By John Gruber
Atoms: We are mostly sold out... but there is more!
Paul Lilly, writing at HotHardware (SFW, I swear), “Has the iPhone Lost Its Luster? The iPhone 5 Only Half of Verizon’s Q4 iPhone Sales”:
Let’s look at Verizon’s fourth quarter results. Verizon sold a record number of iPhones in Q4, a clear indication that they’re still wildly popular. However, only half of them were the latest iPhone 5 model. Why would so many smartphone shoppers buy an older model iPhone when the iPhone 5 is a superior device?
So the iPhone outsold all Android phones 2-to-1 (the highest percentage to date) at the biggest U.S. carrier, which carries its own brand of Android phones. That amounted to six million units, also a record. And this is bad, because only half were the iPhone 5.
So what should Apple do?
Number one, Apple could give users what they apparently want: a lower cost iPhone. It’s been rumored that this is already in the works, though one senior exec at Apple has since insisted that a lower cost iPhone would “never be the future of Apple products.”
Let me get this straight. It’s bad news for Apple that half its sales at Verizon were for the iPhone 4 and 4S, not the new top-of-the-line more expensive iPhone 5. Therefore, Lilly argues, they should make an even cheaper iPhone. OK.
Apple can’t win by logic like this.
[Brief interpolation on the low-cost iPhone thing: I pointed out yesterday that the simplest explanation for the iPhone 5 accounting for “only” half of Verizon’s iPhone activations is that the iPhone 4 is the first free-with-contract iPhone on Verizon; the iPhone 3GS, which had been free-with-contract on AT&T for two years, was a GSM-only phone. This in turn led me to point out that Apple already has a low-cost iPhone: the iPhone 4. That said, there’s low-cost-with-a-contract, and there’s low-cost-sans-contract. Apple still lacks a lower-cost iPhone that you can buy without a contract. That’s not a big deal in the U.S. market, which is dominated by carrier-subsidized pricing, but it is a big deal in much of the rest of the world. An unlocked new iPhone 4 still costs about $450-500. Compare that to Google’s Nexus 4, which sells for $299, no strings attached. What I’m saying though, is that something like a $299 no-contract iPhone wouldn’t be a radical departure for Apple, but rather the next incremental step after free-with-contract iPhones.]
Back to Lilly:
Option two, then, is to build a better iPhone, one that trumps the competition in nearly every way so that buyers will be compelled to spend more on the latest and greatest. There has to be significant separation between the next iPhone model and the iPhone 5, or smartphone shoppers are just going to keep investing in older hardware. Or jump ship to Android.
This is exactly what Apple has done every single year since 2007, with the exception that they’ve never needed nor tried to build new iPhones that compel owners of the previous year’s model to upgrade. Normal people have the good sense to wait two or more years before upgrading. The iPhone 5 does exactly that — it’s a compelling upgrade over the iPhone 4 in every way.
Next up, Brett Arends, writing at MarketWatch, “10 Things to Watch for in Apple’s Earnings Call” (I couldn’t get through all ten, sorry):
1. The balance sheet.
As opposed to all those companies for whom it’s not important to pay attention to profits and cash. Oh, wait, maybe he has a point here.
2. China sales. Sorry, fanboys, but almost everybody in America who wants an iPhone has an iPhone.
Which “fanboys” are somehow rooting against Apple selling iPhones in China? And if almost everyone in the U.S. who wants an iPhone has an iPhone, why do U.S. iPhone sales continue to grow?
3. The iPhone 17. Okay, okay, so we’re only on iPhone 5. But the issue will be when the next upgrade — to iPhone 6 — is coming. My biggest dislike of this industry for investors is the rapid replacement cycle. But that’s the game. What’s next, and when?
In the last 15 years Apple hasn’t once revealed the timing of upcoming products in a quarterly analyst call (or anywhere else for that matter), but Arends is looking for news about the iPhone 6 today on the call.
4. Any hint about a keyboard. Your correspondent does not have an iPhone. I probably wouldn’t own one anyway, but I am precluded from even considering one because they do not come with a real, physical keyboard, and I absolutely must have one. Millions of others are in my shoes. Steve Jobs had an obsessive dislike of keyboards, but it was foolish. Apple CEO Tim Cook could probably finish off Research In Motion, maker of the BlackBerry, by announcing an iPhone with a keyboard. Easy. Why not?
Where to start? First, again with the idea of making product announcements during a phone call with financial analysts. Second, 2007 called, and they want their “Apple needs to make an iPhone with a keyboard” argument back. (It goes on the shelf next to “The iPhone needs a replaceable battery”). This year’s Apple-needs-to arguments are “Apple needs to make an iPhone with a big-ass 5-inch display” and “Apple needs to make a cheaper iPhone”.
(Bonus jackass points to Arends for the “I probably wouldn’t own one anyway.”)
5. Plans for Apple TV. So far, sales of these have been disappointing. But I remain convinced this could be a huge source of future growth for Apple, which could dominate TV, and the living room, the way it has come to dominate smartphones. Steve Jobs allegedly had an inspiration about how to make it a much better experience shortly before he died. I want to hear what he saw, and when we’ll see it.
Read this slowly: Apple does not, and never has (in the modern era starting with the NeXT reunification at least) revealed anything in advance regarding upcoming products. When Arends plays poker, does he ask to see his opponents’ cards?
6. Any hints about an iTunes subscription service.
Great idea. Not going to be announced in a conference call.
7. An iPad Mini HD. […] The flaw of the iPad Mini is that, despite the famous Apple ease of use, it has a lower-resolution screen compared with some competitors, and yet a higher price. If Apple is serious about 7-inch tablets, it needs to get best-in-class, as usual. When will this happen?
Let’s consider all 7–8-inch tablets in the world. Which one do you think sold the most units last quarter? Take a wild guess. My guess is the iPad Mini. That the iPad Mini does not have the highest resolution display does not mean it isn’t the best overall tablet in its class. I’d argue, in fact, that it is currently the best tablet, period. And whether it is the best or not (subjective, obviously, but I’m not alone in thinking so), I feel pretty sure it’s the most popular.
And, the way Apple’s resolution strategy for iOS works, they couldn’t go halfway with a 200-ish pixels-per-inch resolution. It’s either 163 or all the way to 326 — which would be a lot more expensive, require a much more powerful graphics system, and consume a lot more power, requiring a bigger thicker battery and therefore a thicker heavier form factor. Arguing that the iPad Mini is (a) too expensive; and (b) should have a retina display; makes less sense than anything else Arends has argued so far, and that’s saying a lot. It’s like telling a restaurant that their meals cost too much and but they should use more expensive ingredients.
Given that every model of iPad Mini still appears to be supply-constrained — Apple’s online store estimates “7 days” for shipping new orders — it’s hard to take seriously an argument that it’s overpriced, unless you believe Apple is purposefully sandbagging iPad Mini production. Arends’s argument, shared by many others, seems to be that because Amazon, Google, and Samsung are selling 7-inch tablets at lower prices than the Mini, Apple is ipso facto losing — no matter if the iPad Mini, at its current pricing, is the best-selling tablet in the world.
We’ll never know since none of the Amazon, Google, or Samsung triumvirate reveal sales numbers, but I feel pretty good predicting that the iPad Mini outsold all of them last quarter, and I’d even wager a fiver that the Mini outsold all of them combined. Imagine how well Apple could do in this category if they were “serious” about it.