Now they are a champion of Open ecosystems and platforms even flipping from their own proprietary browser technology to Google’s open alternative. But Apple hasn’t learned this lesson yet (and I’d argue Google and Facebook haven’t either). Microsoft’s inability with Cortana is an execution issue, not really evil but they certainly were doing some pretty evil things in the 90s and it cost them a lot (including their iconic CEO Bill Gates). The better comparison with Apple, however, is IBM who used lock in as their predominant revenue generating strategy, the same strategy that Apple is using. It is the opposite of Open and it allows them to increase prices to their hearts’ content until, like what happened with IBM, people abandon the platform (which, based on their declining numbers and decision to stop reporting sales volume) may already be happening. You could argue what Apple is doing is not so much evil as stupid but I’d likely argue both.

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