Should ‘peak iPhone’ make Apple terrified about the future? [Friday Night Fights]

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Are you worried about Apple?
Photo: Ste Smith/Cult of Mac

Apple just reported its worst quarter in 13 years.

FNF-bugRight now, that’s just a small blemish on an otherwise darn near perfect record. But the concern is that it could signal the start of a much greater decline, ushering in an era in which Cupertino is no longer the overwhelmingly dominant force in all things shiny and aluminum.

Should Tim Cook and Co. really be worried about declining demand, and should fans be worried about Apple’s future? Or will our favorite gadget maker be back with a bang?

Join us in this week’s Friday Night Fight between Cult of Android and Cult of Mac as we throw hands (not literally) over these topics and more!

Killian-FNFKillian Bell — Writer, Cult of Android: I don’t want to be hyperbolic here — there’s enough of that on the internet — but after seeing Apple’s earnings results on Tuesday, I wasn’t exactly surprised. They underline what I’ve been saying in these Friday Night Fights debates for months — that Apple just isn’t as exciting as it was.

As Apple’s biggest business, the iPhone is obviously the root cause of the problem. Sales fell last quarter for the first time since the device made its debut in 2007, and as I’ve said over and over, that’s because it can’t compete anymore. It doesn’t have all the new and exciting features rival devices have; it’s the same device we’ve been using for years, but with slightly better hardware and software. The experience hasn’t changed.

The Mac business is doing well — at least in comparison with the rest of the PC market — because it deserves to: Macs are terrific computers. Apple’s services business is also doing incredibly well because of the sheer number of users Apple has, and there’s definitely untapped potential there. I also think the iPad is the best tablet you can buy, and I love the new iPad Pro.

But there’s no doubt Apple has been resting on its laurels where the iPhone is concerned. People are finally getting bored of the same old thing every year, and that’s why Samsung’s smartphone sales are on the up while Apple’s fall.

I’m not going to sit here and say Apple will be dead within a year just to tease you, because that’s obviously not going to happen; there’s still plenty of time for Apple to turn things around. But I will say — again! — that Apple needs to do more. It needs to take risks again and try new things, or demand for its products will continue to slide.

iPhone 6s is a terrific smartphone, but fans are already bored of it.
iPhone 6s is a terrific smartphone, but fans are already bored of it.
Photo: Jim Merithew/Cult of Mac

cartoonluke_360.pngLuke Dormehl — Writer, Cult of Mac: Killian, let me introduce you to the Apple Death Knell Counter. Apple Death Knell Counter, meet Killian Bell. I’m sure the two of you are going to be very happy together!

Look, why am I not surprised that our resident Android fan is giddy with excitement at the prospect that Apple has finally stumbled? I’m an unabashed Apple fan — and, as I’ve argued before, it’s because I think they produce the best products; not because of some irrational devotion to the brand — but anyone who thought the company could continue to grow indefinitely at the rate that it has been was an idiot.

After 13 years of year-on-year growth, Apple sales have finally started to slow down. But let’s not pretend the company is doing badly: this is a business which sold more than 50 million iPhones over the past quarter and carved out a whopping 40 percent of all Silicon Valley profits in the last year. As you point out, Mac sales are also up, as are Apple Music subscriptions, while the Apple Watch (a device that many still like to paint as a “flop” for some reason) made $1.5 billion more in the past year than a beloved traditional watch brand like Rolex did.

I don’t think we need to get into a conversation about Apple’s valuation, but AAPL seems perennially undervalued as a stock when you look at the price-earnings ratio. Any company which has cash reserves of more than $200 billion isn’t going away any time soon — so your dreams of a world in which Samsung rules the smartphone roost will, sadly, stay that way.

Ask yourself if you honestly believe that slowing earnings — and, again, this is a failure to measure up to a 2015 quarter which was Apple’s best one ever — really has more to do with a slate of iPhones which got exceptionally good reviews than it does with the fact that tech stocks in general have been in a slump (including your beloved Alphabet/Google), while smartphone demand in places like China has been down across the board?

At the end of the day, I’m not an investor in AAPL stock. I’m a tech fan, and it pains me to see idiotic analysts rushing to finally have an excuse to trot out all of their tired, anti-Apple propaganda. I’d love to see more innovation — who wouldn’t? — but it’s going to take more than a disappointing earnings call for me to suggest that Apple has taken its foot off the innovation pedal.

Besides, with a major increase in R&D spending over the past three months and a rumored Apple Car on the way, I don’t think we’re short of innovation on the horizon. Really, I expected more from you Killian!

Killian-FNFKillian: Yeah… once again, I’m not saying Apple’s dead, or even that it has a turbulent future ahead. It sounds like you’ve read all the negative things I said, and ignored the rest. I appreciate that every company has its ups and downs — and like you say, Apple couldn’t sustain its growth forever.

