Category Archives: Apple

MacBook Pro with Touch Bar Review

Note: the version of this post on Medium has larger images and other benefits – I recommend you read it there.

On Thursday morning last week, Apple sent me a review unit of the new MacBook Pro with Touch Bar for testing. I’ve been using it almost non-stop since, to try to put it through its paces and evaluate this latest power laptop from Apple. I’ve only had four days with it, and so this is probably best seen as a set of early impressions rather than a thoroughgoing review, but here are my thoughts on using it so far. I’ll cover quite a few bases here, but my main focus will be on addressing two particular issues which I suspect people will have the most questions about: the Touch Bar and the power of this computer to do heavy duty work.

The model I’m using

First off, here’s the model I’m using:


In short, this is the 15-inch version, with 16GB of RAM, but it’s not the highest-end model. There is a version with a 2.9GHz processor and a Radeon Pro 460 graphics card, which would be a good bit more powerful for some tasks than the machine I’m using, though the RAM on that computer is the same.

I’m coming to this experience from using two main Macs over the past couple of years. When I’m at my desk, I’m typically using a 2010-version Mac Pro with 32GB of RAM, a processor with 12 2.66GHz cores, a massive SSD, and a Radeon GPU. When I’m mobile, I’m using a MacBook Air from a couple of years ago, with 4GB of memory and an Intel graphics card. In most respects, at least on paper, this MBP is a big step up on the MBA, but is less powerful than the Mac Pro, with the exception of the graphics card.

The Touch Bar

So let’s start with the Touch Bar. I had a chance to play around with the Touch Bar a bit at the launch event, and found it intriguing. It was already clear then that this was the kind of feature that could save time and make workflows easier if done right, but that would also come with a learning curve, and my first few days using it more intensively have confirmed both of those perceptions.

An analogy

The best analogy I can think of is learning to touch type. My oldest daughter has recently gone through this process, and I remember going through it when I was about the same age. Before you start learning, you’ve probably got pretty good at the hunt-and-peck method, and may even be quite fast. When you start learning to touch type, a lot of it is about forcing yourself to change your habits, which can be painful. At first, you’re probably slower than before, and the temptation is to go back to doing what you’ve always done, because if feels like you’re going backwards. But over time, as you master the skill, you get faster and faster, and it feels even more natural. You’re also able to stay in the flow much better, watching the screen rather than the keys.

Learning to use the Touch Bar is a lot like that. If you already use a Mac regularly, you likely have pretty well-established workflows, combining mouse or trackpad actions, typing, and keyboard shortcuts. Suddenly, the Touch Bar comes along and gives you new ways of doing some of the things you’ve always done a certain way. A few may replace keyboard shortcuts, but the vast majority will instead be replacements for mouse or trackpad actions. The first step is remembering that these options are now available. The Touch Bar is quite bright enough to see in any lighting conditions, but it’s not intended to be distracting, so although you may be vaguely aware of it in your peripheral vision as you’re looking at the screen, it doesn’t draw your eye. You have to consciously remember to use it, a bit like how you have to consciously remember to use all your fingers when you’re learning to touch type.

At first, your instinct is to just keep doing things the way you’ve always done them. But then you start to realize that the repetitive task you’re doing by moving the mouse cursor away from the object you’re working with to the taskbar or to the Format pane at the side of the window could be accomplished much more easily by just pressing a button in the Touch Bar. You try it and it works great. The next time you do it a little more quickly, and pretty soon it’s a habit. That first couple of times it may take more time than your old method, because you’re having to break the old habit, but you quickly develop a new, more efficient, habit. Your mouse cursor stays by the object you’re working with (or out of the way entirely) and you go on with your work. I’ve been integrating the Touch Bar into some of my workflows over the last few days, and it’s now starting to become natural and I’m getting to the stage where things are faster than they were before.

Below are some samples that show the adaptability of the Touch Bar:


This adaptability is one of the strengths of the Touch Bar — the way it morphs not just between apps but based on the context within each app too. The video below shows several examples in quick succession as I move between apps and between contexts within apps. You’ll see how rapidly it changes as I go through these (there’s no sound on the video):

Most of the buttons are either self-explanatory or familiar enough to be intuitive, but I did find a couple of cases where I simply had no idea what a button meant. Since you can’t hover over these buttons in the way you can an on-screen button, there’s really no way to find out either, which can be tricky.

Ultimately, as I’ve written previously, the Touch Bar represents a different philosophical approach to touch on laptops by Apple compared with Microsoft’s all-touch approach to computers. I’ve used a few Windows laptops with touch, and though there have been times when it was useful, it’s often frustrating – the screen tends to bounce away from you when you jab it with your finger and touch targets are often too small. Apple’s approach keeps the horizontal and vertical planes separate – the vertical plane on a MacBook is purely a display, while the horizontal plane is the one you interact with. This is easier on your hands and arms, and allows you to work more quickly because everything is within easy reach. The trackpads on Apple’s laptops have brought some of the benefits of touch to laptops over the last few years, and the Touch Bar takes this a step further.

Third party support

For now, the Touch Bar is only available in first-party applications on the Mac, and most of Apple’s own apps now support it. However, if you’re a typical Mac user it’s quite likely that you spend a fair amount of time in third-party apps, and that’s certainly the case with me. I spend a lot of my time on the Mac in Tweetbot and Evernote, for example, neither of which support the Touch Bar yet, except for auto-correction when typing, which is universal.

Apple demoed some third party apps with Touch Bar integration at its launch event, and below is a table of those apps whose developers have committed to supporting it so far:


For now, users will be able to take advantage of Touch Bar inside the Apple apps and a handful of others, and that will mean adapting some workflows but not others. The experience here is going to be like the early days of 3D Touch support on the iPhone – it will be nice to have for the apps where it’s available, but there will be a lot of apps where it doesn’t work yet. In some cases, that’s going to push users towards apps that do support the feature, as was the case with 3D Touch. And since support is relatively easy to build, I would guess many developers will get on board quickly once the laptops are out.

Touch ID

Since the Touch ID sensor is part of the Touch Bar strip, it’s worth mentioning that briefly too. For anyone who’s used Touch ID on an iPhone or iPad, the value proposition will be fairly obvious – this is a great way to unlock your device without using a password. To be sure, people probably unlock their laptops many fewer times per day than they do their phones, but it’s still a handy time-saver. I’ve had Apple Watch unlock set up on my MacBook Air for a few weeks, and found that useful, but didn’t feel the need to set it up on this MacBook Pro because Touch ID is actually faster.

But Touch ID goes beyond just unlocking — it can also be used for various other functions where you’d normally enter your system password, including certain app installations and system changes. When it’s available, an indicator shows up in the Touch Bar strip pointing to the sensor, which is handy, because it can’t always be used in place of a password.


It’s also worth discussing the Siri button that’s part of the Touch Bar too. I’ve been using Sierra on my existing Macs for a couple of months now, but haven’t made much use of Siri, in part because I can never remember which hot key I’ve set to invoke it, and clicking on the on-screen Siri button in the taskbar is too much trouble. Having a dedicated Siri button is definitely making me use Siri more.

Power and performance

On, then, to power and performance. I gave you the specs for the machine I’m testing earlier – it’s not the top of the line model, but given some of the commentary from the professional community and those claiming to speak on their behalf over the last couple of weeks, I wanted to put this side of the MacBook Pro to the test.


I’m not a regular user of heavy-duty creative apps, but I have used Final Cut Pro fairly extensively in the past, and have an Adobe Creative Cloud subscription which gives me access to other apps like Photoshop, Lightroom, Premiere, and Illustrator, some of which I use occasionally. As a first test, I imported some 4K video shot on my iPhone into the new version of Final Cut Pro and edited it. I checked all the boxes for analysis in the importing process, but it still completed quickly and without slowing down the computer. Both Final Cut and the other apps I had open continued to perform smoothly during the analysis and background tasks. The editing was smooth, and I got to use the new Touch Bar buttons at several points, adding in titles, transitions, and other elements, and then exported the file. Everything was quick and smooth, and the experience was very comparable to what I’m used to on my Mac Pro, which is where I’ve mostly used FCP in the past.

