NPPraxis on the decline of Apple's stock

apple

(Sam Solomon) #1

I found this commentary interesting from reddit user NPPraxis about the recent decline in Apple’s stock. In particular, I feel like the comments on Apple’s failures with the Macbook Pro and the decline of the halo effect particularly of note.


I’m a longtime Apple bull, and even I’m worried- and not specifically for this quarter.

I’m going to label my thoughts here for easier skimming:

This year’s iPhones

I actually go against the grain here in that I think the iPhone lineup is in a great place. Apple screwed up on marketing . iPhone sales are falling because people are simply holding on to their phones longer, not leaving the ecosystem, and Apple’s poor marketing this year exacerbated this. The longer-phone trend will hurt Apple’s iPhone sales (and smartphone sales in general), but there’s a floor to how badly it will hurt them as long as they aren’t losing users.

The iPhone XR is one of the best products they’ve put out in years, but the name makes people compare it to the iPhone X. Then they say “it’s worse than last year’s phone!” (Only sort of true- better CPU, better camera, better battery, but thicker and worse screen.) Meanwhile, the iPhone XS seems very expensive.

I’ve heard this sentiment from my neighbor even. “Oh, I heard the new iPhone this year is actually worse than last years’”. That’s when you know Apple screwed up on messaging. The name “XR” caused comparisons to the X for the layman. When I go in Apple stores these days, people have a really hard time deciding between an iPhone X, XR, and XS. Apple blurred the lines too much. I think it was also a mistake to make the low-end phone have the “middle” sized screen.

The iPhone XR should have had a name that caused comparisons to last years’ low end iPhone rather than last years’ high end iPhone. If it was called the ‘iPhone 9’ all this customer confusion would’ve been eliminated.

I don’t think the iPhone is in as much danger as people think. Customer satisfaction and Android switch rates are really high on the new iPhones. People are just…holding their phones from last year longer, because Apple didn’t make people feel pressed to upgrade based on messaging.

I have an iPhone XR and I’ve never been more satisfied with a phone purchase. I love the increased battery life more than any other feature.

So this seems positive right? Why do I say I’m worried?

The iPad

The iPad is in a corner. When Apple rolled out the iPad with an iOS-based operating system, this was the right move for the time. I tried out several Windows-based tablets over the last couple years, and they were absolute garbage. The iPad knocked it out of the park- the lightweight OS made it a good tablet.

But now, the calculus is reversed. Apple has knocked it out of the park on the hardware- iPad benchmarks are through the roof, competing with high end i7 processors in benchmarks. Apple’s chip fabs have done something absolutely astounding here. The A12X beats the i7 in single-core benchmarks and keeps up closely in multi-core (4 cores vs 6 on the i7).

But the iPad’s software is…simply incapable of using this out-of-the-park hardware. It was great when mobile hardware sucked, but now, it just is too hard to have a good workflow. Apple has decent 4K video editing software and can show off performance, but the iPad lacks the I/O to have any sort of decent workflow, and the interface to really work with it (can’t use external drives effectively, barely has enough internal storage, filesystem is ‘accessible’ only on a basic level, most apps can’t browse it easily).

I don’t know how Apple can fix this. iOS is just too limited to be useful. A software developer will never do their work on an iPad. Neither will a high end movie editor. You can , but it’s awkward.

Meanwhile, the Surface Pro is just knocking it out of the park. My (photographer) wife switched from an iPad Pro to a Surface Pro. The iPad Pro’s pen support is slightly better to feel but the Surface Pro’s flexibility just makes it way better to work with. She can switch between different apps to work on files easily, save them on the network or use an external drive or MicroSD card. She can plug her camera directly into it without carrying adapters.

The iPad Pro’s CPU may knock out the Surface Pro but there’s no software to effectively use it.

And I don’t know how Apple can fix this. The iPad seems destined to be only for content consumption as long as the OS is limited, no matter how much Apple tries to push it.

The Mac hardware lineup is in the worst state I have ever seen it.

