Above Avalon Podcast Episode 140: Let's Talk Content

Some of Apple’s recent decisions regarding content distribution have sparked a debate. Is Apple embracing a new kind of strategy that elevates services at the expense of hardware? Episode 140 is dedicated to going over Apple’s content distribution strategy and how the company is looking to leverage its user base in an effort to establish one of the more formidable content distribution arms in existence. Additional topics include Apple’s history as a content distributor, how streaming is changing content consumption, misconceptions surrounding Apple’s content distribution strategy, the sudden collapse in stationary speaker buzz, Apple’s goals for its content distribution arm, and the various challenges facing the company.

To listen to episode 140, go here

The complete Above Avalon podcast episode archive is available here

Apple's Content Distribution Strategy

This past November, Amazon sent shockwaves across a number of industries by announcing Apple Music would be available on Echo devices. Earlier this month, Samsung announced Apple was bringing iTunes content to Samsung TVs. Apple also expanded AirPlay 2 support to include a wide range of high-end television sets. These announcements don’t represent some type of cultural shift away from hardware for Apple. Instead, the moves are part of Apple’s strategy to leverage its user base in an effort to establish one of the more formidable content distribution arms in existence.

Content Distribution

Apple has long held an interest in being the one to deliver content to its growing base of users and devices rather than leave content distribution to someone else. Apple’s content distribution arm delivers a variety of genres, listed below, to hundreds of millions of users and more than a billion devices.

  • Music

  • TV Shows / Movies

  • Apps

  • Podcasts

  • News

  • Magazines

  • Books

Apple has seen varying degrees of success when it comes to distributing content. With iTunes, Apple took advantage of the Mac’s low market share by getting the music industry to test a radical idea at the time: selling digital music online. iTunes ended up playing a big role in moving the music industry from albums to singles.

After years of strong growth, App Store revenue was approximately $45B in 2018. Apple has been a leader in the podcast space from the beginning. Written content distribution has proven to be trickier for Apple although the company has recently seen strong momentum when it comes to offering curated news to users in the U.S., Australia, and the U.K.

What Has Changed?

The landscape facing Apple’s content distribution arm is undergoing significant transformation.

Online streaming has taken over the music industry. The iTunes era of paid downloads is over as the idea of owning music is quickly becoming a thing of the past. Renting has become the preferred method of consuming music. The shifting landscape played a major role in Apple’s decision to buy Beats back in 2014.

According to the Recording Industry Association of America (RIAA), streaming now accounts for an astounding 75% of the U.S. music industry’s revenue. Digital downloads account for just 12%, slightly ahead of the 10% attributed to physical sales. In the U.S., approximately 50M people are paying a monthly subscription to consume as much music as they want. Globally, the total number of paid music subscriptions exceeds 200M. Apple Music has approximately 60M paying subscribers.

Turning to video, direct-to-consumer distribution has turned the industry on its head. Instead of the big cable bundle imploding, new, lower-cost video bundles such as Netflix and Hulu have exploded in popularity. These revised content bundles have the content people want to see, in addition to the distribution method that people want to use. More than 200M people pay a monthly subscription to consume video through these newer bundles. This number will continue to increase as notable names, including Disney, are about to enter the direct-to-consumer space.

One of the more interesting implications found with this new digital content landscape is how scale has been redefined. Success is no longer measured in the tens of millions of users like it was in the iTunes era. Instead, scale is measured in the hundreds of millions of users.

Spotify is the largest paid music streaming service while Netflix is the largest video streaming service. Amazon has seen the most success in the area of bundling access to content. Meanwhile, YouTube remains the behemoth in the ad-supported realm. Localized offerings in a number of emerging markets have also been able to capitalize on music and video streaming to develop compelling solutions, although few have seen success beyond their home territory.

The Strategy

Considering how Apple has approximately a billion users in its ecosystem, the company would appear to have enough customers to sustain a thriving content distribution arm. Such a strategy would involve Apple keeping its content distribution services exclusive to Apple hardware. However, upon closer examination, there is one complicating factor in such a strategy.

According to Tim Cook, there are 1.4 billion Apple devices in the wild. Given the number of Apple users, Cook’s disclosure means that at least 60% of Apple’s user base own just one Apple device. For hundreds of millions of people, the iPhone is likely that Apple device. This changes the dynamic facing Apple’s content distribution strategy.

