I’m sure we’ve all heard rumors about Apple (NASDAQ: AAPL) lately.
The rumors seem to occupy each end of the spectrum — from its recent underwhelming iPhone sales streak, insinuating the beginning of the end, to brand revitalization and innovation in new models of its existing product lines to be released in the near future.
It’s up to Apple to close out this year’s earning season with a much-needed bang.
The third quarter is typically soft for the tech giant as it serves as the company’s downtime before the launch of a new iPhone model in September. And everyone is eager to see what Apple will be rolling out for the 10th-anniversary edition of the iPhone.
Investors will be paying very close attention to the upcoming iPhone sales, which dropped to $50.8 million last quarter from $51.2 million in the previous quarter.
iPhone sales are a key indicator of Apple’s revenue since its first reveal back in 2007.
Since 2011, iPhone sales have grown drastically, contributing to about 60% of Apple’s revenue. This, in turn, has sparked criticism about the company’s dire dependence on a single product.
There’s no doubt about it: It’s do or die time for Apple.
Fortunately for the company, it does have some plans in place to hopefully bring it back on top.
Getting in Early
The truth of the matter is that 10 years after Apple released its flagship product (the iPhone) and completely revolutionized technology for everyone, the company is lagging behind competitors in seizing operating system (OS) market shares in emerging markets.
It turns out that only 18% of mobile users in emerging markets use iOS, while 78% of consumers prefer to use Alphabet’s (NASDAQ: GOOGL) — the parent company of Google — Android OS.
Once the world dominator in technology, Apple’s global market share slipped 1.1% over this past year, particularly in western markets that were once considered its strongholds.
In those emerging markets, consumers tend to value digital services over the actual device they use to access them.
This means that Apple’s high-cost flagship product has actually driven many emerging market consumers away from the brand toward cheaper alternatives.
It’s a market gap that Apple can fill with its own cheaper device, as it’s doing in India.
The iPhone SE — the cheapest model that Apple makes — hit shelves in India back in June. This model was released in hopes of gaining traction in a country where it has only a 3% market share.
The first Indian-made iPhones will be cheaper than Apple’s other models, retailing at $325. This price is for appealing to a population where 95% of consumers pay under $500 for their phones.
The tech giant is also considering opening stores in major cities throughout India to accompany the development centers that it already has in place there.
The move to increase brand awareness in India is part of Apple’s efforts to keep competitors like Samsung (OTC: SSNLF), Xiaomi, and Lenovo (OTC: LNVGY) from dominating the growth of the expected additional 310 million mobile subscribers by the year 2020.
Taking on Netflix
Two Apple executives have been meeting with Hollywood agents and producers to hear pitches about possible shows for Apple to buy.
That’s right, TV shows.
Execs Jamie Erlicht and Zack Van Amburg from Sony Pictures Television were hired by the tech giant in June to oversee Apple’s latest video programming venture.
These pitch meetings have positioned Apple in direct competition with the likes of Netflix (NASDAQ: NFLX), Time Warner’s HBO (NYSE: TWX), and other entertainment purveyors.
Some producers are eager to work with Apple, but others have questions about how Apple will distribute its shows.
When House of Cards debuted on Netflix, marking the streaming service’s entrance into original programming, the service already had a large catalog of licensed programming.
Apple obviously doesn’t have that, but it does have iPhones and hundreds of millions of hands holding them.
Wall Street Journal was the first to report that Apple is currently budgeting about $1 billion to acquire and produce original TV shows over the next year.
CEO Tim Cook gave this statement regarding Apple’s latest venture:
We have put our toe in the water with doing some original content for Apple Music. We’re learning a lot about the original content business and thinking about ways that we could play at that.
With a $1 billion commitment and TV execs on staff, Apple stands to be a big presence in Hollywood.
But without a doubt, it’s standing up to some tough competition. Netflix has committed over $6 billion to original content this year alone.
Apple’s move into the original programming sector is part of a broader shift within the entire technology industry.
Tech companies are looking to differentiate their products and also their brands, to sell subscriptions, and to potentially attract lucrative TV ad dollars.
Facebook (NASDAQ: FB), Snapchat (NYSE: SNAP), GoPro (NASDAQ: GPRO), and YouTube have all started investing in original shows, as well.
But Netflix and Amazon (NASDAQ: AMZN) are the furthest along in their efforts.
Will We See It In Time?
Will we see the 10th-anniversary edition iPhone in time for a September reveal?
Apple suppliers are apparently facing issues with the production of its new storage chips that are destined for the latest 2017 iPhone model.
Reports claim that SK Hynix (OTC: HXSCL) and Toshiba (OTC: TOSBF) have fallen short of production by as much as 30% due to poor yields of the 3D NAND chips.
Apple has apparently turned to Samsung to pick up the slack.
NAND is the chip within the phone that stores the nonvolatile data — the mobile equivalent of a hard disk or SSD.
3D NAND stacks multiple memory cells atop each other, enabling much more information to be stored in the same physical place.
Apple started using these chips with the iPhone 7.
However, production of the 3D NAND chips is still very immature, and it’s easy for suppliers to make bad batches due to the chip’s extremely sensitive tolerance. This, in turn, is contributing to the apparent shortage.
With so much at stake for this year’s iPhone super cycle, it’s obvious that Apple can’t risk having these production lags.
Apple isn’t the only vendor that’s struggling to secure the needed storage chips, but its ample cash supply does provide some security when production doesn’t go as smoothly as planned.
The supply of 3D NAND is not expected to improve until sometime in 2018.
But it’s still unclear whether or not Apple will have enough for its big launch…
The Bottom Line
It’s all up to you now, Apple.
Tech companies, in general, have played a key role in propelling the market to repeated new records. But there have been recent signs that investors are becoming harder to impress — hence Apple’s attempt to diversify.
The tech giant seems ready for the more-than-usual amount of scrutiny that it will surely see.
Let’s just hope that Apple’s has prepared enough to get back on top.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today