Apple is increasingly falling further and further behind in their refresh cycles. The Mac Mini took 4 years to refresh and the new Mac Mini is at a much higher price point. The Mac Pro is years out of date. Apple’s MacBooks use ultralight Intel processors that are so bad that they get absolutely demolished by iPads in benchmarks.

The MacBook Pro lineup has never been this overpriced compared to the competition, and I think the Touch Bar is a huge contributor- it’s mostly useless but you can’t choose not to have it. The “Pro” lineup is focused on thinness over performance. Apple’s all-in bet on USB-C and Thunderbolt is an issue because the rest of the industry hasn’t followed closely enough- it’s still really expensive to get peripherals- and it creates a situation where you need a ton of dongles (and seriously, no SD card slot? You’re going to force photographers, one of your biggest markets, to carry dongles and adapters?).

The only decent Mac lineup at the moment is the iMac. This is the first time I’ve ever felt like I have a hard time recommending my non-techy friends buy a Mac. Some of their low end devices still use physical hard drives even!

This is the most fixable part of Apple’s issue right now and it’s downright embarrassing that it’s in this state with their resources.

There’s a general theory that things are falling behind because Apple is prepping for an ARM switch through their own CPU fabs, which is a fascinating theory. It could result in Mac laptops that just absolutely demolish the competition, if iPad benchmarks are anything to go on (imagine an A12X with 2x or 3x the cores in a MacBook Pro). Apple can effectively make this transition by copying the strategy they used with the PowerPC-to-Intel transition- modify XCode so that every compile embeds an ARM and x86 binary, and within a couple years all Mac apps will work on both platforms, and maybe embed an x86 emulator to run un-updated apps at slow speeds. But it will also cripple Mac purchases in a large number of markets, because running Windows through a VM or Boot Camp will no longer be possible, and a lot of applications that enable Win32 execution- like WineSkin, CrossOver, PlayOnMac, DOSBox etc- won’t work anymore. Heck, many retail MacOS games from companies like EA are actually running with Cedega/Cider and would be irreversibly broken.

An ARM MacOS might eventually create iPads that run MacOS and can also run iOS apps, which would be tremendous for content creators (I’d buy a MacOS iPad Pro in a nanosecond based on the current configuration and set up a dock at home and work to use it as a workstation), but I’m skeptical of that happening. It seems too pie-in-the-sky.

The Halo Effect is Dying

This is my big thesis that worries me. Steve Jobs talked a lot about the Halo Effect. People talked about the iPod Halo Effect- that people who buy iPods often ended up buying Macs- a lot, but the first big Halo Effect was- Steve Jobs catered to the designers and creators, and their purchases would “trickle down”.

When everyone in Hollywood used Final Cut on a Mac, people trying to be “hip” would copy those purchases. People look up to those “creators” when deciding on their own purchases. Jobs catered to photographers, to video editors, etc. Jobs always had a flagship Mac Pro and MacBook Pro that wasn’t all that profitable …because it had downstream effects on their brand.

I feel like Tim Cook has done a calculus that they don’t make much money on those and stopped caring about them. Final Cut has long lost it’s position of premiere (no pun intended) video editor. Photographers now primarily use Lightroom and can switch between Mac and PC pretty easily and Apple’s declining relative performance and forced dongles are hurting them in the photographer space. Etc, etc. Artists are moving to the Surface line. I’m seeing less and less creative professionals that have their needs served by Apple.

Those creative professionals are actually less profitable for Apple than average consumers. But they added to the brand tremendously .

I think by failing to cater to those people, by increasing their profit margin on their high end machines and adding features like the Touch Bar as a high end item, Apple is shifting their brand from “creative professionals” to “expensive designer laptops”. And I think that is going to hurt them down the road in terms of customer loyalty.

I guess I overall feel like the iPhone’s issues (in North America/Europe) are overstated, but Apple’s iPad and Mac pillars are becoming vulnerable, and they’ve proven unable to create new pillars (Apple TV, HomePod, etc) that stand on their own outside of the ecosystem, and haven’t been able to gain customer loyalty in China.