Apple’s first fiscal quarter 2016 financial results yielded both good news and bad news. In the positive column, Apple made another boatload of money, reporting record quarterly revenue of $75.9 billion and record quarterly net income of $18.4 billion, or $3.28 per diluted share — results that compare to revenue of $74.6 billion and net income of $18 billion, or $3.06 per diluted share, in the year-ago quarter. Gross margin was 40.1 percent compared to 39.9 percent in 2015. DigitalTrends’ Lulu Chang notes that when compared to the worldwide GDP figures of last year, that would make Apple the equivalent of the 42nd richest country on the planet.
However, the picture was not so jolly on several fronts, including iPad sales, which were down another 21 points percent on revenue and 25 percent on volume compared with already depressed levels a year ago. Even the cash cow iPhones were flat in terms of both sales volume and revenue at zero and one percent growth yoy respectively.
Unsurprisingly, at least to me, the new iPad Pro is proving not to be the medicine for Apple’s iPad blues, nor was there ever much probable cause to imagine that it would be. It’s an impressive enough feat of engineering, and actually outsold Microsoft’s Surface Pro tablet PC in calendar Q4 2015,by a handy margin, but it’s still essentially a bigger, more expensive iPad Air 2, with a faster CPU, better audio, and available optional and expensive keyboard and stylus (“Pencil”) –- not a formula for mass-market appeal and sales, and definitely not the “next big thing” from Apple.
Indeed, Apple’s big problem is that it’s been suffering a next big thing drought. Its last modest hit was the bigger screen iPhone 6 and 6+ tablet combo, which was revolutionary evolutionary rather than revolutionary. The company’s last major next big thing home run was the original iPad, and that was nearly six years ago.
The Apple Watch certainly doesn’t qualify, as a “next big thing” must have, and I hope no one ever imagined it would either. The Watch, the ongoing evolution of the Apple TV, Apple music, Apple Pay, and of course the App Stores, have all been successes that contribute to the balance sheet, but not engines of exponential growth like the iPad, the original iPhone, and the iPod were in their day.
Macintosh computers remain real reliable sellers and cash generators, albeit down four percent in sales volume and three percent in revenue in Apple’s Q1/16 but the still – current second-generation MacBook Air, introduced going on six years ago, was the last real volume seller in OS X hardware. The 12-inch Retina MacBook is really pretty much a rehash of the notebook minimalism theme recycled from the original 2008 MacBook Air. It has a nice display, a keyboard some like and others don’t, and the dubious distinction of relying on just a single USB-C port for all I/O, video, and charging tasks, making optional adapter dongles a practical and inelegant necessity.
Overall, the status of Mac has been evolutionary or derivative rather than revolutionary for quite a while. The soundness of (most) Apple hardware design and the quality of materials and workmanship keeps Mac sales percolating, but with no breakout in a long time.
Some think the next big thing for Apple will be a self-driving iCar. Whether such a vehicle would or wouldn’t be a sales success is an imponderable at this point. I’m personally a major skeptic and non-fan of the whole autonomous car concept, and did a figurative first-pump when I read Chairman of the Executive Board for Porsche AG Dr. Oliver Blume’s comment to a German newspaper on Monday that “One wants to drive a Porsche by oneself. An iPhone belongs in your pocket, not on the road.” Yesss!
However polls suggest that some 50 percent of people would embrace the technology. How many would actually buy iCars at a price that would allow Apple to make money is another matter. Automaking is a famously low-margin business. Tesla, the most successful pure electric vehicle manufacturer today, still hasn’t made any money. Apple’s business model has always been high margins, which they’ve been able to maintain thanks to the aforementioned superior engineering and quality and a better user experience. It remains to be seen how entering the hard scrabble low margin auto business would shock their corporate culture.
Back on Apple’s traditional ground, a gaping hole in the company’s product profile is touchscreen and convertible laptops, which market analysts predict will be the fastest-growing PC product category in the coming year, International Data Corporation (IDC)’s latest Worldwide Quarterly Tablet Tracker noting that despite the slate tablet market’s negative trajectory overall, shipments for detachable tablets reached an all-time high of 8.1 million devices in the fourth calendar quarter 2015, more than doubling their shipments since the fourth calendar quarter of 2014. Note that IDC classifies the new iPad Pro as a detachable, which is a stretch in my estimation. Indeed Jitesh Ubrani, Senior Research Analyst with IDC’s Worldwide Quarterly Mobile Device Trackers sounds an optimistic note, saying: “Despite lukewarm reviews, the iPad Pro was the clear winner this season as it was the top selling detachable, surpassing notable entries from Microsoft and other PC vendors. It’s also important to note that the transition towards detachable tablets has presented positive opportunities for both Apple and Microsoft.”
A major reason why Apple hasn’t entered this market with a real Macintosh detachable, of course, is that OS X, unlike Windows 10, does not support touch input. One solution would be to engineer a companion product to the iPad Pro — essentially iPad Pro technology and engineering in a clamshell laptop and/or convertible-detachable form factor running the iOS. It wouldn’t be a Mac, of course, but I think such a product would sell well, and perhaps even in high enough volumes to reverse the iPad product line’s downward trajectory.
Why the iPad has been faltering for the past three years, with the product getting better and better than ever before, is largely due to it being squeezed between the larger screened iPhones and smaller, lighter Macs combined with a maturing tablet market. Even discounting the factors of market saturation, competition from cheap Android slates, and the “good enough for what I do with it” dynamic causing lengthy upgrade cycles, the iPad is such a great tool, it deserves to be doing better. I frequently criticize the iPad, mostly for shortcomings of the iOS, as a production platform, but I wouldn’t want to be without mine.
In the meantime, with nothing revolutionary on the horizon, Apple may have to settle for maintaining its maturing markets.