More on the Mac, Judging Mac Sales, Assessing Mac Success

Hello everyone. It feels good to be back in the swing of things.

As it turned out, the OpenAI saga reached something of a temporary lull right before Thanksgiving last week. Sam Altman was reinstated as CEO but with a new board not of his preference (Adam D'Angelo, Larry Summers, Bret Taylor). In going back over last Monday’s update, there isn’t much that needs to be changed or updated. Some of the latest reporting, which appears to be accurate, had Altman recently trying (unsuccessfully) to make inroads in gaining board control. Such action would likely have played a role in the subsequent boardroom drama. As we discussed, the “we are moving to Microsoft” development was then a negotiation tactic on Altman’s part. If there are any new twists and turns that jump out at me, we will revisit the subject.

Two quick notes:

  1. Last week, a new Above Avalon Report, "The State of the Mac," was published. As a reminder, an audio version of the report was also recorded and released to members with the podcast add-on attached to their membership. To get the add-on, fill out this form.

  2. Above Avalon Gifts will go live on Monday, December 4th. More information will be available at that time.

Today’s update will cover some of the member feedback and questions that came in about the report.

More on the Mac

For the past 18 to 24 months, Mac and iPad results have led to some head-scratching.

Revenue growth rates for both product categories have been all over the place. On a quarter-to-quarter basis, it may be difficult to make sense of it all. Supply interruptions, combined with channel inventory shifts and different product launch timing have added noise to the mix. However, looking at unit sales on an annual basis, things become clearer to see. iPad unit sales were down 7% in 2023 (my estimate) while Mac unit sales were down an adjusted 10% or so (my estimate). Actual Mac unit sales were down closer to 25% due to one-time issues at the end of FY2022 / start of FY2023.

In what will likely catch many people off guard, Mac unit sales in 2023 were at the same level as they were in the mid-2010s, years before the Apple Silicon transition. Even after we adjust sales to reflect one-time factors, we are looking at a sales run rate that is just 10% higher than 2014 to 2017 sales. This leads to an obvious question: Why hasn’t Apple Silicon led to stronger Mac sales?

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Apple’s Opportunities in 2023, Apple’s Challenges in 2023 (Daily Update)

Hello everyone. One group of questions that came in from members over holiday break had to do with Apple in 2023.

Instead of going over my predictions for the year, recapping where things stand in terms of opportunities and challenges makes more sense.

Let’s jump right in.

Apple’s Opportunities in 2023

Looking at 2023, Apple has several opportunities to pursue when it comes to the supply chain, mixed reality, and ecosystem growth. We will go over each opportunity in greater detail.

Add Optionality to Supply Chain and Manufacturing Apparatus. Calls for Apple to announce a sudden supply chain or manufacturing shift out of China are misplaced. Even though Apple executives may not possess a changed mindset when it comes to China’s ability to handle Apple’s business

An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.

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Deconstructing Apple’s “Far Out” Presentation (Part 2) - Daily Update

Hello everyone.

In today’s update, we will wrap up my Apple event review. As a recap, last Thursday we went over my initial impressions regarding event highlights. Yesterday, we talked about the Apple Watch in greater detail. We will now go over AirPods Pro, Fitness+, and iPhone.

Before we jump into today’s update, there is one additional observation from attending the Apple event that was worth sharing.

I couldn’t help but notice how Phil Schiller was walking around the product demo area for what seemed like an extended period.

An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.

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The daily updates have become widely read and influential in the world of Apple and technology. They are unmatched in the marketplace in terms of comprehensive analysis and research on all things Apple. Members reside in 60 countries and hold a diverse range of backgrounds and occupations. They include Silicon Valley executives and investors, the largest Apple shareholders, and the leading Apple journalists in the business.

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Above Avalon Podcast Episode 184: Let's Talk WWDC 2021

In episode 184, Neil discusses the big themes found with this year’s WWDC. The episode then takes a deep dive into watchOS direction and what Neil sees as missed opportunities for unleashing more of Apple Watch’s potential.

To listen to episode 184, go here. 

