Apple Posts Record Results Even With Fewer iPhone Sold


Apple Posts Record Results Even With Fewer iPhone Sold

Tech giant says smartphone revenue rose 13% but projects weaker-than-expected sales for current quarter



Apple Inc.’s AAPL 1.88% move to raise prices on the iPhone paid off with record quarterly revenue and profit even though the world’s most valuable company sold fewer of its most important product.


Sales of the iPhone X—released in November at a starting price of $1,000—lifted the average selling price for iPhones by nearly 15%, Apple said on Thursday. That helped propel total revenue up 13% to an all-time high of $88.29 billion in the quarter, which was a week shorter than the same period a year earlier, even though the number of iPhones sold actually fell 1% to 77.3 million units. Apple’s profit rose 12% to $20.07 billion, also a record.


Apple tempered the positive news with a weaker-than-expected revenue forecast for the current quarter of between $60 billion and $62 billion. That would represent a healthy rise from a year earlier, but was well below analysts’ recent consensus estimate of $66.54 billion, a number that had fallen over the past several weeks on concerns about demand for the iPhone X and uncertainty around the new iPhone 8 and 8 Plus models launched in September.


Still, the results offered hope that Apple can sustain its solid performance even amid stagnating global demand for smartphones. Analysts and investors have worried the company is too dependent on the iPhone, which accounts for about two-thirds of its sales, in part because many customers are holding on to their phones longer. Annual sales of iPhones in Apple’s latest fiscal year, through September, were still well below their peak two years ago, and no other product has caught on with nearly the same intensity.


But Apple is showing steady progress in growing other lines of business—especially its services arm, which includes the App Store and its music and payment services. Results in the latest period also were buoyed by strong growth in the division that includes its smartwatch and AirPods wireless earbuds.


Shares gained more than 3% in after-hours trading Thursday, after falling over the past two weeks.


Apple’s share price soared more than 45% last year as many investors bet that the feature-rich X model, launched to commemorate the iPhone’s 10th anniversary, would reignite the kind of boom in sales that recent models have failed to deliver. At an unveiling event in September, Apple marketed the iPhone X as the smartphone of the future and touted its improved display and facial-recognition system.


In an interview, Chief Financial Officer Luca Maestri said the X model has been the best-selling of Apple’s iPhones since its release. “We’re really, really happy with the way it’s going,” he said.


Apple doesn’t break out for shipments by model, but analysts have said that sales of the X are softer than the company anticipated. Canalys, a market-research firm, estimated before Thursday’s results that Apple shipped 29 million units of the iPhone X in the three months through December, about 6 million fewer than it says the company targeted for production during the period. It said shipments were generally lower than the company’s projections because some consumers are choosing less-expensive iPhones.


Stephen Fleming, a 55-year-old education administrator in Tucson, Ariz., said he preferred to save about $200 by buying an iPhone 8 Plus, which was released in September. “I could have easily bought the X but there was nothing about the X that said: I have to have this thing,” said Mr. Fleming.


With overall lackluster overall demand for smartphones and growing competitive pressure, some analysts and investors have worried about Apple’s reliance on the iPhone.


“They have to figure out how to get recurring revenue streams so they’re not holding their breath on each new product launch,” said Tom Plumb, president of SVA Plumb Financial, a Madison, Wis.-based wealth-management firm with $2.7 billion in assets that counts Apple among its top holdings.


Apple has more than tripled spending on research and development under Mr. Cook to $11.58 billion last year but its products like smartwatches and wireless earbuds haven’t delivered enough revenue to reduce its iPhone dependency. And efforts to push into autonomous vehicles, augmented reality and health aren’t expected to generate revenue anytime soon.


The sheer number of devices it has sold, though, already is helping its efforts to diversify. Apple now has 1.3 billion iPhones and other devices in active use, Mr. Maestri said, a 30% increase over the past two years. That helped the services business report an 18% increase in revenue to $8.47 billion in the period—accounting for a 10th of total revenue in the period. The number of paid subscriptions across Apple and third-party services passed 240 million in the quarter, an increase of 30 million over the past 90 days.