Apple users are not monolithic when it comes to gadget buying. Instead of exclusively using Apple hardware, a majority of Apple users also own devices from other platforms such as Samsung Smart TVs and Amazon Echo speakers. Apple’s design-led culture and product development process ensure that there will always be product categories, such as TV sets and low-end stationary speakers, that Apple chooses not to play in or compete with.

With that in mind, Apple’s content strategy is as follows:

  1. Develop content distribution platforms.

  2. Give content distribution platforms the best chance of success by leveraging the user base and allowing certain content genres to be consumed on non-Apple hardware.

  3. Provide first-party hardware solutions targeting users who are looking for the best all-around Apple experience.

In summary, Apple’s user base provides the company optionality when it comes to distributing content. By not keeping some of its digital content distribution services exclusive to its own hardware, Apple reduces the risk of its users turning elsewhere for content.

Odds are good that a decent portion of Echo speaker owners also use iPhones. Given how the predominant use case found with stationary speakers is listening to music, these users may have been tempted to try Spotify or Amazon Music. By bringing Apple Music to Echo devices, Apple is able to leverage its existing customer relationships in order to improve Apple Music adoption. The same principle applies to letting Apple users send content played on an iPhone, iPad, or Mac to non-Apple speakers or television sets via AirPlay 2.

Another assumption underpinning Apple’s content strategy is that a portion of the Apple user base will gravitate towards premium content consumption experiences. Apple has the opportunity to sell these first-party solutions, such as Apple TV and HomePod, to users willing to pay for the best all-around Apple experience.

Misconceptions

There has been much confusion in the press as to Apple’s content distribution strategy.

  1. Apple is said to be deemphasizing hardware in order to grow services revenue.

  2. Apple’s decision to bring Apple Music to Echo has been compared to bringing iTunes to Zune music players.

  3. Apple is said to be no longer fully behind products like Apple TV and HomePod.

The preceding theories are off the mark.

A strategy characterized by Apple prioritizing services over hardware would revolve around Apple selling a $29 Apple TV dongle or a $29 HomePod mini speaker. Apple hardware’s function and value proposition would be altered to promote non-hardware Apple products. Neither device is likely to materialize as Apple isn’t prioritizing services over hardware. Instead, Apple is selling an Apple TV box priced at a 20% premium to a 32-inch TCL TV with Roku built-in. One HomePod goes for the same price as 12 Amazon Echo Dots or Google Home Minis.

When it comes to comparing Apple’s current strategy with that of iPod / iTunes, Apple didn’t have an ecosystem containing a billion users and 1.4 billion devices in the early-to-mid 2000s. Making iTunes available on other MP3 players, like Microsoft’s Zune, would have done little to improve iTunes or Apple’s broader ecosystem. The opposite is true today. Making certain content distribution platforms available on non-Apple hardware can help improve the service in question, which ends up adding value back to Apple hardware. In addition, Apple now has the ecosystem to not only target premium accessories to a segment of the user base, but also appeal to other users by bringing certain content distribution platforms to non-Apple hardware. A similar situation did not exist in the 2000s.

Speaking of premium accessories, Apple TV and HomePod are misunderstood products. The products are high-end accessories tasked with offering Apple users the best all-around experiences for consuming video content and listening to music, respectively. Making Apple Music or video available on other platforms does not change that dynamic. HomePod doesn’t have a weaker value proposition because Apple Music is available on a $29 Echo Dot. Apple TV is not kneecapped because AirPlay 2 support is available on a Sony TV set.

Motivation

Apple sees a massive opportunity in content distribution. There is a glaring weak point found in music and video streaming: brutal economics. Both Spotify and Netflix have business models in search of sustainability.

Spotify’s most likely path to sustainability boils down to amassing so many listeners that the balance of power begins to tilt towards Spotify and away from content providers. Either Spotify has to pay less for music, or the company will make a big move into original content.

Meanwhile, Netflix’s business model is based on a feedback loop that is consuming increasing amounts of cash. The move into original content is not proving to be a financial panacea either. Netflix clearly needs significant subscription price hikes over time, and the only way to guarantee those price hikes will stick is to continue ramping up content spending in order to sustain engagement.