The complete Above Avalon podcast episode archive is available here. 

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Moving Forward in a Pandemic

More has happened in the past month from a global economic and health perspective than in the past ten years. We are in uncharted territory as 200 million people in 21 U.S. states find themselves facing “stay at home” directives while a growing list of countries including Italy, Spain, France, Australia, the U.K., and India are in complete lockdowns. Travel around the world has essentially come to a standstill.

Although it may be natural to search for comparisons between the coronavirus pandemic and prior crises, such an exercise will prove inadequate. Silicon Valley finds itself in the most difficult operating environment it has ever faced.

Apple’s strategy for navigating the coronavirus pandemic is centered around continuing to move forward, however difficult that is proving to be. Along those lines, management is taking recently learned lessons from how coronavirus trended in China, South Korea, and Japan to come up with a blueprint for what to do around the rest of the world.

Key Developments

Over the past two weeks, Apple has announced a number of initiatives and actions related to slowing the coronavirus pandemic in the U.S. and around the world. This includes helping those workers on the front lines. 

  • Apple and its corporate peers were early in embracing social distancing and allowing employees to work from home. 

  • Apple was the first major retailer to close its retail stores in the U.S. The decision wasn’t a light one as Apple stores are vital sources for customers looking to get help and service for their communication devices. A third of Apple store visitors are there for service.

  • Apple has joined most of its peers in donating medical supplies that had either been stockpiled to protect employees from California wildfires or were in some way connected to the company’s extensive supply chain and manufacturing apparatus.

The preceding actions are desperately needed and should be applauded and serve as a model for others to follow. 

There were two other announcements from Apple that spoke volumes as to how the company planned to navigate the coronavirus pandemic: 

  1. Unveiling a reimagined and revised WWDC. With Apple historically holding its annual developer conference in June, the company had the time to turn misfortune into something positive by turning the cancellation of an in-person conference into a reimagined online-only WWDC (still scheduled to take place in June).

  2. Unveiling a number of new products. Apple announced updates to the MacBook Air, Mac mini, iPad Pro, a new Magic Keyboard (with trackpad) for iPad, 20 new Apple Watch bands, and iPadOS 13.4 which brought system-wide support for cursors, trackpads, and mice.

As large portions of the U.S. hunkered down to combat the coronavirus and Apple’s board likely invoked certain provisions of its business continuity plans given the sudden deterioration in market and operating conditions, Apple went forward with plans for its biggest event of the year and its spring product release.

Along with doing its part to help combat the virus, Apple is also recognizing the reality that society doesn’t stop, even during a pandemic. That decision may come off as distant, or even careless, as if Apple isn’t willing to recognize the seriousness of the matter. However, this is a misreading of the situation. 

By continuing to move forward, even during a pandemic, Apple is being true to itself. Apple is a toolmaker developing products capable of improving people’s lives. Such a mission never stops, even during a pandemic plaguing 180+ countries. 

Anecdotal reports out of China point to sustained demand for iPads, despite lockdowns and quarantines, as families look for education tools to supplement children’s time away from the classroom. The U.S. now finds itself in a similar situation with some states having closed schools indefinitely. Employees are finding that work obligations haven’t disappeared, even in the face of new challenges in the form of closed schools, daycares, and the need to keep families safe. 

In such trying times, we still need functioning tools in the form of smartphones, laptops, desktops, and even wearables, not to mention accompanying services and software powering those tools. One has to imagine FaceTime usage is at record highs as video calls replace face-to-face interactions. 

Challenges

It would be an understatement to say that Apple faces challenges in its quest to continue moving forward in the midst of a pandemic. 

Consider the following developments: 

Stay at Home Directives. California is currently in a “stay at home” directive under which residents are urged to stay at home and only leave the house for essential needs such as food and medicine. California’s governor doesn’t think there will be any significant change to the order through at least mid-April. 

Tim Cook, along with most other Silicon Valley CEOs, is following the order and working from home (as shown in the video clip below). 