Like other big tech companies, Apple is contending with a backlash from lawmakers, investors and others over its clout and the impact of its products.


The company received a letter in early January from leading activist investor Jana Partners LLC and the California State Teachers’ Retirement System, or Calstrs, which control about $2 billion of Apple shares, urging the company to address a potential health crisis due to youth-smartphone addiction. Apple said it plans to continue enhancing the parental controls on the iPhone it has had for years.


Apple also is facing investigations from regulators and lawmakers in the U.S. and Europe over a software update that throttled back performance on older iPhones to preserve battery life. The company in December said it had made the change to avoid sudden shutdowns of such phones, but the news angered many customers. The company later apologized for the issue and slashed the price of an iPhone battery replacement, hoping to win back customer goodwill.



After years of criticism about how it outsources manufacturing to China and parks its global profits offshore, Apple in mid-January said it would pay $38 billion in taxes on the cash it held overseas in response to the major U.S. tax overhaul that President Donald Trump signed into law late last year.


Mr. Maestri said Apple will discuss specific plans for its pile of overseas cash when it reports results for the current quarter, which runs through March. But he said Apple’s goal is to target a “net cash neutral” position over time, compared with the large gap between its current holdings of $285 billion in cash and $122 billion in debt.



Samsung’s Galaxy S9 Phone Bets on Animated Human Emojis

Users can create 3-D emojis of themselves by taking a selfie; phone set to hit shelves March 16




Samsung Electronics Co.’s newest flagship phone is betting on animated emojis. But of humans, not animals.

Samsung’s Galaxy S9 device, launched Sunday at a Barcelona mobile trade show, looks almost identical to last year’s handset: a slim design with an edge-to-edge display and an earphone jack.


But the world’s largest smartphone maker saved the big changes for what’s loaded onto the device: New video software stores tenths of a second of images that automatically can be turned into GIFs ready-made for social media and messaging apps. Users can create 3-D emojis of themselves by taking a photo of their face, then as their fake cartoonish self, strike real-life poses captured by augmented-reality software.

The Galaxy S9’s camera tricks and emoji push are likely to remind some consumers of Apple Inc.’s iPhone X handset last year. The iPhone X let users make animated emojis of rabbits, unicorns and monkeys that mimic a person’s facial expression and head movement.


Samsung mobile chief D.J. Koh said in an interview that he had personally explored early 3-D animations since 2001 on flip phones, while leading the firm’s mobile research-and-development team in the U.K. He bristled at any notion Samsung was playing catch-up with Apple, as the human emojis took years of development, he added.


“Their approach and my approach is totally different,” said Mr. Koh, cautious not to mention Apple, a rival and components customer, by name. “I do work seriously based off my own roadmap.”


The more critical question for Samsung is whether consumers will notice the camera overhaul—or even care.

The smartphone era of annual double-digit global growth has faded. People are holding on to their devices longer. New innovations, such as iris scanning or wireless charging, haven’t wowed the masses. And a decade into the smartphone wars, most people end up sticking with the brand they already have.




Check Your iPhone Battery’s Health—and if You’ve Been Throttled

Apple just rolled out a tool to show you whether your iPhone’s battery has degraded to the point where iOS deliberately slows things down



If you upgraded your iPhone to iOS 11.3, which rolled out over the past week or so, look at the Battery section of Settings, under a new menu called Battery Health. That’s where you’ll find crucial information about the health and longevity of your phone. It also gives you the ability to prevent your phone from being slowed down due to poor battery health.


The new feature, still in the potentially buggy beta stage, appears months after Apple Inc. AAPL 1.88% came under fire for slowing down (aka throttling) older iPhones without disclosing the practice to users.


Battery Health begins with a measure of your phone battery’s maximum capacity, its ability to hold a charge compared with its original state. Over time, lithium-ion batteries store less power each time they charge, and can degrade based on how often you charge the phone, the temperature at which you store it and other factors. The lower that percentage, the shorter your battery life.


Shorter battery life corresponds with a higher susceptibility to unexpected crashes, says Apple. This was the root of its rationale for throttling.