Next, I decided to push things a little harder and shot a longer 4K video while riding my bike. The bike was bumping around all over the place while recording, and as a result there was lots of movement and also rolling shutter issues in the video. I imported this video into Adobe Premiere, and then used the Warp Stabilizer effect to try to smooth out some of those issues. This task took quite a bit longer, but again the computer continued to function just fine while the task was underway, even when I simultaneously opened up Lightroom and imported several hundred RAW images from my DSLR. The fans did spin up during the Premiere background tasks, but I’ve noticed they’re quite a bit quieter on this new MacBook than on past MacBooks I’ve used, which I’d guess is due to the new fan design.

There is no doubt in my mind that this MacBook Pro is perfectly capable of handling heavy duty professional creative work. That’s not to say that a computer with more cores, more RAM, or an upgraded graphics card couldn’t do some of these tasks faster, but many creative professionals will have a stationary machine like a Mac Pro, an iMac, or something else back at their desk and will use the MBP when they’re on the go.

Input from creative professionals

As I mentioned, I’m not a creative professional, but I happen to have married into a family of them, so I checked in with three of my brothers in law who work as video professionals (two as editors and one as a producer). I asked them several questions about the hardware and software they use, their workflows, and attitudes towards these things in their places of work. Both the editors are currently using 5K iMacs with 32GB of RAM, and mostly use Adobe Premiere or Avid for editing (Final Cut Pro has fallen out of favor with the pro video editing crowd since the FCP X release, though at least one of them said that he expected the latest update to win some former users back to the Apple side). This MacBook Pro, which maxes out at 16GB, wouldn’t match the performance of one of those 5K iMacs, but could well be the kind of machine they’d take with them if they were editing or reviewing footage on set. And with the ability to drive two 5K monitors, they could even finish the job when back at the office on the same computer. It wouldn’t perhaps be as fast at some of the background tasks as an iMac or Mac Pro, but it would allow them to do the job just fine, and I think that’s the proper way to see this computer.


That brings me to the next thing that’s worth talking about, which is portability. The new 13″ MacBook Pro is being positioned as a successor of sorts to the 13″ MacBook Air — it has a similar footprint and weighs about the same, yet is far more powerful. This 15″ MacBook Pro, of course, is larger (and potentially even more powerful), and so obviously not to be seen as a direct replacement for the Air. But as that’s the transition that I’m making personally, it makes sense to make that comparison at least briefly. The MBP is clearly heavier and larger than the MBA, though not by as much as you might think. It weighs a pound more — 4 pounds versus 3 — but the footprint is very similar, and it’s actually thinner than the MBA at its thickest point. And of course it has four times the pixels on the screen. The images below should give you some sense of the size comparison:

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The true comparison, of course, is to the earlier 15″ MacBook Pro, which is roughly half a pound heavier and slightly thicker. I actually have an older 15″ MacBook Pro around as well, from about five or six years ago, and this thing is night and day from a size and weight perspective. Long story short, this is a very portable laptop, less so certainly than the 13″ one, but more so than any other 15″ Apple has ever made, and likely more so than most other 15″ laptops on the market today. And yet it has the power I talked about earlier.

Keyboard, Screen, and Audio

Three other hardware features are worth discussing at least briefly here.

Firstly, the keyboard. This keyboard takes the same approach as the keyboard on the 12″ MacBook, but is a new version which has a different dome switch which allows for more of a springy feel. I haven’t used the MacBook keyboard extensively, but this keyboard has been totally fine for me. I adjusted to it almost immediately, and it feels fine. I have noticed that typing on it is a little noisy, I think because I’m using as much weight as I have used in the past on laptops with more key travel, and so I’m slowly adjusting my weight, which is resulting in a quieter experience.

The screen on this thing is beautiful. Apple now has P3 color on its newest iPhones, iPads, and MacBook Pros, and it’s a really nice improvement. I took some pictures of the Pro next to the Air to try to capture this, but it’s hard to get right in a photograph. However, looking at them side by side, there is both deeper color and a noticeably brighter screen on the Pro. And of course it’s a Retina display too, so the screen looks much sharper too. The combination of the Retina resolution and the brightness and color gamut make it really nice for watching videos. I spent some time over the weekend watching a variety of video on it, and it was one of the nicest displays I’ve ever used for this.

Lastly, the sound. The new MacBook Pro has different speakers, and they’re quite a bit louder than on the MacBook Air. In my office, I have a stereo hooked up to an AirPort Express for AirPlay and play all my music that way, but the new Pro will do fine even on its own for sound volume and quality. I tested with a random iTunes track, as you can hear in the audio clip below. I recorded using an iPhone placed between the two laptops.

The sound quality is noticeably louder and fuller on the MacBook Pro, as I hope you can hear in that sample. Again, this makes it perfect for watching movies in your spare time, as well as for listening to music.

Ports and adapters

Another thing I’ve seen some concern about with this new MacBook is the ports, all four of which are Thunderbolt 3 / USB-C. That’s a new port for me – I’ve never owned a computer with a USB-C port, though two of the smartphones I’ve tested recently (the Google Pixel and LeEco Pro3) have USB-C charging. As a result, I was interested to see how I’d get by with my existing peripherals.

I made a trip to the Apple Store and picked up a few adapters:

  • Two USB-A to USB-C adapters for my USB peripherals
  • A Thunderbolt 2 to Thunderbolt 3 adapter for my Thunderbolt display
  • A USB-C Digital AV Multiport Adapter for another display that uses HDMI.

Of course, all these adapters are discounted until the end of the year, which was nice because cost adds up fast on some of these. All of them worked fine, and I’ve appreciated being able to plug in any of these various peripherals on either side. It’s particularly nice to be able to shift power from side to side based on where the nearest outlet is.

This is a classic Apple situation – removing ports before the world has necessarily moved on, in part as an attempt to move people along. But in this case Apple is particularly far ahead of the market, and so these adapters are a concession to that reality. Some people will already have USB-C or Thunderbolt 3 peripherals such as hard drives, and these will become increasingly common over the next few years. Along with the adapters, Apple sells a variety of LaCie, G-Tech, and Sandisk storage devices and the LG displays, which support USB-C natively.

But for now, we’re going to be using adapters when we use a number of existing peripherals. I already have a pocket full of adapters in my work bag for my MacBook Air, for presenting, using Ethernet cables, and so on, so I’m used to this situation. And as I pointed out on Twitter recently, even if you buy all the adapters Apple recommends as you go through the buying process for a new MacBook Pro, the cost is a tiny fraction of the total (and of course less than full price between now and December 31). I will say that it feels a bit odd with a brand new iPhone and a brand new computer not to be able to plug one into the other out of the box, though I suspect many users no longer plug their iPhones into their computers at all.


This is the first MacBook Pro to be available in Space Gray, and it’s a nice new option (this is the one Apple sent me, and in person it looks darker than in most of the pictures in this post). It’s sleek looking, and smudges and scratches will show up a lot less on this surface than on the bright silver surface of earlier MacBooks. It’s a good looking computer overall too, regardless of the finish. The display takes up much of the vertical plane, with fairly small bezels (one of the ways Apple was able to shrink the footprint), while the horizontal plane looks really good with the addition of the Touch Bar and a larger trackpad.


I’ve found that trackpad to be totally fine, by the way — even though it’s consistently under the heels of my hands, I’ve never once accidentally moved the cursor or clicked on anything while typing because of it. I will say that I use the bottom right corner for right clicking and that’s now a long way from the center of the trackpad, which has resulted in some failed right-clicks when I haven’t moved far enough with my fingers. If you tend to use Control-click instead of bottom-right click, then this obviously won’t be an issue. I have also noticed that if the laptop is resting on my lap rather than on a table, there’s something about the angle of my hand on the trackpad that sometimes accidentally right clicks when I’m trying to click in the center of the trackpad, because another part of my hand is resting on the bottom right corner of the trackpad. This happens because the trackpad is really very close to the edge of the computer now on the side closest to you, so that the heel of your hand can easily stray onto the trackpad when resting on the edge.