I actually think it’s more likely the company will come back stronger from this. I just hope Tim Cook and the rest of Apple is taking note now, and that we see more magical products in the future — not just slightly better iterations of what we’re already using. I don’t want to see Apple turn into another Nintendo, too scared to take risks after so many successful years.

Yes, I’m an Android fan, but that doesn’t automatically make me an Apple hater. I’m far from it. I’ve owned every iPhone the company has released — I still have an iPhone 6s that comes in handy — and almost every iPad, and I still think the iPad is the best tablet you can buy. I also have an Apple Watch that’s worn frequently, and a MacBook Pro that I wouldn’t swap for any other laptop. I don’t just dismiss everything Apple does.

But to anyone who isn’t attached to the Apple brand, the iPhone has been falling behind for years. It doesn’t offer many of the exciting features rival Android smartphones have — which I seem to bang on about every week now — and rarely sees major improvements. The reason it gets good reviews is because it’s so easy to use, and it’s a good all-rounder. But so are many Androids now.

Apple’s success isn’t just based on good reviews, either. It also has an incredibly cool brand, and in recent years, it seems like a lot of consumers would buy anything with an Apple logo, no matter how much it cost, and regardless of whether it’s the best product on the market. But I think that’s changing as rival companies offer more exciting products. Some fans are still blindly loyal (I’m looking at you, Luke), but many are prepared to try new things.

That’s why iPhone demand is falling — and why Apple needs real innovation.

The iPad is still the best tablet -- by far -- but no one wants tablets anymore.
The iPad is still the best tablet — by far — but no one wants tablets anymore.
Photo: Ste Smith/Cult of Mac

cartoonluke_360.pngLuke: Ugh. This is like one of those nightmares where you run for miles and find yourself back in the same place. Every Friday you try to convince me that Samsung has caught up with Apple, that iPhone owners are idiots who can’t see the obvious facts that everyone else can, and that iPhones only get good reviews because every reviewer out there wants their tech devices to be simple enough to be used by idiots — unlike those Android-using geniuses who aren’t fooled by Apple’s savvy marketing.

And just as often I counter this with the fact that, yes, Samsung phones may have the odd tantalizing feature (OLED displays and longer battery life are things I don’t mind admitting are strengths), but are let down by sometimes-clumsy and uninspired design, cheap gimmicks, and, most glaringly, the fact that they run the vastly-inferior Android.

You haven’t really argued any of my points about the reason for Apple’s slowing earnings, I notice: choosing instead to pin it on the fact that, apparently, Apple has run out of innovative ideas. Which, I reiterate, is categorically untrue.

The problem with taking broad generalizations from one set of earnings, and using that to extrapolate larger points about what people are thinking, is that you haven’t allowed any time to pass to draw out a larger macro conclusion. If this is the first quarter in 13 years where Apple has seen declining year-on-year profits (and this translates as people “getting bored of the same old thing”), then what about the past three months specifically has been so bad that people are suddenly bored? And do we take it as a given that Apple was intrinsically more exciting than Android every other quarter? And, since we’re comparing sales so directly to excitement — and ignoring any external factors — presumably Apple was 35x more exciting in Q2 2016 than it was in the whole of 2007, when it launched the first iPhone, since Apple only sold 1.39 million iPhones that year?

I think you’re digging yourself into a hole with this one. Now if sales continue to slide, while Samsung makes enormous strides year-over-year, then you might have a point. But after one quarter? You’re being a little hasty.

Killian-FNFKillian: I’m not trying to convince you of anything. I wouldn’t waste my time. I’m never going to change your mind about Apple. The fact that you call Android “vastly inferior” but never use it proves you’re just like any other iPhone fanboy. Nothing I can say will make any difference.

I focus on Samsung because it is by far Apple’s biggest competitor, and in my opinion, it sells the best smartphones available right now. They don’t just have OLED displays and better battery life; they also have better cameras, more features, and much more capable software. Sure, they have downsides, too — but not as many as the iPhone.

What was your reason for Apple’s slowing earnings? You mentioned a slump in stocks, but that’s as a result of the sales, not the other way around. And since when did Apple follow the rest of the industry? The iPhone has traditionally been immune to falling smartphone demand in the same way that the Mac appears to be unphased by the dying PC market. But Samsung was the only major smartphone brand to see growth “against market headwinds” last quarter, according to the latest report from TrendForce — despite its “gimmicks.”

Yes, it’s only one set of earnings, but we know without a new iPhone until September, next quarter won’t be any better, either. And if the iPhone 7 is another iPhone 6 clone with just a few improvements here and there — as a growing number of reports suggest — then it will be just as unpopular as the iPhone 6s.

Maybe I am being a little hasty, so let’s see what the readers think. Should Apple be worried about falling iPhone demand, or is this just a blip that will soon be forgotten about?

Friday Night Fights is a series of weekly death matches between two no-mercy brawlers who will fight to the death — or at least agree to disagree — about which is better: Apple or Google, iOS or Android?