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Apple Roundup: China, Services, App Store, Pullstring & More

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Apple’s (AAPL - Free Report) China headaches can now be quantified. The latest report from IDC pegs the December quarter iPhone unit decline in the region at 19.9% compared to local rival Huawei’s surge of 23.3%. The China smartphone market was down 9.7%. As a result, Apple’s China market share dropped to 11.5% from 12.9% in the comparable prior-year quarter.

Chinese brand Xiaomi tumbled 44.4%, attributed to adjustment of product mix and channel inventories as well as an internal reorganization. Chinese brands OPPO and Vivo grew a respective 1.5% and 3.1%, accounting for most of the mainstream market.

IDC says that a large part of Apple’s misfortunes are tied to the high price tag, since Apple continues to raise prices significantly without adding significantly noticeable innovation to the device. On the other hand, local players keep improving their game and setting new trends and standards, helping them gain mindshare. A deterioration in the macro economic climate also played a role, according to the research firm.

Additionally, Hong Kong-based Counterpoint Research said earlier this month that Apple’s India sales plummeted 25% in the country’s peak shopping season. But the decline in India doesn’t affect Apple as much since the country generated just 1.7 million units (down from 3.2 million a year earlier) compared to China where it generated 11.8 million units (down from 14.8 million last year).

No wonder Apple stopped providing specific iPhone numbers and no wonder there was so much negative news coming out of its suppliers.   

But all is not lost, as management has been trying to convince investors for a while now. The company is doing all it can to offset the smartphone decline with increases in service revenue and there was some news on that front as well-

Apple is planning a March 25 event to announce two new service offerings

The first of these is a video subscription service, for which it is reportedly inviting Hollywood stars like Jennifer Aniston, Reese Witherspoon, Jennifer Garner and director JJ Abrams to the event. The service will feature original content as well as content acquired from subscription TV services like CBS Corp, Viacom and Lions Gate Entertainment's Starz. It will likely be distributed through the App Store, which is available in 100 countries Apple hasn’t said anything about it yet.

The other announcement is broadly expected to be a news subscription service that will add a paid tier to Apple News that will allow its 1.4 billion users/active installed devices to access paywalled stories from publishers at $10 a month. This would be a quick monetization of News for Apple. The only problem is Apple wants to keep half the fee it charges, splitting the rest between publishers based on the amount of time users spend with them. Publishers, especially The New York Times and the Washington Post aren’t thrilled with the idea because the plan can impact their own subscription revenue.  

At the same time, the huge installed base is a lure, especially given the regular flow of information on how much users spend in the App Store. So according to the findings of research group Sensor Tower, revenue generated per U.S. iPhone grew 36% from $58 in 2017 to $79 last year with gaming accounting for nearly 56% of average consumer spend.

Apple’s services business does appear to have taken off well with in-app purchases and paid app downloads up 36%, Music up 22%, social networking apps up 22%, and Health & Fitness apps grew 75%. Entertainment apps grew their spend per device by 82%.

Meanwhile, Goldman Sachs analysts estimated that traffic acquisition costs paid by Alphabet (GOOGL - Free Report) to be the default search engine on Apple devices and computers amounted to $9.46 billion, representing 23% of its Services revenue and 33% of group gross profits. Apple’s total TAC revenue grew 48% last year but the growth rate would decelerate to 29% this year due to tougher comps, in any case underscoring its growing dependence on payments from Google.

Services revenue is the thing Apple has bragging rights on, but its self-driving car effort is another story. Being one of the last of the big technology companies to enter the market, Apple didn’t have any cars testing until 2017. As a result, it is considerably behind perceived leader Waymo in the space.

According to data it supplied California’s Department of Motor Vehicles, its test drivers were still disengaging autonomous mode once every mile whereas Waymo drivers were going about 11,017 miles between disengagements. Maybe because it hasn’t driven too many test miles yet, Apple cars haven’t reported any major crashes, but this is something the company would like people to take notice of.

It appears that Apple bought Pullstring to enhance Siri for Toys. Also called ToyTalk, the startup makes tools and uses artificial intelligence to create experiences with toys. This is an important market that Google and Amazon (AMZN - Free Report) have targeted by pairing their voice assistant with applications for storytelling, quizzes and other games.

Founded in 2011 by former Pixar executives for computer-based conversations and backed by Greylock Partners, Charles River Ventures, Khosla Ventures, True Ventures and First Round Capital among others, Pullstring has raised $44 million to date.

In response to an earlier patent infringement ruling by a German court, Apple is now excluding Intel (INTC - Free Report) chips from older iPhone models being sold in the country and using Qualcomm (QCOM - Free Report) chips alone.

Back in the U.S., Apple’s Tim Cook and IBM’s Ginni Rometty will be joining Uber CEO Travis Kalanick, Tesla (TSLA - Free Report) and SpaceX founder Elon Musk and executives from Walmart (WMT - Free Report) , Home Depot (HD - Free Report) , Visa, Siemens USA, Lockheed Martin and others to form part of a Trump administration advisory board to deal with the effects of artificial intelligence and automation on the workforce. Members will serve until 2020.

 

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