Miscellaneous glitches

I did have one or two glitches here and there. For the first day and a half I was using the MacBook Pro, it would lose WiFi connectivity when it went to sleep, and fail to reconnect. After a restart, this issue seemed to resolve. Secondly, while I left Adobe Premiere processing video and stepped away for a few minutes, the computer went to sleep, and when I woke it, the whole computer did a hard crash, restarting out of the blue. Lastly, I had an occasion when the computer hung to the extent that I had to restart it.

I’m not used to having these issues regularly on Macs, though I’ve experienced each of them on occasion in the past. It was odd to have these happen in quick succession, and I’m not sure what to ascribe that to – Apple says it hasn’t seen these issues itself in testing. I will say that none of these issues has happened twice, but I’ll be watching for more of this stuff to see if these were just flukes.


This is a really solid new laptop from Apple. I wrote after the launch event that Apple now has the most logical lineup of laptops it’s had in a long time, with a clear progression in terms of power, portability, and price. Even within the new MacBook Pro range, there are size, power, and feature options. But all of these are intended to be pro computers.

That’s not to say they’re all intended to be the only computer someone who uses heavy-duty creative apps needs – the Mac Pro and iMac are there at least in part to meet those needs. But these are computers that the vast majority of people who use a Mac for work would be fine to use as their only machine – that’s certainly the case for me. This 15″ version I’ve been testing is slightly less portable than the 13″ version, but can be significantly more powerful, and could handle pretty much any video or photo editing task you’d want to throw at it. Yes, there are desktops including Apple’s that could perform some of those tasks more quickly, but this laptop is intended for someone who needs portability too, and that’s the point here. Every computing device involves compromises – here, portability has been prioritized over raw power, but not in such a way that makes this computer useless for powerful tasks.

All that would be true even if the Touch Bar didn’t exist, and yet it does. It’s a really nice addition to what’s already a great computer, and once you get some way along the learning curve it really speeds up tasks and makes life easier on your hands. As third party developers embrace it, it’ll be even more universally useful, and I wouldn’t be surprised if we see some developers using the Touch Bar in really innovative ways within their apps. Can you live without it? Absolutely – all of us have until now. But it’s a great addition if you’re in the market for a new laptop.

Apple, Microsoft, and the Future of Touch

Note: this blog is published by Jan Dawson, Founder and Chief Analyst at Jackdaw Research. Jackdaw Research provides research, analysis, and consulting on the consumer technology market, and works with some of the largest consumer technology companies in the world. We offer data sets on the US wireless and pay TV markets, analysis of major players in the industry, and custom consulting work ranging from hour-long phone calls to weeks-long projects. For more on Jackdaw Research and its services, please visit our website. If you want to contact me directly, you’ll find various ways to do so here.

This is one of those rare weeks when two of the tech industry’s major players have back to back events and in the process illustrate their different takes on an important product category, in this case the PC. I’ve already written quite a bit about all this this week:

Now that it’s all done, though, I wanted to pull some of these themes and threads together. I attended today’s Apple event in person and so I’ve spent time with the new MacBooks, though not with Microsoft’s new hardware or software.

Differentiation: from hardware advantages to philosophical approaches

The biggest thing to come out of this week, which I previewed in my Techpinions piece on Monday, was a shift from hardware advantages to philosophical differences as the nexus of competition between Microsoft and Apple in PCs. MacBooks once enjoyed significant hardware advantages over all competing laptops in terms of battery life, portability, and features such as trackpads, but in recent years those advantages have all but disappeared. Instead, what we’re left with is increasingly stark philosophical differences in how these companies approach the market, and this week the focus was on touch.

Microsoft’s computing devices all run some flavor of Windows 10 and feature touch. Apple, on the other hand, continues to draw a distinction between two sets of products by both operating system and interactivity. On the one hand, you have iOS devices with touch interfaces, and on the other macOS devices with more indirect forms of interactivity. Today’s event saw Apple introduce an interesting new wrinkle to touch on the MacBook with the Touch Bar, but it’s clearer than ever that Apple refuses to put touch screens on the Mac and that won’t change soon.

Microsoft’s approach makes touch available everywhere, even when in many cases it doesn’t make sense. It’s optional, though, and Microsoft has pulled back from some of the earlier erroneous over-reliance on touch that characterized Windows 8. Apple, on the other hand, wants to largely preserve existing workflows based on mouse and keyboard interactivity while adding subtle new forms of interaction. It keeps all the interaction on the horizontal plane, while Microsoft has users switching back and forth between the tabletop and display planes. There isn’t necessarily a right and wrong here – both approaches are interesting and reflect each company’s different starting points and perspectives. But it’s differences like this that will characterize the next phase of competition between them.

In some ways, this new phase of competition is analogous to the competition between Apple and Google in the smartphone market. In both cases, there are now devices made by companies other than Apple which match Apple’s core hardware performance. That’s not to say that all devices now come up to Apple’s standards – it continues to compete only at the high end, while both Google and Microsoft’s ecosystems serve the full gamut of needs from cheap and cheerful to high-priced premium. But in smartphones as in PCs, the focus of competition at the high end is now moving to different approaches rather than hardware performance. It’s intriguing, then, that it’s during this era that both Google and Microsoft are finally getting serious about making their own hardware.


The Touch Bar itself is very clever. Apple made the decision to spend a lot of time in today’s event on demos, and I think that was a good use of the time (especially in an event with less ground to cover than most). The demos really showed the utility that the Touch Bar can provide in a variety of Apple and third party apps. What Apple has done here is in essence to take a slice of the screen and put it down within reach to allow you to interact with it. There will definitely be a learning curve involved here – I can see users forgetting that it’s there unless they make an effort to use it, but I can also see it prompting users to try to touch the screen (this happened to me in the demo area). “Touch here but not there” will be an interesting mental model to adapt to, but once users get the hang of it (and developers support it in their apps) I believe it will add real value.

Apple’s price coverage

Of course, MacBooks aren’t the only portable computers Apple makes, and it’s been increasingly making the case that the iPad Pro lineup should be considered computers too. These are Apple’s touch-screen computers, but in most consumers minds they don’t yet belong in the same category as Windows laptops. However, when you put the new MacBooks, older MacBooks, and iPad Pros together, you get an interesting picture in terms of price and performance coverage. The chart below shows base pricing for each of these products:

Apple Computer Portfolio

As you can see, there’s pretty good coverage from $599 all the way through $2399 with just the base prices. If you were to add storage and spec options (and Smart Keyboards in the case of the iPad Pros) the in between price points would be covered pretty well too. But Apple now offers a portable computer at almost any price point in this range, and that’s interesting. The newest MacBooks alone do a nice job of covering the spread from $1199 to $2399 with increasing power and capability, while the older MacBooks fill in some gaps. There’s no denying that these products are premium, but they extend down into price points that many people will be able to reach, while providing really top notch products for those that can afford or justify them. If you focus on those newer devices, I think this is the most coherent and logical MacBook portfolio Apple has had for years.

The next big question is what happens with desktops, because those are now from one to three years old, with no sign of an update. The one that’s had the most focus from Apple in recent years is the iMac, which is both the most mass market and the flashiest – it’s the only one that is highly visible, while both the Mac Pro and Mini could feasibly sit hidden under a desk. I don’t think Apple’s going to discontinue these anytime soon, but the timing of its lack of focus on these devices is providing an interesting window for Microsoft.