Given Apple’s business model, the company doesn’t have to worry about such sustainability issues. Instead of releasing low-margin hardware that boils down to being nothing more than service conduits, Apple can use third-party hardware as Trojan horses for its own content distribution arm. This can be accomplished either by partnering with a company like Amazon to have Apple Music available on Echo devices or by expanding AirPlay 2 support to include a wide range of speakers and TV sets. AirPlay is a brilliant way of ensuring that an Apple product remains at the center of people’s lives.

Dedicated music and video streaming players will have to eventually prioritize profit and revenue. However, Apple has the luxury of not having profit be the motivating factor behind its content distribution arm. Instead, Apple is going for power. A few calculations prove this point. With Apple Music, 100M users paying an average of $7 per month would bring in $8B of revenue per year. Assuming 75% of that revenue goes back to music rights holders, Apple’s gross profit would be approximately $2B per year, or just 2% of Apple’s overall gross profit. Video streaming economics may end up being even less attractive from a cash flow perspective. Instead, Apple would be looking more at improving each service by grabbing scale and gaining influence and power in Hollywood.

Goals

Here are some of Apple’s specific goals for its content distribution arm:

Apple Music

  1. Grab enough users to position Apple Music as a legitimate alternative to Spotify and Amazon Music. From Apple’s perspective, scale in music distribution has gone from being a liability during the iTunes era to being the key to success with Apple Music. The decision to bring Apple Music to Echo speakers is a clear attempt to limit Amazon Music and Spotify adoption, especially among Apple users.

  2. Work more closely with the labels. By positioning Apple Music as an alternative to Spotify for the music labels, Apple is in a position to gain back the incredible amount of power it once had with the iTunes empire.

  3. Capitalize on the changing way music is consumed by investing in better A&R capabilities. Playlists are gaining power in the realm of talent discovery. Capitalizing on improved ways to find new talent stands to improve Apple Music playlists and Apple’s relationships with music rights holders.

Apple Video

  1. Convince third-party content creators to embrace the TV app. The key metric to watch in video streaming will be engagement. Accordingly, to have people spend an increasing amount of time in the TV app, Apple will look to establish a platform from which users can access various video bundles. This strategy resembles more of Amazon’s video playbook instead of Netflix’s. The idea underpinning this strategy is that video streaming won’t be a winner-take-all market, or even a winner-takes-most market.

  2. Use original content to elevate the TV app. Since one form of differentiation in video streaming is great storytelling, Apple has been focused on developing its own slate of original programming. One thing Apple can do to stand out from Amazon is make its initial slate of original programming free for TV app users. The idea behind such a move is to get people using the TV app, which will then increase the odds of people singing up and paying for third-party video bundles through the TV app.

Bundling. There is an opportunity for Apple to bundle various content genres into one monthly payment. Music and video make the most sense for a bundle although news and magazines are doable as well.

Experiences. Apple is one of the few companies to have a diverse content distribution arm in addition to more than a billion customers and devices. This gives the company a unique advantage when it comes to fostering customer relationships. In addition, Apple can offer premium experiences to those in the Apple ecosystem by having its content distribution arm work seamlessly with entirely new hardware form factors.

Challenges

Apple faces various challenges in its pursuit of establishing one of the more formidable content distribution arms in existence. The most difficult task is found with video streaming. There is about to be a brutal war in video streaming as a handful of companies with deep pockets begin to compete with Netflix. We haven’t yet seen genuine competition in the paid video streaming space. In a scenario where there are only one or two all-powerful streaming services, Apple will find itself at a bigger disadvantage. On the flip side, greater competition could prove to be a benefit to Apple if it means other streaming services will want to work with the company and its TV app.

With music, Apple appears to be going back to basics and fighting for every user whether it’s through bundling deals with mobile carriers or keeping existing users as users. It appears to be working. Apple is proving to be a formidable challenger to Spotify despite many having already declared Spotify to be untouchable years ago. In addition, by maintaining good relationships with a handful of labels, Apple has access to tens of millions of songs. The entire dynamic is easier for Apple to manage.

In terms of written content, Apple is in a good position when it comes to relying on human curation to surface content. However, there are questions regarding scalability and just how effective Apple can be in convincing publishers to get behind such efforts.

