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Apple Opens New Chapter Surrounded By Weakening iPhone Demand

Apple is banking that investors will realize the company can still reap huge profits by selling various services on the 1.4 billion devices running on its software.

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Apple
Apple Opens New Chapter Amid Weakening iPhone Demand.

Apple hoped to offset slowing demand for iPhones by raising the prices of its most important product, but that strategy seems to have backfired after sales sagged during the holiday shopping season.

Results released Tuesday revealed the magnitude of the iPhone slump – a 15 percent drop in revenue from the previous year. That decline in Apple’s most profitable product caused Apple’s total earnings for the October-December quarter to dip slightly to $20 billion.

Now, CEO Tim Cook is grappling with his toughest challenge since replacing co-founder Steve Jobs 7 years ago. Even as he tries to boost iPhone sales, Cook also must prove that Apple can still thrive even if demand doesn’t rebound.

It figures to be an uphill battle, given Apple’s stock has lost one-third of its value in less than four months, erasing about $370 billion in shareholder wealth.

Cook rattled Wall Street in early January by disclosing the company had missed its own revenue projections for the first time in 15 years. The last time that happened, the iPod was just beginning to transform Apple.

Apple CEO Tim Cook speaks during an event to announce new products, Oct. 30, 2018, in the Brooklyn borough of New York.
Apple CEO Tim Cook speaks during an event to announce new products, Oct. 30, 2018, in the Brooklyn borough of New York. VOA

​”This is the defining moment for Cook,” said Wedbush Securities analyst Daniel Ives. “He has lost some credibility on Wall Street, so now he will have to do some hand-holding as the company enters this next chapter.”

The results for the October-December period were slightly above the expectations analysts lowered after Cook’s Jan. 2 warning. Besides the profit decline, Apple’s revenue fell 5 percent from the prior year to $84 billion.

It marked the first time in more than two years that Apple’s quarterly revenue has dropped from the past year. The erosion was caused by the decline of the iPhone, whose sales plunged to $52 billion, down by more than $9 billion from the previous year.

The past quarter’s letdown intensified the focus on Apple’s forecast for the opening three months of the year as investors try to get a better grasp on iPhone sales until the next models are released in autumn.

Apple predicted its revenue for the January-March period will range from $55 billion to $59 billion. Analysts surveyed by FactSet had been anticipating revenue of about $59 billion.

Investors liked what they read and heard, helping Apple’s stock recoup some of their recent losses. The stock gained nearly 6 percent to $163.50 in extended trading after the report came out.

“We wouldn’t change our position with anyone’s,” Cook reassured analysts during a conference call reviewing the past quarter and the upcoming months.

The company didn’t forecast how many iPhones it will sell, something Apple has done since the product first hit the market in 2007 and transformed society, as well as technology.

Apple is no longer disclosing how many iPhones it shipped after the quarter is completed, a change that Cook announced in November. That unexpected move raised suspicions that Apple was trying to conceal a forthcoming slump in iPhone sales – fears that were realized during the holiday season.

Cook traces most of Apple’s iPhone problems to a weakening economy in China, the company’s second biggest market behind the U.S. The company is also facing tougher competition in China, where homegrown companies such as Huawei and Xiaomi have been winning over consumers in that country with smartphones that have many of the same features as iPhones at lower prices.

Although a trade war started by President Donald Trump last year has hurt China and potentially caused some consumers there to boycott U.S. products, many analysts believe the iPhone’s malaise stems from other issues too.

Among them are higher prices – Apple’s most expensive iPhone now costs $1,350 – for models that aren’t that much better than the previous generation, giving consumers little incentive to stop using the device they already own until it wears out. Apple also gave old iPhones new life last by offering to replace aging batteries for $29, a 70 percent discount.

Customers leave the Apple store in the Brooklyn borough of New York, Jan. 3, 2019.
Customers leave the Apple store in the Brooklyn borough of New York, Jan. 3, 2019. VOA

​”The upgrade cycle has extended, there is no doubt about that,” Cook conceded.

Apple is banking that investors will realize the company can still reap huge profits by selling various services on the 1.4 billion devices running on its software.

Also Read: Apple Spent $60 bn Supporting More Than 450,000 Jobs in US

That’s one reason why Cook has been touting the robust growth of Apple’s division that collects commissions from paid apps, processes payments, and sells hardware warranty plans and music streaming subscriptions. Apple Music now has more than 50 million subscribers, second to Spotify’s 87 million streaming subscribers through September.

Apple is also preparing to launch a video streaming service to compete against Netflix, though Cook said he wasn’t ready to provide details Tuesday.

The company’s services revenue in the past quarter climbed 19 percent from the prior year to $10.9 billion – more than any other category besides the iPhone. (VOA)

Next Story

Huawei Founder Ren Zhengfei: Company Can Withstand Increased US Pressure

Huawei founder Ren Zhengfei, told the World Economic Forum (WEF) in Davos that he expects the U.S. to escalate its crackdown on Huawei.

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A Huawei company logo at Shenzhen International Airport in Shenzhen, Guangdong province, China. VOA

By Joyce Huang

Despite the U.S.-China trade deal signed last week, the two countries appear headed for more confrontation, especially over high science and technology.

One of China’s highest-profile tech executives, Huawei founder Ren Zhengfei, told the World Economic Forum (WEF) in Davos on Tuesday that he expects the U.S. to escalate its crackdown on Huawei. But he vowed that the world leader in building 5G networks is prepared to withstand further restrictions on its foreign markets and suppliers.