A few words on creativity

I won’t repeat everything I said in my earlier stuff on Microsoft’s event here, but suffice it to say that this creativity push is certainly interesting given that timing I just mentioned. However, it’s totally overblown to be talking about Microsoft somehow stealing away Apple’s creative customer base, for several reasons:

  • First, Apple has long since expanded beyond that base, especially if you look at the full set of devices including iPhones. Apple clearly isn’t selling hundreds of millions of iPhones solely to people that use Photoshop for a living. Even if you look at Mac buyers, they’re much broader than the cliche of ad agency creatives and video editors.
  • Secondly, all Microsoft has done so far is put a stake in the ground. The Surface Studio is a beautiful device and a well thought out machine for a subset of creative professionals. But workflows don’t change overnight just because a new computer comes along, especially if there’s an existing commitment to another ecosystem. The role of this device is to signal to creatives that Microsoft is serious about serving them, which is notable in its own right, but won’t sell millions of devices by itself.
  • Thirdly, Microsoft’s bigger creativity push is around software, with 400m plus Windows 10 users getting a bunch of new creativity software in the Creators Update in the spring. This will be much more meaningful in terms of spreading that creativity message far and wide than the new hardware.
  • Lastly, even with all this, Microsoft’s efforts to associate its brand with creativity and not just productivity will take years to take hold. Perceptions don’t change overnight either.

Apple’s event today was a nice reminder that it still takes these creative professionals very seriously – both the Adobe and DJ Pro demos were creativity-centric, and these new machines are clearly intended for creative professionals among others (the RAID arrays would be an obvious fit for people editing high-bandwidth video, for example). Apple isn’t going to cede this ground easily, but it will be very interesting to watch over the next few years how this aspect of the competition plays out.


Refocusing the Apple Watch

As part of my media comment on the Apple event, I talked a little about how Apple has rethought the Watch since its initial introduction two years ago. That thought deserves a deeper dive, and although we did discuss it a little on the Beyond Devices Podcast this week, I wanted to elaborate here. The word that I keep using in talking about what has changed is that Apple has refocused the Apple Watch, and it’s done that in two ways:

  • It’s refocused the feature set of the Watch
  • It’s refocused the Watch portfolio.

Refocusing the feature set

When it comes to the feature set, Apple famously introduced the Watch with an echo of the original iPhone announcement, with a tripartite identity:

  • the most advanced timepiece ever created
  • a revolutionary new way to connect with others
  • a comprehensive health and fitness companion.

Though the health and fitness companion came last on that list of three, it’s rapidly risen to the top in terms of how Apple talks about the device today. Tim Cook referred to it this week as “the ultimate device for a healthy life.” Meanwhile, the communication aspects (represented in that second bullet point above) have faded into the background, barely mentioned in this week’s keynote.

But the other thing that’s been de-emphasized in the refocusing of the Apple Watch is apps, and that’s because apps just haven’t worked on the Watch. In September 2015, Tim Cook described what I refer to as Apple’s playbook for hardware devices in the iPhone era, with a set of bullet points:

  • Powerful Hardware
  • Modern OS
  • New User Experience
  • Developer Tools
  • App Store.

It’s clear that, both at its initial unveiling and a year later, Apple saw the Apple Watch as another product that fit this model, under which developer tools and the App Store would be critical to its success. I argued at the time that it would have been impossible for Apple to introduce a new piece of hardware in 2015 which didn’t tap into the App Store model, and yet I’m no longer sure of that view. Apps have largely flopped on the Watch. The reasons are simple – the hardware has been underpowered, and under watchOS 1 in particular apps were too dependent on the phone. But even in watchOS 2, Watch apps were too slow to load, because they didn’t maintain state and didn’t update in the background.

WatchOS 3 is intended to fix at least some of these issues, and the CPU and GPU upgrades in Series 2 of the Watch are aimed to improve app performance too. But Apple still didn’t make apps much of a focus at this week’s event. In other words, even with these potential enhancements to app performance, Apple is still focusing most of its messaging around the Watch on fitness features. I suspect that, instead of saying “this time we really got it right” after versions 1 and 2 fell short, Apple is going to quietly give developers time to figure this out, and then perhaps next time around we’ll see a renewed emphasis on how apps are adding value to the Watch. Pokemon Go and other high-profile apps may well help with this effort, but Apple is trying very hard not to oversell it this time around, and I think that’s smart. This particular form of crying “Wolf!” is running dangerously close to falling on deaf ears at this point.

The Apple Watch Hourglass

What I think we may see as a result is a sort of hourglass on its side, as in the diagram below:


The Apple Watch started out trying to be another micro computer. But Apple has now narrowed the focus to mostly being a great timepiece and an increasingly capable fitness device. In time, though, as the apps enhancements kick in and Apple works on other areas like Health in more depth, we may well see the purpose and positioning of the Watch become more expansive again.

The near-term implications of that are important to note: this means the addressable market for the Watch for the time being is mostly about a combination high-end fitness tracker and digital watch, rather than the broader “small computer” market which the iPhone and iPad arguably inhabit, and which is enormously larger. This, in turn, means that the Watch is likely destined for modest, incremental growth over time, rather than the sort of explosive growth that characterized both the iPhone and iPad in their early years. But as Apple begins to think about the Watch more expansively again, so the addressable market will begin to expand, and the sales potential of the Watch will grow with it.

Refocusing the portfolio

The original Apple Watch portfolio had three distinct tiers, with the Watch the core tier, the Sport the less expensive aluminum version, and the Edition the high-end luxury version, with prices to match. The price ranges for this original portfolio are shown in the chart below:

Apple Watch Pricing April 2015

Two important things to note: the enormous separation between the Sport and Watch versions on the one hand and the Edition on the other, and the sheer height of the Edition portfolio’s pricing, topping out at $17,000. That’s a 48:1 ratio between the most expensive and least expensive Watches.

Fast forward a little over a year and you have the new portfolio announced this week, with a slimmed-down Apple portfolio and two partner versions of the Watch as well. For comparability with the chart above, here’s a view of the new pricing to the same scale:


And here’s a version with a scale that makes more sense for today’s Watch pricing (note that the axis tops out at exactly a tenth the price of the axes above):


First things first: Apple has basically eliminated its ultra-luxury Watch Edition models. The only model that has this designation now is the white ceramic Watch, but that’s priced at roughly a tenth of the original Editions. The new price ratio, including the Hermès Watches which actually top out slightly higher than the new Edition watch, is roughly 5.5:1 from most to least expensive. It’s also worth noting that the three Apple ranges are still mutually exclusive but now more or less touch each other — there are no more big gaps in the portfolio, even at the high end. The Series 2 aluminum Watches, starting at $369, pick up just above where the Series 1 Watches leave off at $299, while the Edition hits at $1,249, again just a little above where the Watches peak, at $1,099. The Edition branding still connotes exclusivity and premium materials and therefore satisfy the conspicuous consumption angle, but Apple is now targeting the low end of high-end watches rather than true luxury watches.

Apple now also has its two key Watch partners, Hermès and Nike, to fill in gaps in the portfolio. It’s interesting that we’re seeing these partnerships so early, but I suspect this is another sign that Apple recognizes the nature of this market and its growth prospects. What Apple is doing here is diversifying the portfolio by feature and function early in order to better saturate the smaller addressable market.

Beyond Devices Podcast

If you enjoy these posts, you’ll probably enjoy the Beyond Devices Podcast, in which Aaron Miller and I discuss events like this week’s Apple announcements, as well as other topical issues, and also answer questions about trends in technology.

Our most recent episode is embedded below, and you can find all past episodes on our website, on iTunes, on Overcast, and in other podcasting apps.

Apple’s Headphone Transition Marries Pragmatism and Vision

Today’s Apple event was notable for the fact that so much of what was to be announced had leaked ahead of time. On paper, that left very few surprises for the event itself, but of course what the supply chain leaks can never supply are the reasoning and narrative around new product announcements. And so during today’s event in San Francisco, it’s the storytelling around the changes that I was most curious about, and nowhere more so than around the death of the 3.5mm audio jack.

In the end, the way Apple is handling this transition is a mixture of pragmatism and vision. Normally, you’d want the vision first and the details second, but I think Apple made the right call here in getting the practicalities out of the way first.