In my testing, on a nearly new iPhone X, the battery’s maximum capacity was still 100%, while another I checked was already at 98%. A year-old iPhone 7 showed 99%, and a three-year-old iPhone 6S was down to 93%. Two iPhone SEs displayed 87% and 86%.


The second section of Battery Health is Peak Performance Capability, which informs users whether their device is being throttled. The best news you’ll get here is, “Your battery is currently supporting normal peak performance.”


When you update to iOS 11.3, you’re likely to see it. Apple says the throttling software, known as “performance management,” will be initially disabled, but “it will be reenabled if the device subsequently experiences an unexpected shutdown.”


If that happens, you’ll see a message saying, “Performance management has been applied to help prevent this from happening again.” Apple says the throttling applies to iPhone 6, 6 Plus, 6S, 6S Plus, 7, 7 Plus and SE models. Apple says the newer iPhone 8, 8 Plus and X are designed to manage power better to avoid crashes.


You can disable performance management and go back to using your phone as normal—though Apple says that increases the chances of another crash, at which point the throttling software will again automatically activate.



You can also leave the management to its business, and get used to your slightly slower iPhone. Or you can replace your battery. The Battery Health page begins recommending you do so once your maximum capacity dips below about 80%. You can get a new battery for an iPhone 6 or later at any Apple store for $29 through the end of 2018. Once you’ve replaced your battery, it will go back to working at full blast.


You won’t need to look at Battery Health often. Still, you should check it at least once to make sure your battery is still pumping juice smoothly, or if you have the feeling that your phone has gotten slower lately. If something is wrong, you’ll feel better knowing you aren’t crazy—and that there’s a fix for it.




Samsung Galaxy S9 Is Impressive and Infuriating

Once again, Samsung sets the bar for smartphone design, and once again its software can’t keep up



Nobody makes better-looking phones than Samsung Electronics . Last year’s Galaxy S8 was a particular gem of a device, glassy and stark with that “infinity display” stretching almost entirely across the front. It was thoughtfully designed on a level only Apple used to be able to achieve. As a result, it flew off shelves.


So why change anything? Nine versions in, Samsung feels it has landed on the right design for its Galaxy S phones. A company spokeswoman compared Samsung’s approach to the way a luxury car maker might build new models: Nip and tuck, but don’t change what people already love. The S9’s updates include a smaller bezel, brighter screen, faster processor and relocated fingerprint reader.



If you already have an S8, you aren’t missing much and don’t need to spend roughly $800 for the S9 or upward of $900 for the S9+ when they hit stores this month. Almost anyone else will welcome the upgrade.


Yet I still find myself frustrated by this phone. Samsung paired this lovely hardware with half-baked software. I love Android and use it every day, but I don’t like any of what Samsung does to it. If Samsung would just get out of its own way, build hardware and let Google handle the software, the S9 might be the best phone on the market. Instead, I found myself longing for simpler, smoother features to better suit this good-looking phone.


Coming Into Focus

Most of Samsung’s engineering this time around went into the camera. The S9 and S9+ both have 12-megapixel cameras on the back, and the S9+ adds a second camera for taking photos with more zoom. I can’t say these phones always take better pictures than Google’s Pixel 2 or Apple’s iPhone X, but overall they’re just as good.


Where the S9 stands out most is in bad lighting, like at a concert or in a dimly lit aquarium. That’s because the S9’s camera has an actual mechanical aperture. The aperture controls the amount of light allowed into the camera lens, which in turn controls how bright your photo can be and how much of that creamy-background bokeh effect you can achieve. Shooting at a super-bright f/1.5, as the S9 does by default in low light, I got half-decent photos. On other phones, they’d have just come out black.


That’s hardware improvement. Samsung’s track record for software changes is a lot rockier. For example: You can use the S9’s selfie camera to create an emoji in your likeness, or goof around with lenses that add an augmented-reality hat or mask to your face. But the features don’t work as well as similar ones on an iPhone or in Snapchat. Everyone’s emoji kind of looks the same, and the faces move like badly dubbed cartoons


The new phones can capture video in the slowest-mo you’ve ever seen on a smartphone: 960 frames per second, four times the iPhone’s slo-mo rate. But it feels like the feature was added by the marketing department, not the phone designers. It’s really hard to capture exactly the right moment at that speed, and you can’t change what you’ve captured after the fact. And if you’re in anything but perfect lighting, all you’ll be shooting is darkness. I much prefer Samsung’s old, 240-frame-per-second way of doing slow-mo, which remains in the settings menu.