Big Picture

It is not too late for Apple to compete effectively in music and video streaming. Meanwhile, the turmoil found in distributing and consuming written content through traditional social media vehicles is still in the early innings. This will give Apple its best chance of finally cracking written content distribution.

Despite slowing unit sales, the iPhone continues to fuel growth in the user base. Meanwhile, wearables are boosting the number of Apple devices in the installed base. Not only are these positive developments when it comes to strengthening the Apple ecosystem, but they also increase the number of people in a position to rely on Apple for content.

With a pair of smart glasses not quite ready to be unveiled, now is the time for Apple to dedicate precious time and resources to strengthening its content distribution arm.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.

Above Avalon Podcast Episode 139: Thinking About Apple in 2019

January is a great time to embrace the unknown rather than come up with predictions for the next 12 months. Episode 139 is dedicated to going over my fifth installment of Apple questions as the new year kicks off. We discuss 56 questions facing Apple in 2019. Topics include everything from big picture themes to detailed questions about Apple’s product strategy. Additional topics include Apple’s financial picture, management changes, emerging markets headwinds, R&D, and capital expenditures.

To listen to episode 139, go here

The complete Above Avalon podcast episode archive is available here

Apple Questions in 2019

Last year was a busy one for Apple, and all indications point to 2019 being another busy year. Earlier this month, Apple announced a rare negative revision to its quarterly revenue guidance due to an unforeseen sales drop in China. The news was quickly followed by announcements from the leading TV set manufacturers that Apple was extending AirPlay 2 support to smart TVs. In addition, Samsung announced Apple was bringing an iTunes app to Samsung Smart TVs. The moves are part of Apple’s long-standing ambition to strengthen its content distribution arm.

January is a great time to embrace the unknown rather than come up with Apple predictions for the next 12 months. Accordingly, this is my fifth installment of Apple questions as a new year kicks off.

Previous year’s questions are found here:

Here are my questions for Apple in 2019:

Big Picture

  • Major Themes. What will be the major themes for Apple in 2019? Apple unveiled an aggressive hardware strategy in 2018 with updates to every major product category. Apple Watch and iPad Pro saw especially strong hardware updates. A case can be made that Apple used 2018 to release powerful, new hardware that is now in a position to take advantage of new software and services that will be launched in 2019.

  • New Products. Will Apple unveil a completely new product? While Apple will likely release a number of updates to existing product categories, the best candidate for an entirely new product in 2019 is found with wearables (a pair of Apple-branded, over-the-ear headphones). New content distribution services are also likely in the pipeline.

  • Health Initiatives. What does Apple have in plan for health in 2019? With COO Jeff Williams leading Apple’s health initiative, management continues to position health as one of Apple’s more important long-term plays. According to Tim Cook, Apple’s “greatest contribution to mankind” will be about health. While the claim may come off as hyperbole, there aren’t many tools more important than those helping to improve one’s health. The major themes in Apple’s health strategy include adding health sensors to wearables, positioning the iPhone as a health data depository, investigating primary care, and hiring medical professionals to work on entirely new ideas and concepts.

iPhone

  • New Models. How many new iPhones will Apple unveil in 2019? Last year marked the first time that Apple unveiled three new flagship iPhones at the same time. This added much complexity to the iPhone business. Reports point to Apple will once again unveiling three new iPhones later this year.

  • New Features. What will be the top features for this year’s new iPhones? The AR era is coming to smartphones, albeit at a slower pace than many expected. A safe bet is to look for upgrades to the device’s brain (processor) and eyes (cameras). Face ID improvements are also likely in the pipeline given how Face ID works in both horizontal and vertical positions with iPad Pro.

  • Differentiation. Will Apple add greater differentiation between iPhone models? Apple positioned screen size as the only differentiator between the $999 5.8-inch iPhone XS and $1,099 6.5-inch XS Max. A few, relatively minor items differentiate the iPhone XS from the $749 6.1-inch iPhone XR. Greater differentiation could play a role in pushing iPhone demand in a particular direction, say to the largest, most powerful model.

  • Screen Size. Is Apple working on a new, smaller iPhone? While the smartphone market has likely moved beyond the 4-inch iPhone SE, there may still be enough demand for an all-screen device, with Face ID, that comes in a smaller foot print than the iPhone XS.