Analysts say his remarks suggest that the Chinese may be ready to directly confront Americans in the global competition for high-tech advancements, which are seen at the core of trade frictions.

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Ren Zhengfei, Founder and Chief Executive Officer of Huawei Technologies gestures during a session at the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland. VOA

Tech war is on

“He [Ren] is fully aware that the tech competition between the U.S. and China will escalate. The U.S. has no plan to cut China some slack simply because they have just signed the Phase 1 deal. Both are now entering the battleground of their tech disputes,” said Lin Tsung-nan, professor of electrical engineering at National Taiwan University in Taipei.

Beijing’s critics say Huawei acts as a virtual arm of the Chinese government, benefitting from favorable policies and funding that have sped its expansion around the world. They warn countries that allow Huawei to build their new wireless data networks that they are giving Beijing’s authoritarian government enormous influence over their security. Instead, U.S. officials argue, countries should trust American, European, Korean and other companies.

Provisions in the U.S.-China Phase 1 trade agreement aim to root out Chinese state policies that encourage intellectual property theft and forced technology transfers. However the deal leaves open questions about enforcement. Many, including Huawei chief Ren, remain skeptical that the countries will reach an agreement on such issues.

Speaking to the audience in Davos, Ren said he believes the United States will escalate its crackdown on Huawei, but that the impact will be minimal as the company has adapted to restrictions imposed since last year.

Huawei and its 46 affiliates were targeted in 2019 after the U.S. government concluded that the company has long engaged in activities contrary to U.S. national security. Ren’s daughter, Huawei Chief Financial Officer Meng Wanzhou, is fighting an extradition case in Canada stemming from allegations she committed fraud by lying about Huawei’s relationship with an affiliate doing business in Iran.

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Richard Yu (Yu Chengdong), head of Huawei’s consumer business Group, speaks on stage during a presentation to reveal Huawei’s latest smartphones “Mate 30” and “Mate 30 Pro” in Munich, southern Germany. VOA

Huawei’s Plan B

Analysts have mixed views about the long-term impact of the blacklisting on Huawei. Ren said he is optimistic because Huawei has invested hundreds of billions of dollars in its own core technology over the past few years, including chips and software. Last year, the company released its own operating system, called HarmonyOS, though, so far, it hasn’t been installed in any of the company’s smartphones.

It has also released a flagship smartphone, the Mate 30, without licensed Google Android software. Sales in China have been in line with expectations, although its global sales target of 20 million units is yet to be met.

But Professor Lin said the ultimate challenge facing Huawei lies ahead.

“The real test will come after the U.S. completely cuts off [Huawei’s] access to American technology and relevant exchanges. Huawei will then have to prove if its products, manufactured based on its so-called plan B, will continue to be competitive in overseas markets,” the professor said.

More tech restrictions

After having restricted Huawei’s access to American technology, the United States is reportedly looking to introduce a stricter rule that could block Huawei’s access to an increased number of foreign-made goods.

Media reports said the United States plans, among other things, to force Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, to limit its supplies of 14 nanometer chips to Huawei.

Washington is also lobbying other countries, such as Britain and Germany, to bar Huawei — which it accuses of spying for the Chinese government — from the buildup of their next-generation mobile networks known as 5G.

Whether U.S. allies will be persuaded to block Huawei from building their 5G networks remains uncertain, but Lin said the stakes in the standoff are clear.

“If China succeeds in using Huawei to dominate [the global 5G network], the free world will gradually fall into China’s high-tech iron curtain. That’s why the U.S. has turned aggressive in blocking Huawei, which has strived after having had copied code from Cisco’s [router software] technology a decade ago,” Lin said.

Escalating tensions

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Huawei chief financial officer Meng Wanzhou leaves her Vancouver home with her security detail for an extradition hearing in British Columbia Supreme Court. VOA

Song Hong at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences said he’s worried the U.S. may widen its target to include more Chinese tech firms.

But he said Beijing is adapting to the new reality by gradually cutting its dependence on the U.S. technology.

“China has greatly strengthened its tech capabilities. I think Huawei’s [Ren] speaks on behalf of most Chinese businesses. That is, if you try to block me, I have no choice but to work to find other solutions,” he said.

An executive from China’s tech sector, who spoke to VOA on the condition of anonymity, said he’s not worried that the U.S.-China tech war will escalate. But he said China should respond to U.S. concerns.

“The U.S. has made a great contribution [to the world’s tech development] and now come up with some requests. I find that reasonable, right? I think China, as a responsible country, should respect and communicate well [with the U.S.] on a reasonable basis,” he said.

Warning from Meng’s case

While tech executives look at how the long-term competition between the two countries will play out, the fate of Meng — the daughter of Huawei’s founder — will impact relations in the short term. Canada has begun week-long court hearings to determine whether to extradite Meng to the United States to stand trial on fraud charges linked to the alleged violation of U.S. sanctions against Iran.

Also Read- Vodafone Quits Facebook’s Libra Cryptocurrency Project: Report

Meng, who was arrested in late 2018 in Canada, denies any wrongdoing.

Regardless of the outcome of the case, said Lin of National Taiwan University, the United States has succeeded in sending a warning to those who have harmed or plan to go against U.S. tech interests.  (VOA)