Good luck finding it, though. (Okay, I’ll help: Go to Camera > Settings > Edit Camera Modes > Rear Camera.) Samsung crammed too many options and modes into the S9’s camera. It takes at least a half-dozen swipes to get through all the capture modes, and finding the right sticker or ISO setting takes forever. Samsung should do less, do it better and make it all easier to figure out.


Too Much of a Good Thing

Samsung’s approach has always been to say yes to every nascent tech and user desire. (“You want 45 different ways to unlock your phone, and a screen bright enough to burn your eyes out? Sure!”)


The S9 isn’t missing anything—it even still has a headphone jack. And a slot for additional MicroSD storage. It charges via USB-C or a wireless pad. You can unlock it with your face, your irises or your fingerprint. (I love having all three options.) It has a fast processor and lots of memory. It’s waterproof but still beautiful, thin but still lasts all day. There’s no obvious deal breaker here anywhere.


But then... I use the phone. And I start to go slightly nuts.


The first time I used Google Assistant to set an alarm, the S9 asked me which app I’d like to use. Wait, what? Turns out there are two, both named Clock, both willing and able to serve you. (Samsung doesn’t pre-install Android’s Clock, but it might download during setup if you previously owned an Android phone.) You’ll have to make a similar decision about whether to use Chrome or Internet; Email or Gmail. Do you want Google’s Play Store, or Samsung’s Galaxy Apps? What about Photos or Gallery? I could keep going.


The emoji gets it: Samsung made a terrific phone with the S9, but cluttered it with too many features that don't work well enough.

The emoji gets it: Samsung made a terrific phone with the S9, but cluttered it with too many features that don't work well enough. PHOTO: DAVID PIERCE/THE WALL STREET JOURNAL

Android isn’t the problem here. In fact, Android is the solution. Google has turned its once-messy operating system into a fluid, coherent, useful tool for all sorts of devices. The Pixel is the best Android phone not because of its design or battery life, but because it’s the purest expression of what Android can be. The S9 bests the Pixel’s hardware in almost every way but collapses under the weight of Samsung’s duplicate apps and bizarre interface overhaul.


As far as I can tell, Samsung could have done two things to really improve upon the S8. It could have dreamed up some wild new idea about smartphone hardware—maybe a flexible screen?—that moved everything forward again. Or it could have spent the year refining and simplifying its software, to make the phone simpler and more fun to use.


Instead it cooked up a whole new round of not-quite-finished features, and tossed them onto the already toppling heap. As it turned out, I like holding the S9, and I like looking at it. I really like all the Instagram likes I get from pictures I take with it. I just don’t like using it very much.


Corrections & Amplifications 

Samsung doesn’t pre-install the Google-made clock and calculator apps in the Galaxy S9, as suggested in an earlier version, although they might download automatically during setup. Samsung does preload Google’s email, web-browser, photo and app-store apps. (March 9, 2018)



 Apple Inc. AAPL 1.88% Chief Executive Tim Cook will co-chair the Chinese government’s showcase global business forum next month, underscoring his increasingly high profile here as Apple and other companies wrestle with tough new government demands on cybersecurity.


In helping lead the China Development Forum in March, Mr. Cook would be making his fifth appearance at a newsmaking event in China in little over a year. The development forum is a sought-after venue for the world’s business elite due to the rare access it offers to senior members of the Chinese government.


It comes as Apple faces myriad challenges in China, including loss of market share to domestic smartphone makers and new government demands on its operations. This week, Apple as required will begin shifting customer iCloud data to servers on the Chinese mainland, where experts say it will be more vulnerable to government seizure.