Google positioned the order as a key factor for canceling I/O, its annual developer conference, altogether. Apple’s announcement of running with a revised WWDC this June was announced prior to California’s stay at home order. It’s not entirely clear how Apple can create an online-only WWDC while employees are urged to stay at home. In a worst case scenario, will we see executives give presentations and product demoes from their homes? 

Social Distancing. There is irony found with how social distancing efforts, which have been proven to be very effective in slowing the virus spread, stand at odds with the vision and goal behind Apple Park as a place for spontaneous collaboration. Even when stay at home directives are rolled back, Apple still faces a massive challenge in keeping employees safe from the virus at Apple Park and other corporate offices. 

Via Duncan Sinfield

Retail Closures. Apple’s 460 stores outside Greater China have been closed indefinitely with most of Apple’s 70,000 retail employees unable to help hundreds of millions of Apple users. While Apple has announced plans to slowly reopen stores, the company is taking a localized (and cautious) approach to such openings. 

Travel Restrictions. Apple’s massive supply chain and manufacturing apparatus require Apple employees to spend time with partners on the ground and to collaborate on product development. Last year, an unintentional leak from United Airlines showed that Apple was responsible for 20% of all business seats that fly between San Francisco and Shanghai. It’s an astounding percentage that speaks to the degree to which Apple’s design, engineering, and operation teams spend time in Asia. The coronavirus pandemic has resulted in a near halt in global travel, and it is logical to assume this will have an impact on product development timelines. 

Operating Environment

A scenario that many people may not want to admit to is that the next 12 to 18 months may be the most difficult operating environment Silicon Valley will ever face. Even if the U.S. is successful at slowing the virus spread in hot spots, ongoing travel restrictions around the world will cause long-term headaches. There are then the possibilities of additional virus waves in the fall and winter. This may end up leading to permanent changes in how companies get work done. 

Some of the challenges found with the coronavirus pandemic may very well lead to product launches being delayed. Despite having one of, if not the, most formidable supply chains in the world, Apple isn’t immune to disruptions. The products Apple unveiled last week were mostly ready to go prior to the coronavirus pandemic spreading around the world. As a general rule, the products Apple is working on today are targeted for release 12 to 18 months from now. 

Despite having $40 billion of cash and cash equivalents and another $167 billion of marketable securities on the balance sheet, is it imperative that Apple recognizes market dislocations in short-term lending markets. There is then the potential financial fallout from a prolonged period of subdued customer demand. No one knows for sure whether or not customer demand will snap back in the U.S. and Europe once stay at home directives and lockdowns have been rolled back. China, South Korea, and Japan provide hope that the demand answer is yes. However, the U.S. is clearly attacking coronavirus differently and that may mean that the rebound will trend differently as well. Even stellar balance sheets can turn south in a prolonged pandemic.

While the preceding challenges are daunting, a realization that is only now starting to sink in is that the top five giants (Apple, Amazon, Microsoft, Alphabet, and Facebook) have business models that aren’t dependent on the public leaving their homes. It’s an observation that will have implications for decades to come.  

Strong Brands

Apple finds itself at an advantage to most of its peers as it saw firsthand how China, South Korea, and Japan handled coronavirus (and are now working to keep the virus at bay). In terms of the supply chain, Tim Cook and his inner circle were at the company during the SARS outbreak in 2003. Jony Ive reportedly spent three months quarantined at Foxconn during the SARS outbreak, working on the Power Mac G5 Tower. The current executive team was also at Apple during the aftermath of September 11th, 2001 when Apple unveiled the iPod six weeks later. There are then the natural disasters that Apple’s supply chain works around. However, there is something about the coronavirus pandemic that is different. It’s a challenge like Apple has never faced. 

Earlier this week, Nike reported earnings (which were better than consensus expected). Nike’s new CEO, John Donahoe, of eBay fame, said “We know it’s in times like these that strong brands get even stronger.”

He’s right. The best brands will come out of this challenging time stronger than ever. Why? The companies with the best brands always strive to continue moving forward. 

Listen to the corresponding Above Avalon podcast episode for this article here.

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For additional discussion on this topic, check out the Above Avalon daily update from March 30th.