Tim Cook’s letter to investors wasn’t just a warning about Apple’s upcoming quarterly results; it was also an indication that Apple may be undergoing significant change.
Apple’s new year has not started well. Instead of rejoicing in another stellar quarter, Apple CEO Tim Cook sent a lengthy letter to investors warning of subpar iPhone sales and a $6 billion decline in overall revenue. This indicates that Apple will only generate around $84 billion in revenue during the holiday quarter, an impressive figure, but one that represents a five percent decline from the same quarter last year and confirms that all is not well in Cupertino.
However, while the news of the day is certainly negative, it may present Apple with an opportunity. Apple could use this as an opportunity to implement some changes in the future, as it reevaluates its lineup and strategy for the next round of product launches, with less pressure from the stock price and its streak of quarterly earnings growth. Here are five ways Apple’s disappointing first quarter could affect the remainder of the year and beyond:
Prices may drop
The most obvious method for Apple to increase growth would be to reduce prices. All of Apple’s product lines saw significant price increases in 2018; this was a disturbing development. Surprisingly, Tim Cook neglected to mention this in his letter, but it is difficult to believe that higher prices did not discourage people from upgrading. During the weeks leading up to Christmas, Apple used every tactic in its arsenal to increase sales, including increasing the credit on trade-ins, but nothing induces consumers to open their wallets faster than a genuine price reduction.
Wearables are destined to grow
Apple is the only company that understood the iPhone’s financial dominance would not last forever. And wearables are already paving the way for the next phase of development. In his letter, Cook highlighted the strength of Apple’s expanding wearables lineup, which he says “grew by nearly 50 percent year-over-year as Apple Watch and AirPods were wildly popular with holiday shoppers.”
AirPods 2 with water resistance and Hey Siri support are rumored to be on the way, and a new Apple Watch is expected in the fall, but Apple’s plan for wearables will not be limited to existing products. Apple is reportedly developing a pair of studio headphones and a pair of augmented reality (AR) glasses, so the company may release new wearable devices very soon. Also, let’s not forget that the iPod didn’t truly take off until Apple allowed Windows users to use it, so maybe 2019 will be the year Apple allows Android phones to work with the Apple Watch.
The return of cheaper devices is possible
In addition to increasing prices, Apple continued to reduce the quality of its entry-level products. Aside from the $329 iPad, Apple offered a few alternatives to its high-end devices that were more affordable. The iPhone SE was discontinued, the iPhone 8 was replaced by the more expensive XR, and the once-affordable Mac mini evolved into a relatively pricey professional computer. However, there are indications that Apple will reinstate the entry-level tier shortly. Apple is rumored to be developing a new iPad mini, which would add value to the tablet lineup. The iPhone SE and a sub-$1,000 MacBook could also make a comeback. That is, products we desire and can afford.
Services will grow in significance
In recent years, Apple’s Services category has masked a significant portion of the decline in hardware sales. According to Cook’s letter, Apple broke another record due to increased spending on apps and in-app purchases, Apple Music subscriptions, iCloud storage upgrades, etc. But with over a billion active devices in existence, the ground for growth is exceptionally fertile.
We already know that a new video service is on the way, and iCloud benefits could be expanded à la Google One. However, the golden goose is Messages. Currently free and integral to the Apple ecosystem, Apple could transform it into a cash cow by charging Android users for the service. Google has consistently failed to develop a messaging app that can compete with Messages, and I believe a Messages app that allows Android users to synchronize between devices and text from a PC would be wildly successful. Even with a few million subscribers, Apple could easily increase its Services revenue with a $2 or $5 per month cross-platform version of Messages.
Future features may follow international trends
If China is truly to blame for the decline in iPhone sales, Apple may begin offering customers in the far east an incentive to upgrade. We saw a glimpse of this with the dual SIM slots on the new iPhones — a feature that is significantly more important in Asia than in the United States — and Apple may increasingly look to Asia for future innovations. This includes greater investment in AI beyond, rapid charging, a focus on low-light photography, disappearing bezels, and, of course, more affordable pricing options. And it’s not as if American buyers wouldn’t be interested in these items.