Apple is far from the only company to make concessions to China. But its choices are especially vexing because it brands itself globally as an enterprise that tests convention, said Tim Calkins, a professor of marketing at Northwestern University’s Kellogg School of Management.


“Apple, for many years, has embraced the idea ‘think different,’” Mr. Calkins said. “And yet it’s become clear that in China you can’t think too different.”

Mr. Cook defended the company’s moves in China, including its decision to remove nearly 700 apps that allow people to bypass internet restrictions. He said Apple needs to engage with governments around the world even when it disagrees with them.

“Nothing ever changes from the sideline,” he said at a business conference in Guangzhou in December.

Apple had no comment on Monday.



Western companies have grown accustomed to making concessions to China’s authoritarian government, including censoring content and setting up joint manufacturing ventures with state-backed Chinese enterprises, in return for access to a massive consumer market.


But Michael Auslin, a fellow at Stanford University’s Hoover Institution, contends that Apple’s China stance fosters the false impression that Chinese and Western business systems are similar. It also cuts against the grain of companies such as Apple, he said, since tech firms have succeeded in an environment where information is openly shared—which is contrary to China’s authoritarianism.


“You are essentially showing that you’re going to be a constructive partner and not a disruptive partner to the Chinese system,” Mr. Auslin said. “But of course the systems are not comparable” between China and the West, he said


While many Apple users in China have no complaints, some are troubled by the dual standards for China and the rest of the world. One customer who bought an iPhone at a Beijing Apple Store recently said the company’s image had suffered by agreeing to store data in China.


For Apple, China is critical not just as a market, but as a manufacturing center. Most of its iPhones and other products are assembled in China through local partners.


In recent years, it has also faced increasingly tough competition from Chinese smartphone makers. Apple went from China’s third-best selling smartphone brand in 2015, with a 13% share, to fifth in 2017, with a 9% share, according to research firm Canalys.


In addition, in 2016 Apple was forced to shut down its iBooks and iTunes Movies services.


Apple has taken steps in the past year to shore up its position, including adding China-friendly smartphone features and naming a China-born executive to a newly created role to oversee operations in the country.


Mr. Cook follows a long line of prominent executives to co-chair the China Development Forum, including Mark Fields, at the time Ford Motor Co.’s chief executive, and former Caterpillar Inc. chief Doug Oberhelman.



Dozens of other international business luminaries will be attending, including Boeing Co. Chief Executive Dennis Muilenburg, BlackRock Inc. Chief Executive Larry Fink, GlaxoSmithKline Chief Executive Emma Walmsley and billionaire investor Peter Thiel, according to a release by the state-founded China Development Research Foundation on Monday.


The forum’s local chairman hasn’t yet been announced, but customarily it is the minister of China’s State Council Development Research Center.


While many Apple users in China have no complaints, some are troubled by the dual standards for China and the rest of the world. One customer who bought an iPhone at a Beijing Apple Store recently said the company’s image had suffered by agreeing to store data in China.


For Apple, China is critical not just as a market, but as a manufacturing center. Most of its iPhones and other products are assembled in China through local partners.


In recent years, it has also faced increasingly tough competition from Chinese smartphone makers. Apple went from China’s third-best selling smartphone brand in 2015, with a 13% share, to fifth in 2017, with a 9% share, according to research firm Canalys.


In addition, in 2016 Apple was forced to shut down its iBooks and iTunes Movies services.


Apple has taken steps in the past year to shore up its position, including adding China-friendly smartphone features and naming a China-born executive to a newly created role to oversee operations in the country.


Mr. Cook follows a long line of prominent executives to co-chair the China Development Forum, including Mark Fields, at the time Ford Motor Co.’s chief executive, and former Caterpillar Inc. chief Doug Oberhelman.



Dozens of other international business luminaries will be attending, including Boeing Co. Chief Executive Dennis Muilenburg, BlackRock Inc. Chief Executive Larry Fink, GlaxoSmithKline Chief Executive Emma Walmsley and billionaire investor Peter Thiel, according to a release by the state-founded China Development Research Foundation on Monday.


The forum’s local chairman hasn’t yet been announced, but customarily it is the minister of China’s State Council Development Research Center.