  • Naming. Will Apple stick with the iPhone X nomenclature for its newest iPhones? While the “Max” branding works for Apple’s largest iPhone to date, the effectiveness found with “XS” and “XR” are more up for debate. A good argument can be made for Apple to stay away from a Roman numeral naming scheme. However, as long as Apple maintains an annual iPhone update cadence, it makes sense for Apple to rely on naming to differentiate new iPhones from older models.

  • Gauging Demand. How will Apple approach iPhone demand forecasting in 2019? One item that outsiders did not fully contemplate was the level of difficulty found in estimating demand for three different flagship iPhones. Not only did Apple management have to estimate overall demand for iPhone, which is incredibly difficult to do on its own, but the sales mix also had to be estimated. While much has been written about waning iPhone demand in 2019, demand fundamentals outside of China look healthier than consensus assumes.

  • Pricing. Will Apple maintain its current iPhone pricing strategy? While it may be easy to think lower pricing will lead to stronger iPhone demand, there are additional factors to consider. The growing gray market for iPhone is satisfying demand at the low end. This gives Apple more freedom to be aggressive at the high end. At the same time, Apple has likely been increasing pricing to compensate for including additional technology in flagship iPhones.

  • iOS 13. What will be the tentpole features in iOS 13? With iOS 12 being focused on performance and stability, iOS 13 will likely contain cosmetic and UI changes. Changes to the iOS home screen would not come as a shock, especially given the way iPhone usage has been changing with increased importance given to digital assistances.

Apple Watch

  • New Models. How many new Apple Watches will Apple unveil in 2019? Last year, Apple discontinued the Watch Edition, a possible sign of Watch demand gravitating towards the lower-priced aluminum version.

  • Watch Bands. Will Apple continue to position Watch bands as the primary price differentiator between Watch models? Instead of using Watch case materials as a huge differentiator, Watch bands make more sense to appeal to the wide range of Watch wearers. Apple currently sells Watch bands ranging from a $49 Sport Band and Sport Loop to a $539 Hermès.

  • New Features. What will be the tentpole features in this year’s new Apple Watches and watchOS 6? After a rethinking of most of the Watch’s hardware last year, this year’s features will likely be focused more on internal changes, possibly related to expanded health monitoring.

  • Watch Faces. Should we expect Apple to rethink Watch faces? The app paradigm found on iPhone doesn’t extend to the wrist. Instead, Watch faces, including how complications are arranged on the face, play a big role in how we get information on our wrist.

  • Pricing. Will Apple continue to run with higher Watch pricing? Management raised Watch pricing by $70 to $100 moving from Series 3 to Series 4. At the same time, Apple increased entry-level Watch pricing by $30.

AirPods

  • Update. Will Apple unveil an updated pair of AirPods in 2019? Based on unit sales, AirPods is the second best-selling Apple product of all time, behind only iPad. The product has seen incredible sales momentum despite not being updated in two years. An update to the AirPods charging case to support wireless charging has long been rumored. In addition, rumors of an AirPods update involving additional capabilities have been floating around. Given how the product has gained iconic status almost overnight, major cosmetic changes aren’t likely.

iPad

  • iPad mini. Is Apple going to update the iPad mini? Peak iPad mini occurred years ago as larger smartphones permanently reduced the market for a small iPad. However, if management believes an updated iPad mini can generate a few million unit sales per year, such a product may receive the green light.

  • 9.7-inch iPad. What will happen to the low-end 9.7-inch iPad? Apple has been aggressive in cutting entry-level 9.7-inch iPad pricing. In addition, the 9.7-inch iPad has been the model used to target educational settings. Judging by iPhone ASP, the 9.7-inch iPad has been a success.

  • iOS 13. Will the iPad Pro be a beneficiary of iOS 13? Given strong iPad Pro hardware updates in 2018, positioning future iOS versions to take advantage of that more powerful hardware seems inevitable. The debate is found with how best Apple can add greater capability to iPad.

Mac

  • Mac Pro. What will be the new Mac Pro’s design language? Based on previous management commentary, a modular machine is in the works. However, there are still questions regarding what such a design actually entails.