Pragmatism first

The biggest risk with the elimination of the headphone jack was that for the first time a new iPhone would feel like a downgrade rather than an upgrade. The minimum bar Apple therefore had to clear here was to achieve feature parity between previous iPhones and the iPhone 7. As a practical matter, that meant giving people an option in the box that matched the functionality of what had previously come in the box, and that meant providing both Lightning EarPods and a Lightning-to-3.5mm adapter.

Jason Snell joked recently that…

it’ll cost $19 if Apple’s sort of sorry, $29 if it’s not sorry, and if it’s free in the box then Apple’s really afraid of consumer backlash.

Of course, in the end, the adapter is free in the box, but that’s a sign of how much Apple wants (needs) this transition to go smoothly. It’s a transition driven by a vision, but it’s a long-term vision and in the short term Apple doesn’t want to lose any customers over it.

Vision second

So what is the vision here? Both Phil Schiller (in person) and Jony Ive (in disembodied voiceover) helped articulate it at the event. Here’s Schiller:

When you have a vision of how the audio experience can be, you want to get there as fast as you can and make it as great as it can be. And we do have a vision for how audio should work on mobile devices. And that takes us to our next feature: Wireless… it makes no sense to tether ourselves with cables to our mobile devices. But until someone takes on these challenges, that’s what we do. Our team at Apple has worked so hard to create something new that delivers on the opportunity of how good a wireless experience can be. That is why today we are so excited to show you a new product from Apple called Apple AirPods.

Ive encapsulates it even more succinctly:

We believe in a wireless future. A future where all of your devices intuitively connect.

If the iPad Pro is “the clearest expression of [Apple’s] vision of the future of personal computing”, then AirPods are the clearest expression of Apple’s vision of the future of audio on mobile devices. And the way AirPods pair to an iPhone is the best illustration of this future — here’s a tweet I posted with a short demo video from the hands-on area at the Apple event:

As you can see from the number of retweets and likes, that tweet struck a nerve. The pairing UX here is so much better than any Bluetooth pairing experience any of us have ever had before, and is the perfect instantiation of Ive’s comment about a future where all of your devices intuitively connect. It’s also a uniquely Apple experience, marrying hardware and software (and a proprietary wireless protocol) seamlessly in a way that creates a tightly integrated experience. Yes, it breaks the link with standards, but that’s classic Apple too, and it still leaves the door open to standard Bluetooth accessories connecting to the iPhone.

The vision is expensive — for now

The big problem with the vision? The $159 price tag. I’ve said all along that I was hugely skeptical that Apple would ship wireless EarPods in the box, and the biggest reason was that doing wireless right is enormously more expensive than doing wired right. Moreover, if Apple were trying to push a vision of wireless, they’d want to create something that wasn’t just good enough but truly outstanding, and that was never going to be possible at anything like the same margins as bundling EarPods that retail for $29.

In the end, of course, that’s turned out to be right — $29 Lightning EarPods are in the box along with an adapter that costs $9 when purchased separately, but the AirPods are $120 more than their Lightning predecessors. AirPods and wireless may be a vision of the future, but in the here and now they’re a little on the pricey side. This is where the pragmatism comes in — Apple had to use Lightning as a stopgap until such a time as the wireless future comes down significantly in price.

For those that want the future today (or in October, at any rate), there are AirPods and a range of W1-compatible Beats accessories ranging from $149 to $299. For the rest of us there are third party standard Bluetooth options and the Lightning EarPods. But I’m happy to bet that a couple of years down the line the price of headphones and earbuds using the W1 chip comes down signficantly to the point where the Lightning option is no longer necessary.

A Different Way to Think about iPhone Upgrade Cycles

The context for next week’s Apple event is one of a maturing smartphone market, in two key ways: the devices themselves are becoming more polished, more reliable, and in many ways “good enough” even several years after purchase; and the market in developed economies is becoming saturated. This double-faceted maturity is causing smartphone sales – and especially premium smartphone sales – to slow and even to drop in markets like the US.

As such, it’s interesting that the three major threads in reporting about the new iPhones Apple will announce next week are:

  • Keeping the same general design as the iPhone 6 and 6s
  • Eliminating the 3.5mm headphone jack
  • Introducing new cameras, with the best only available on the larger device.

Of these three threads, two may be considered inhibitors to upgrades – however it’s positioned, the removal of the audio jack is likely to give some people pause, and the lack of a new design is also likely to make some people want to wait until the form factor changes next year. Among these three, only the camera improvements are a clear potential driver of upgrades, but the impact may be muted when it comes to the smaller device, and again those preferring that size may decide to pass this time around.

That seems like the obvious conclusion to draw from the reporting so far about next week’s event, if you focus on the likely hardware changes this time around. For context, here’s a table showing past annual iPhone hardware and software upgrades (you might need to click to enlarge it):

Annual hardware and software upgrades

Note that I’ve necessarily simplified the lists of upgrades to focus on a few – the actual laundry list of big and small features would be much longer for each year. The point is, though, that each new iPhone comes out of the box with both new hardware features and new software features relative to the previous version. The software features are, of course, also available to those who keep their devices of recent vintage through iOS updates.

What Apple observers – especially in the press – tend to focus on is the annual hardware upgrade. That makes perfect sense – it’s what’s new, and it’s also what’s unique to the experience of buying that device over keeping last year’s. But of course the default upgrade cycle isn’t annual but biannual – the most common timeframe for upgrading an iPhone in the US and many other markets is every two years, not every year. Certainly there are those who upgrade every year, and those who upgrade on a longer cycle, but in terms of averages the mode duration is two years, and the mean is in that ballpark too.

That rather changes the picture in terms of thinking about the hardware upgrade cycle, so let me introduce a second chart that illustrates how this makes a difference:

Two year upgrade cycles

Apple doesn’t generally talk about specs like processor speed or RAM, but I’ve included them because they’re the simplest illustration of the behind the scenes improvements made in each new iPhone. The key column in that table is the last one, because it is a much better indication of the hardware upgrades iPhone users upgrading every two years will see when the buy a new phone. This column combines the hardware improvements made in both the subsequent devices, all of which are present in the new phone.

Let’s go back to next week’s event. Apple will introduce what we presume will be the iPhone 7 and 7 Plus, with camera improvements, behind the scenes speed upgrades, and possibly some surprise features that simply haven’t leaked. But even excluding all of that, anyone upgrading from an iPhone 6 from two years ago will get:

  • 3D Touch
  • Live Photos
  • 4K video recording
  • Faster Touch ID
  • Noticeable speed improvements.

That’s already quite a bit – now add in camera improvements and whatever else is new in the iPhone 7, and it suddenly becomes a pretty compelling upgrade. This is the way to think about the iPhone upgrade cycle and what Apple announces next week. Apple tends not to talk about this, and it doesn’t tend to recap all the new features that were already in last year’s phones, but all that absolutely matters to the typical customer upgrading on a two-year cycle. And that’s why I suspect Apple may be able to get away with this departure from its normal upgrade cycle and the risks it’s taking with keeping the form factor from the iPhone 6 and 6s and ditching the headphone jack.

For more on all this, and a general preview of the Apple event next week, you might want to listen to this week’s episode of the Beyond Devices Podcast, which is also embedded below:

Apple and the EU

Apple and the EU

This morning’s EU action against Apple wasn’t a complete shock — the Financial Times previewed the substance yesterday, though not the amount. Regardless, just as they have in the past claimed expertise of patent law, encryption, automotive manufacturing, or the jewelry market, today everyone who covers tech is suddenly an EU tax expert.

In talking to the reporters who’ve approached me to talk about this today, I’ve tried to avoid diving into that fray. The complexities of the tax arrangements described in the EU press release are dizzying, but represent just a summary of what’s an intricate set of financial arrangements intended to allow Apple to carry out its European tax strategy. None of us not trained in EU tax law should attempt to draw conclusions about the specifics of the accounting structures here. We’re simply not qualified. Apple and the Irish authorities – both of whom obviously have very competent people on staff – have apparently reached different conclusions here from the EU’s staff, and they’re all experts.

