Apple’s Last Stand

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.