  • Standalone Apple Display. How will Apple position its upcoming standalone display? With a new Mac mini announced last year, Apple is likely going to target a display to a relatively small niche of the Mac installed base.

  • macOS. How will Apple’s efforts to make it easier for iOS developers to bring their apps to macOS impact the Mac’s overall narrative?

  • ARM-based MacBook. Will there be additional clues of a Mac powered by Apple chips being in the pipeline? Much of the intrigue found with taking frameworks from UIKit and bringing them to MacOS involves implications the move will have on an entry-level Mac powered by Apple chips.

Home Accessories

  • Apple TV. Will Apple expand Apple TV partnerships to include additional cable providers? The Charter partnership (50M homes) is one of the more interesting news items for Apple TV from 2018.

  • HomePod. Is Apple planning a HomePod update in 2019? As Apple continues to roll out its stationary speaker to additional countries, a good argument can be made that Apple will skip a HomePod update this year.

  • Marketing. Will Apple market Apple TV and HomePod any differently given its focus on strengthening the content distribution arm? With AirPlay 2 extended to smart TVs and speakers, there are still important roles for Apple TV and HomePod to play in the Apple ecosystem. Each device ultimately provides the best Apple experiences available to those interested in smart TVs and stationary smart speakers.

Content Distribution

  • Apple Music. What is the next chapter for Apple Music? Judging by M&A activity, such as the Platoon acquisition, Apple has been busy developing some of Apple Music’s behind-the-scenes pieces. One such focus is working more closely with labels by having a more powerful A&R platform. Apple has also been increasingly focused on growing the number of paid users by betting on partnerships and making the service available on as many devices as possible.

  • Apple Video. When will Apple launch its original video content initiative? There has been a constant stream of reports pointing to Apple developing a portfolio of original TV shows, movies, documentaries, and children’s programming. A few months ago, reports pegged Apple as making its original batch of content free to Apple’s TV app. However, a paid video streaming service, accessible to users on non-Apple devices, seems likely.

  • Apple News Availability. Will Apple make Apple News available beyond Australia, the U.K., and the U.S.? The primary reason for the painstakingly-slow rollout is likely found with difficulty in scaling Apple News’ human curation.

  • Paid News. Will Apple launch a paid tier to Apple News? Apple’s Texture acquisition certainly raised the odds of Apple expanding the paid magazine subscription model to include news.

  • Apple’s Distribution Arm. How will Apple continue to expand its content distribution arm? As mentioned up above, Apple’s decision to extend AirPlay 2 support to smart TVs can play a beneficial role when it comes to Apple’s streaming video initiative. At the same time, bringing Apple Music to Echo devices and expanding AirPlay 2 to various stationary speakers bodes well for Apple Music. A stronger content distribution arm ends up improving Apple’s digital content offerings, which ultimately adds value to Apple hardware.

Services

  • Apple Maps. How fast will Apple roll out Apple Maps 2.0? Apple had a somewhat quiet launch of its enhanced mapping service in mid-2018 with a rollout limited to northern California.

  • iCloud. Will Apple adjust or modify its free and paid iCloud tiers? Apple currently offers 5GB of iCloud storage for free. There are three paid tiers: 50GB, 200GB, and 2TB for $0.99, $2.99, and $9.99 per month, respectively.

  • Apple Pay. What are Apple’s plans for improving Apple Pay adoption among U.S. retailers?

Siri

  • Watch Face. How will Apple push Siri forward as a visual digital assistant? The Siri Watch face continues to be one of Apple’s most intriguing features.

  • Shortcuts. How will Apple push Siri Shortcuts forward? The technology and design philosophy behind Shortcuts say a lot about how Apple thinks about a digital voice assistant. Shortcuts are likely only being used by a small fraction of the installed base.

Capital Management

  • Share Buyback. Will there be any change to Apple’s share buyback pace in 2019? Following the passage of U.S. tax reform, Apple began to utilize its foreign cash to fund share buyback. In FY2018, Apple spent $73B on share repurchases, although the buyback pace was closer to $80B per year by the end of the year.