But it is possible for non-experts to have an opinion on the reasonableness of the approach the EU is taking here. Apple has acted in good faith throughout, working with the Irish authorities to secure “comfort letters” assuring the company that its behavior was appropriate and conformed to applicable laws regulations in place at the time. The EU now wants to come in after the fact and change the basis on which Apple should be taxed in a key European jurisdiction.

The period in question is 2003 to 2014, meaning that the EU wants to reverse the basis on which Apple paid taxes in Ireland up to thirteen years ago, under agreements that were first made in 1991. If the EU objected to these arrangements then, it should have investigated them then, and not have waited until so long after the fact to look into them. But of course Apple wasn’t nearly as big a target then (or even in 2003) as it is now, and this is where the politics come in.

Apple has, of course, long communicated its approach to this issue. Since its products are conceived and designed in the US, and its software built here, it should pay the bulk of its taxes in the US. It doesn’t consider the current US tax regime favorable, and so has chosen to maintain much of its cash and other liquid assets overseas until such a time as it makes financial sense to repatriate it. But as its investor FAQ on the topic makes clear, it has “previously accrued U.S. taxes related to the income in question.”

This is the key point here — I’ve seen Apple’s European tax strategy described as one for tax avoidance, but this isn’t actually about avoiding paying tax (though it — like all responsible companies — pays the minimum amount possible under applicable laws). It’s about Apple choosing to pay taxes (the full amount due) in the appropriate jurisdiction. Apple will eventually have to pay taxes on the full amount earned in Europe and elsewhere in the world, but it believes that the US is the proper jurisdiction in which to do so. There’s currently a lot of that money overseas on which it hasn’t yet paid taxes, but it won’t escape taxation entirely or indefinitely.

Ultimately, this case — like so many others – comes down to your perspective and preexisting notions. If you’re inclined to believe that big US tech companies don’t pay enough taxes in Europe, this likely confirms that view and makes it official. On the other hand, if you’re more inclined to believe that the EU uses its various investigations as a way to handicap big US tech companies who are more successful than European equivalents, there’s more evidence here for you too. None of this is settled yet, and we’ll have years of court cases before this is decided, but even in the short term I suspect we’ll see lots of non-European companies rethinking their investment strategies for the EU in light of the ruling.

Five Years of Tim Cook’s Apple in Charts

This week marks the fifth anniversary of Tim Cook’s appointment as permanent CEO at Apple – he was appointed CEO on August 24th, 2011. As a result, we’ll no doubt see quite a few retrospectives this week looking back over his time at Apple, and evaluating his tenure. As context for that analysis, I wanted to share some numbers about Apple in the quarter and year before he took over, and compare it with numbers for the quarter and year ending in June of this year. Not all the applicable data sets go back that far – Apple has changed its reporting segments in at least a couple of ways during this five year period, but we’ll mostly try to compare before and after as closely as possible.

Note: here as in all the analysis on this blog, I use calendar quarters rather than companies’ fiscal quarters for analysis for ease of comprehension by those not familiar with companies’ fiscal calendars – hence, Q2 2016 is the June quarter recently ended and reported. Many of the charts shown here are part of the Apple quarterly deck which is available as part of the Jackdaw Research Quarterly Decks Service, which you can read more about here. The underlying data is also available on a custom basis as either a one-off delivery or a quarterly service – please contact me for more information.

P&L measures

Let’s start with the corporate income statement. By any measure, Apple is simply a lot larger than it was five years ago. Here are trailing 4-quarter revenues:

Trailing 4 quarter revenue 560

Revenues in the four quarters before Tim Cook was appointed were $100 billion, whereas in the last four quarters they were over $200 billion. However, as you can see from the chart, it hasn’t been an inexorable rise up and to the right. Revenues grew very strongly in that first period, then began to level off somewhat throughout 2012 and 2013, then spiked following the iPhone 6 launch. And of course over the past year revenue growth has been negative for the first time in many years at Apple. The overall effect is still a more than doubling of total revenue, but the current trajectory is negative. As I’ve written previously, I continue to believe that we’ll see a reversal of this trend in the next few quarters as a combination of factors kicks in, but I’m betting Tim Cook would have rather his 5 year anniversary would have fallen either side of this lull instead of in the middle of it.

Meanwhile, margins have been up and down over time, with a bump in the early part of Tim Cook’s time at the helm, followed by a drop down to slightly lower levels, a steady rise, and then a drop off again:

Trailing 4 quarter margins 560

The ups and downs here largely correlate to overall growth rates for Apple, with higher revenue growth rates driving higher margins for a time as cost expansion takes a while to catch up with revenue growth, only to fall again as growth slows. On operating and net margin, Apple has ended these five years slightly below where it started, whereas on gross margin it’s in more or less the same place. But it’s worth noting that dollar profits are still way up on where they were, and that’s the metric that Apple and its investors are likely more focused on:

Trailing 4 quarter operating income 560

Yes, there’s the same up-and-down pattern, but again operating income on a twelve-month basis is roughly twice what it was five years ago over the past year.

R&D spend has ballooned

The only other line from the income statement I want to zero in on is research and development spending, because there’s been a fairly dramatic change here over the past five years. Here’s total R&D spend in dollars on a twelve-month basis, and spending as a percentage of revenue:

Trailing 4 quarter R and D spend 560 Trailing 4 quarter R and D spend as percent 560

R&D spend was under $2.5 billion the four quarters before Tim Cook took over, but it was almost $10 billion five years later, a roughly fourfold increase. And that’s not just because Apple’s revenue has grown during that time – R&D has actually grown significantly as a percentage of revenue over the same period, going from just over 2% to just over 4%, or almost doubling as a percentage. That’s interesting, because R&D actually fell fairly consistently as a percentage of revenue during most of Steve Jobs’ second stint as Apple CEO, from a peak of 8% in 2001 and 2002 all the way down to 2% just before Cook took over. That’s largely a function of the massive iPod- and iPhone-driven revenue growth during that period – dollar R&D spend rose from around $400 million a year to over $2 billion a year during the same time period – but it’s interesting to note that Cook has reversed the trend and significantly increased R&D spend even above and beyond the rate at which revenue has grown. Interestingly, that 2 percentage point increase in R&D spend is roughly equal to the 2 percentage point drop in margins during the Tim Cook era.

The cash hoard grows

The other major corporate financial metric that’s worth a quick look is cash. Apple’s cash and investment assets have grown enormously over the past five years, as the two charts below show:

Cash metrics 560Cash metrics two quarter only 560

The starting and ending totals are easier to see in the second chart, but the steady growth is perhaps easier to see in the first. Regardless, Apple ended calendar Q2 2011 with a total balance of cash and investments of $76 billion, while it ended Q2 2016 with a balance of $231.5 billion. In other words, it has added over $155 billion to its coffers over this time. Meanwhile, an increasing proportion of this cash and investments has been held overseas – the percentage was 63% five years ago, but was 93% at the end of Q2 2016.

Of course, the other cash-related metric worth noting during the first five years of the Cook era is the way Apple has been using that cash to pay dividends and buy back stock. Steve Jobs famously refused to pay dividends, but around a year into his tenure, Tim Cook instituted both these programs to return cash to shareholders. As of April of this year, Apple said it had “returned over $163 billion to shareholders, including $117 billion in share repurchases.” That makes the increase in its overall pile of cash and investments all the more remarkable.