Mr. Cook, who inherited the helm at Apple from the late Steve Jobs in 2011, has paid increasing attention to China in recent years. He made just one visit in 2012, then twice-yearly visits from 2013-15. Since 2016, he has made at least three public trips annually, according to media reports.


Mr. Cook attended the China Development Forum last March, speaking on globalization. In October, he was back for an advisory board meeting of Tsinghua University’s School of Economics and Management in Beijing, in which he and others met Chinese President Xi Jinping.


In December, he spoke at an internet conference in Wuzhen hosted by the Chinese government’s cyber-censorship arm. Mr. Cook’s participation drew fire from conservative China critics in the U.S., but Chinese state media applauded his remarks affirming the need to abide by the laws of host countries.


“Only those that can play by the rules can win in the game of corporate competition,” People’s Daily said in a commentary in January. “Apple’s CEO Tim Cook has come to understand that.”




How Apps, Music and More Can Buoy Apple Beyond the iPhone

To keep increasing revenue while selling fewer phones, Apple might have to rethink how it charges for devices and services



Contrary to popular belief, Apple isn’t a hardware company. Nor is it a software company. Apple is, fundamentally, an ecosystem company—one that, with the help of millions of developers world-wide, has created a vast web of software and services that run on its 1.3 billion active devices.


Apple revenue has been dominated by the iPhone, but thanks to the services side of its business, the company is proving to be more durable than any single iPhone generation.


The trouble is, as Apple increasingly emphasizes device prices over volumes for revenue gains, it confronts a fundamental tension—between charging people more for hardware and, simultaneously, more for services to access through it.


The former puts profit margins ahead of prevalence, while the latter emphasizes maximizing the number of gadgets in customers’ hands.


The iPhone’s average selling price rose in the most recent quarter, but unit sales were down. Meanwhile, evidence mounted that more people are holding on to their older iPhones. If any company can figure out how to continue increasing revenue while selling fewer phones, it’s the Colossus of Cupertino—but it might require a fundamental rethinking of how Apple charges for its goods and services.



Just as Chief Executive Tim Cook predicted in 2016, Apple has increased revenue from its intangible services into a Fortune 100-size business. In the 2017 calendar year, Apple reported $31.15 billion in revenue from services including Apple’s music (both downloads and subscriptions), video sales and rentals, books, apps (including in-app purchases, subscriptions and advertising sold by Apple), iCloud storage and money Google pays Apple to be the iPhone’s default search engine.


Another way to think of it: Apple is on track to take in about $26 a year in revenue from each of its 1.3 billion active devices. By contrast, Facebook brings in advertising revenue of about $25 a year for each of its more than two billion users. (Users in the U.S. and Canada, Facebook’s most lucrative ad targets, are each worth $26.76 a year.)


Mr. Cook says by 2020 he wants Apple’s services revenue to double from its 2016 level. Between now and then, if revenue from iPhone sales holds steady or declines, which would be a natural consequence of people holding on to their devices longer, then growth in services could become the primary driver of Apple’s overall revenue growth—or even the one thing that keeps it from declining. Services, and the millions of developers and thousands of companies behind them, are the reason the iPhone is so sticky, says Horace Dediu, an Apple analyst and fellow at the Clayton Christensen Institute for Disruptive Innovation.


The iOS economy

While the majority of the world’s smartphones are powered by Android, Apple remains strong in the U.S. and other high-value markets. Compare Apple with Microsoft’s 1990s dominance of the personal computer, Mr. Dediu says. “Once Microsoft established this juggernaut situation with Windows and developers and apps built on top of Windows, you couldn’t move it.” Even a federal antimonopoly lawsuit couldn’t harm Microsoft’s market share, he says.


While Apple counts only its share of app-store purchases and subscriptions in its services revenue, the totality of the “iOS economy” is much bigger, Mr. Dediu says. World-wide, people now spend $40 billion a year on apps for Apple devices. As of this year, that is more than they spend on movies at the theater, he adds.