  • Cash Dividends. How much will Apple increase its quarterly cash dividend? Apple has telegraphed that it will increase the cash dividend each year. Apple follows a stable dividend policy in which management targets a consistent dividend growth rate that does not follow the cynical nature of business. For more information on Apple’s dividend strategy, the Above Avalon Report, “Apple and Dividends: A Deep Dive into Apple’s Cash Dividend Strategy” is a 4,000-word deep dive into Apple’s dividend strategy (available here exclusively for Above Avalon members).

Financial

  • Quarterly Guidance. Will Apple alter its financial guidance strategy after issuing a rare negative revision to 1Q19 revenue guidance? In an environment with increased volatility based on economic conditions in emerging markets, Apple has the option of adjusting the way it provides guidance.

  • Financial Disclosure. Will management refine its financial disclosure strategy in 2019?

Management

  • Turnover. Will there be any turnover within Apple’s executive team? There was no turnover in 2018. Given Apple’s upcoming product pipeline, there is no obvious candidate within the SVP ranks when it comes to retirement or departures.

  • New Hires. Will Tim Cook and his inner circle expand the executive team? There are currently 12 members officially on Apple’s executive team. Last year, Apple expanded the team by one with John Giannandrea being promoted to SVP of Machine Learning and AI Strategy. For more information on Apple’s leadership structure, the Above Avalon Report, “Apple’s Leadership Structure Under Tim Cook and Jony Ive” is a 5,000-word deep dive into Apple’s leadership structure (available here exclusively for Above Avalon members).

Industrial Design Group

Emerging Markets

  • China. How will Apple respond to slowing economic growth in China? During the financial crisis of 2008 and 2009, Apple was a fraction of its current size, with the iPhone having just launched and the iPad still being developed.

  • U.S. / China Trade Tensions. Will Apple approach U.S. / China trade tensions differently in 2019? In what may not be a surprising development, Cook has remained characteristically upbeat about U.S. / China reaching some kind of deal or compromise.

  • Pricing. Will Apple continue to raise product pricing outside the U.S. to compensate for FX? The stronger dollar has been impacting demand for Apple products outside the U.S. as management has been raising prices.

  • India. What initiatives does Apple have in store to improve its positioning in India? Apple is being priced out of the market and there is no obvious near-term solution. In 2018, India was responsible for just $2B of Apple’s revenue, which officially positions India, when it comes to revenue, as a rounding error for Apple.

R&D / Future Products

  • Apple Glasses. Will there be any signs of Apple getting closer to a Glasses unveiling? Based on M&A trends, odds of Apple holding a Glasses unveiling go up in 2020 and 2021.

  • Project Titan. What will be the major developments related to Titan in 2019? Last year, there were a number of notable news items regarding Titan, a catch basin for Apple’s transpiration R&D initiatives. Apple is reportedly working with Volkswagen on self-driving vans for Apple employees. There were also reports of a few notable hires, including Doug Field, hinting of Apple’s ongoing interest in auto hardware and proceeding with its plans to have a much larger test fleet of autonomous cars.

  • AirPower. Will Apple launch AirPower in 2019? In an uncharacteristic move, Apple did not provide a comment pertaining to missing AirPower’s launch deadline, which was assumed to be sometime in the first half of 2018. The lack of announcement points more to ongoing development efforts versus a complete project cancellation.

Capital Expenditures / M&A

  • Manufacturing / Supply Chain. Will Apple unveil any significant changes to its manufacturing and supply chain apparatus? After a few years of little publicity, rising U.S. / China trade tensions have put Apple’s contract manufacturers and supply chain in the spotlight. Questions regarding Apple’s need to diversify out of China have been on the rise.

  • U.S. Expansion. Is Apple planning additional U.S. expansion in terms of additional facilities and real estate? Apple’s recent announcement about building a new campus near its current Austin, Texas campus led some to think Apple may still announce another campus in the U.S. In addition, Apple continues to own and lease manufacturing space in Silicon Valley.

  • M&A. Which companies will Apple buy in 2019? The question is difficult to answer as Apple tends to buy small, relatively unknown companies for technology and talent. Over the past few years, Apple has bought approximately ten companies annually.

  • Retail. Will Apple announce any major new retail initiatives? Apple has been focused on expanding Today at Apple sessions around the world, in addition to remodeling older stores. The number of new store openings has slowed with the focus centering high-profile locations in the world’s largest cities.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.