Unit shipments are up for iPhone, less so for other products

One of the most interesting things to look at in regard to the last five years is what’s happened to unit shipments for Apple’s three major product lines. The long-term trend is shown in this first chart:

Trailing 4 quarter unit shipments 560

Again, we’re all familiar with the trajectory of iPhone sales over recent years, so let’s be brief here. It’s worth noting that Tim Cook’s appointment coincided with the decision to move the launch date for new iPhones from June to the Fall, with the iPhone 4s launching in October of 2011. That explains the flat part at the beginning of the iPhone chart above. Following that shift, though, the iPhone saw strong growth in 2012 and 2013, but began to flatten out, only to spike in late 2014 and into 2015 thanks to the iPhone 6, then slumping a little in late 2015 and the first half of 2016. But again, it’s worth looking at the total numbers here. Apple shipped 69 million iPhones in the four quarters to Q2 2011, and shipped 214 million in the most recent four quarters. That’s a massive expansion of Apple’s business here, despite the recent lull (shipments peaked at 231.5 million on a twelve month basis in Q4 2015).

It’s also interesting to note that Apple has shipped 859 million iPhones during the Tim Cook era, compared with just 130 million in the pre-Cook era. In other words, roughly 87% of the almost one billion iPhones Apple has ever sold have been sold during Tim Cook’s time as permanent CEO.

What’s almost more interesting, though, is what’s happened to Mac and iPad sales, which performed roughly the same in the most recent quarter as they did five years ago:

Unit shipments for two quarters 560

As you can see, both Mac and iPad sales were up just a few hundred thousand on those from five years earlier, despite the doubling of iPhone sales over the same period. As the earlier chart shows, for iPads that’s because sales first grew significantly, peaking at 26 million quarterly and 74 million over twelve months in Q4 2013 and falling since.  Mac sales, too, have had better quarters than the most recent one, though the peak was not  much higher than today. Both products are due for something of a rebound in the coming quarters, as new Mac are (hopefully) finally introduced and the iPad Pro trend continues to help sales. And it’s worth noting that 300 of the roughly 330 million total iPads sold to date have been sold under Tim Cook, along with almost 112 million Macs.

Of course, we don’t have official shipment numbers for the Apple Watch, though there are various estimates out there. But it would be inappropriate to skip over that product entirely – it was the first brand-new product introduced in the Tim Cook era, and likely sold around 15 million units in its first year on the market. That’s a much faster run-rate than the iPhone, but down a little at this point on iPad sales in their first year. But it’s interesting that, as Tim Cook marks his five year anniversary, we’re seeing another product whose launch timeframe is being moved from the first half to the second half of the year, causing something of a lull in sales in the meantime.

A changing mix of segment revenues

All that movement in unit shipments obviously flows through to product revenues too. The revenue split by segment has changed fairly significantly over Tim Cook’s tenure. Apple’s financial reporting by segment has also changed over the last five years, with the iPod no longer separated out as its own reporting line, the Accessories bucket being merged with iPod, Apple Watch, Apple into “Other Products” and “iTunes, Software, and Services” becoming just “Services”. In the chart below, I’ve collapsed these segments for comparability:Revenue split by segment 560

The iPhone, which was already a very significant portion of Apple’s overall revenue, has only become more dominant over the past five years, rising from 45% of revenue in the twelve months to Q2 2011 to 64% in the year to Q2 2016. But other components have also risen or fallen – iPad has dropped from 16% to 9% and Mac from 20% to 11%, while the combination of iPod, accessories, and various other hardware products has dropped quite a bit too. The only other segment that’s risen as a portion of the total during this time – despite the rapid growth of iPhone revenues – is Services. An increase from 9% to 10% of revenue doesn’t look like much, but it’s much more impressive when you look at the dollar amounts instead:Trailing 4 quarter Services revenue 560

What’s now the Services segment has grown from under $10 billion in the twelve months to Q2 2011 to well over $20 billion in the most recent twelve months, with the trajectory actually steepening in recent quarters. Yes, it’s still just 10% of total revenue over the past year, but it’s actually Apple’s fastest-growing segment at the moment.

The other interesting thing to look at in the context of segment revenue is the difference between unit shipments and revenue performance, which is driven by changing average selling prices (ASPs). You can see it a little in iPhone revenues:

Trailing 4 quarter iPhone revenue 560By now, that iPhone trajectory should be familiar, but it’s worth noting the growth – from just over $40 billion on a twelve-month basis to $140 billion. It’s subtle, but the 3.1x growth in shipments has translated into a 3.5x growth in revenue, and that’s largely down to ASPs. Here are average selling prices on a trailing 4-quarter basis for the three major product lines at the beginning and end of Tim Cook’s first five years – note that because of changes in reporting structures I’ve used Q3 rather than Q2 2011 as the starting point here:Trailing 4 quarter ASP 560

As you can see, iPhone ASPs have risen over the five years despite the increasing maturity of the product and the introduction of two cheaper models (the iPhone 5c and more recently the iPhone SE). Mac ASPs have dropped, but only slightly, while iPad ASPs have dropped fairly significantly, driven by the launch of the iPad Mini in 2012 and the increasing tendency to keep older devices in the lineup for longer at lower prices. But something interesting has been happening to iPad revenues in recent quarters, even as shipments continue to fall year on year:

Trailing 4 quarter iPad revenue 560

This flattening of revenues, and the growth this past quarter, has been driven by the iPad Pro, which has raised ASPs considerably. iPad ASPs bottomed out at around $415 a year ago, but were $490 in Q2 2016, up $60 from Q1, putting them back at late 2012 levels.



Regional trends and the rise of China

One of the most dramatic changes at Apple in the Tim Cook era has been the rise of China as one of its two major markets. Here, again, unfortunately, we’re thwarted a little by a change in Apple’s reporting a few years back, in which it eliminated Retail as a separate segment and rolled it into the individual regions, so we’re going to use Q4 rather than Q2 2011 as our starting point, and for comparability we’ll use Q4 2015 as the end point. As such, we’re measuring a four-year rather than five-year period, but the changes are still very visible. Here’s the share of Apple’s revenue by region at those two points in time:Apple revenue by region 560

As you can see, Greater China has increased massively as a proportion of revenue over this period, going from 10% to 24% of revenues, while every other region has shrunk in percentage terms. In Q4 2015, Greater China contributed the same percentage of revenue as Europe. Looking at the dollar amounts is again helpful – here’s actual revenue by region for those two quarters:

Apple revenue in dollars by region 560

It’s worth noting first that every region has grown during these four years, but Greater China has clearly grown far faster than any other region, from $4.5 billion to over $18 billion during this time. That’s massive growth, and I’d say it’s one of Tim Cook’s great achievements during his tenure. It’s also clearly something he hasn’t given up on, given his recent frequent visits to China and the investments in Didi and in an R&D center to be built there. It’s also worth looking at operating income by geography, because here too China has made a significant contribution:

Apple operating income by region 560

Retail is far more international

I want to close out with Apple’s retail business, which gets less attention in Apple’s official reporting than it used to, since Retail has been wrapped into the regions, but is as important to Apple’s strategy as ever. And Tim Cook has been instrumental in expanding the Retail footprint, especially overseas, though Retail has also been the focal point of arguably Cook’s biggest blunder as CEO – the appointment of John Browett to run the business. However, Angela Ahrendts’ appointment seems to have more than made up for that mistake.

Here are a couple of charts about Apple’s retail footprint:

Retail stores by geography 560 Split of Apple retail stores by geography 560

At the end of Q2 2011, Apple had a total of 327 retail stores, of which 270 or 72% were in the US. By the end of Q2 2016, Apple had 488 stores globally, of which 218 or 45% were now overseas. Tim Cook’s time as CEO has seen Apple stores opened in seven new countries across four continents:New Apple Retail countries 560But of course it’s also seen a massive expansion in the number of Apple stores in China, which had 36 stores as of the end of July, up from single digits when Tim Cook took over.