When iTunes was king, the bulk of Apple’s services revenue was music and movie downloads; with the arrival of the iPhone, it soon became apps. As Apple rolls out more gadgets, its services revenue will continue to diversify. Analysts believe Apple’s coming HomePod and Watch have the potential to drive subscriptions and other spending. Take the example of AirPods: People who own them are more likely to subscribe to a music service, including Apple’s, because AirPods make it easier and more convenient to consume audio content, says Ben Bajarin, an analyst at market-research firm Creative Strategies.


Hardware is hard

The remarkable thing about Apple’s services revenue is that in general it goes up, quarter after quarter.


Contrast that with Apple’s hardware revenue, which is highly seasonal and dependent on whether Apple is releasing a new iPhone that quarter. Without services—which represented a record 16% of Apple’s fiscal fourth-quarter revenue in 2017, when hardware sales were relatively low, and 9.6% of revenue in its most recent quarter, which included the launch of the new iPhones 8 and X—Apple’s money machine would be a good deal more erratic than it is.


Recent declines in the number of iPhones sold reflect how global demand for high-end smartphones appears to be saturated.


In a market where everyone is battling for existing customers, Apple is contending with competitors like Google, which gives away its Android OS to earn money on ad-supported services, and Amazon, which ropes in customers with low-cost electronics and Prime memberships. To keep expanding its services revenue, Apple will have to continue to sell (and care for) older models of iPhones, which could eventually mean lower margins on hardware.


An iPhone subscription

One way for Apple to resolve the hardware-versus-services tension would be to roll them into one giant subscription, Mr. Dediu says.


Apple already offers an upgrade program, where users can pay off an iPhone after 24 months or trade it for a new one after a year. Imagine a service where you simply subscribe to a regularly updated iPhone, Apple Watch, AirPods or some subset of these devices. Mr. Dediu estimates that for every Mac or iPhone, the average Apple customer spends on average a dollar a day on hardware plus services. A customer would spend more for a premium version—say, for a new MacBook Pro and an iPhone X—but calculating the annual value of such a customer should be straightforward for a company like Apple.


Throw in health monitoring, an iCloud subscription, Apple Music, Apple’s original programming and more into a cable-television-like bundle, or a la carte, and Apple could go from being a hit-driven company to one that throws off predictable, consistent, subscription-based revenue. Think of it as Apple Prime.



KGI continues to double-down on its claims on what the 2018 iPhone lineup will comprise. The 6.1-inch LCD iPhone will apparently resemble the iPhone X with a similar full-screen design, but at a more accessible price for customers; the analyst expects this new iPhone to be priced to replace iPhone 8 and iPhone 8 Plus, as cheap as $699.

The LCD 6.1-inch iPhone will use slightly less premium components, such as an aluminium frame instead of stainless steel. Nevertheless, given that it looks like a top-end iPhone in style, KGI believes the lower entry point will make it Apple’s most popular 2018 device and see total sales around 100 million units.

100 million units of one model is a lot of phones, but the reality is Apple sells a lot of iPhones in general. In the holiday quarter just gone, Apple sold 77.3 million iPhones.

For a comparison, KGI’s Ming-Chi Kuo expects the current iPhone X to ship a total of 62 million units in its lifetime. Kuo believes that Apple will cease production of this particular model in the summer.

The 6.1-inch iPhone would not be the only new device. The replacement for the iPhone X is believed to consist of a three-SKU 2018 iPhone lineup. A new iPhone X style device with improved internals, a larger ‘iPhone X Plus’ with a 6.5-inch OLED display, and the 6.1-inch LCD model.

All three phones are expected to feature Face ID and lose the home button in favor of the iPhone X’s gestural navigation. The 6.1-inch device will not get a dual camera nor 3D Touch, according to a previous KGI report.

Pricing for the lineup is obviously unknown at this stage, but it makes sense for the 6.1-inch LCD device to be the ‘budget’ offering, relatively. KGI expects it to make up around 50% of overall shipments, with the ‘new iPhone X’ and ‘iPhone X Plus’ (tentative names) making up the difference.

This would imply the 2018 iPhones will sell around 200 million units in their lifetime. Add on top of that the total of Apple’s sales of previous generation phones … Apple sure does ship a lot of phones.




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