I’ve deliberately made this more of a factual post than an evaluation of Tim Cook’s tenure – as I said up front, this week will see lots of this sort of stuff, and I’ve already talked to several reporters doing their best to sum up five years of work in a few hundred words. But I think it’s worth noting several things here, some of which I’ve mentioned in the text:

  • Apple under Tim Cook has sold far more iPhones and iPads than it ever did under Steve Jobs – 87% of total iPhones sold and 90% of iPads ever sold. Though Steve Jobs launched these products, it was always Tim Cook who ensured the supply chain met demand as well as possible, and it’s been Tim Cook who’s overseen the massive expansion in that supply chain over the last five years as the scale has grown to something unprecedented.
  • Tim Cook has made the decision to increase Apple’s spending on research and development not just in dollar terms commensurate with revenue growth but actually doubling it as a percentage of revenue during his tenure despite the massive growth in revenue. That reversed the trend under Steve Jobs, and the increased investment in R&D is roughly equivalent to the drop in margins during this time – Cook has made a massive bet on R&D and by implication on future products.
  • Cook has made China a special focus, and this focus has paid off in a big way, with a roughly fourfold increase in revenue from Greater China and an equivalent increase in operating income. Greater China has grown from 10% of revenues to roughly a quarter, and Apple’s retail footprint there has also grown dramatically. That growth in China has been a major contributor to Apple’s overall growth in the last five years, and Cook clearly remains committed to China as a focus for Apple as evidenced by his recent investments there. He’s begun to talk more about India and its potential, but I remain skeptical that India can be much more than a rounding error for Apple over the next few years.
  • Only one entirely new hardware product has launched under Tim Cook, and yet we have almost no official data to go on to evaluate the performance of the Apple Watch so far. Opinion remains divided about how to evaluate the Watch, but I’m on the side of those who considers it a modest success in Apple terms and a smash hit in the context of the market into which it was launched. Like the iPhone the year Tim Cook took over, it’s going through an interesting transition as its release moves from the first half to the second half of the year, but I suspect that like the iPhone in late 2011, the Watch is due for big growth in late 2016 and beyond.
  • I suspect the transformation we’ve seen in Services, driven largely to date by the App Store and latterly by Apple Music, is just the start of what we’ll see under Tim Cook. He’s already hinted several times at additional services to come, and TV is an obvious focus here. But I also think some of the rhetoric about Services has been overblown – it’s still only 10% of revenue, and unlikely to grow massively past that point unless Apple decouples services from its devices, which I think would be a mistake.

Perhaps one of the most significant contributions Tim Cook has made at Apple can’t be seen in any of these charts, because it’s about the changes to Apple’s culture that have happened under his leadership. The increased openness, best exemplified by the frequent interviews Cook and other executives now regularly grant to various publications (and even podcasters), is one element of this, though Apple’s secrecy about future products remains as tight as ever. But an increased sense of social responsibility, especially as regards the environment and contributions to social causes is another major change. This doesn’t have a direct financial impact, but it’s made a positive contribution nonetheless, and no evaluation of Cook’s tenure would be complete without a recognition of that fact.

Apple June 2016 Quarter Chart Review

I’m on vacation this week in Europe, but I took a quick break to cover Apple and Twitter’s earnings this evening before heading to bed. I’ve tweeted quite a few charts tonight, but thought I’d pull some of the key ones together with some commentary for readers. A full deck of quarterly charts will go out to subscribers to the Jackdaw Research Quarterly Decks Service in the next few days as Apple releases its full data in an SEC filing, so look out for that if you’re a subscriber, and sign up here if you’re not.

Note: in this post, as in all my posts, I use calendar quarters for ease of comparisons with other companies and easy intelligibility by those not familiar with quirky fiscal years. As such, the labels and my commentary does not align with Apple’s fiscal calendar.

iPad returns to revenue (but not shipment) growth)

Last quarter, Tim Cook promised that the iPad would have its best year on year “compare” in over two years, which by my calculations meant something better than an 8% decline. Turns out iPad revenues actually returned to positive growth this quarter, though shipments still dropped, thanks to a really strong boost in ASPs:iPad shipments Q2 2016iPad ASPs Q2 2016Screenshot 2016-07-26 22.38.46That iPad ASP growth seems to have been driven by the launch of the iPad Pro, which in turn was likely designed in large part to drive higher ASPs as shipment growth has stalled. In other words, the strategy seems to be working. It’s also interesting that Apple reported that half iPad Pro sales went to people buying them for work, which is another validation of Apple’s strategy, but also points to a big opportunity for Apple, which is selling more devices into the enterprise, both to individual and corporate buyers. That’s something I first talked about in the context of Apple’s IBM deal, but it goes much further than that (as evidenced by subsequent Cisco and SAP deals).

iPhone sales and ASPs down – the iPhone SE effect

Unsurprisingly, iPhone sales were down again, though perhaps not as badly as they seemed to be given the changes in inventory. But the most notable thing was the drop in average selling prices – the opposite of what happened with the iPad in the quarter:iPhone ASPs Q2 2016Just as the positive change in iPad ASPs was due to the successful launch of a new product (the 9.7″ iPad Pro), so is the larger than usual quarterly drop in iPhone ASPs due at least in part to the launch of a new product – the iPhone SE. It’s not all that – there was some impact from the inventory changes, as mentioned on the earnings call – but the magnitude of the drop is an indication that the iPhone SE has also had a successful launch, and has been something of a hit. That’s a good thing, in that these sales have filled something of a hole in iPhone sales in the quarter – which was arguably the purpose – while proving that Apple can tap into a market for iPhones at a lower price point with slightly lower specs and feature functionality.

Apple Watch and Other Products

One last interesting point with regard to a specific product: the Apple Watch. It’s buried in Other Products, but perhaps a better way to look at it is that it now leads the Other Products category, which otherwise features a number of other smaller products. That’s been a double-edged sword for the reporting category over the past 18 months or so, as Apple Watch has first driven higher growth and now is driving negative growth for the category again:Other Products growth Q2 2016This is, to some extent, a temporary anomaly due to the launch of a brand new product and the subsequent (presumed) shift to a different time of year for the follow-up product as the second version of the Apple Watch launches in the fall. But it’s an indication of just how important the Watch is to that Other Products category.

Short-term versus long-term

In concluding, I’m going to link back to my post last quarter, in which I both reviewed the good news and bad news in the results and looked forward to the rest of the year. The point remains the same: with Apple there are two current pictures, which are very different. On the one hand, there’s the short-term picture, characterized by the anniversary of massive growth in iPhone sales driven by the iPhone 6, and also an unusually long lull in the Mac upgrade cycle driven by delays in getting new chips from Intel. That short-term picture hasn’t changed, and is so far fairly predictable.

The bigger question, though, is what happens later this year as some of the unpleasant short-term factors start to go away. As I said last quarter, with the iPad performing better, that’s the first of those positive levers coming into effect, and if that higher ASP trend continues, that will be more grist to the mill. However, the far bigger effect obviously comes from the iPhone, which I still believe might return to revenue growth later this year or early next year. Lastly, the other major product lines – Mac and Apple Watch – have potential to contribute further to that growth. We should finally see new Macs in the fall if not before, which will unleash significant pent-up demand, while new Apple Watches combined with a much more capable watchOS 3 could drive more sales there. In other words, over the long term I remain very bullish about Apple’s prospects, and we could start to see signs of that in the September quarter, but especially in the December quarter and beyond.

The State of Siri

The question I’ve been asked the most in the last couple of weeks by reporters as we get ready for Apple’s Developer Conference is whether Apple’s Siri personal assistant is behind its competitors, and whether it can catch up. The answer is more complicated than just a yes or a no, and having some context for next week’s announcements is really important to evaluating them properly when the time comes.

Comparing Apples with Apples

First off, many of the comparisons I’m seeing made at the moment are comparing apples with oranges (no pun intended). What I mean by that is that we’re at a particular point in the calendar where we’re comparing everyone else’s products (and in many cases announcements of products that aren’t yet available) from 2016 to Apple’s versions from 2015. Since Apple only makes major changes to Siri and its software in general once a year, we’re still looking at last year’s versions ahead of WWDC next week, but all the other major consumer tech companies have already held their developer events this year, and thus shown their hands.

Adding more to the “unfairness” of the comparison, in many cases competing products aren’t actually available yet, and won’t be for months. So evaluating Apple’s position in digital assistants (and artificial intelligence more broadly) today makes a lot less sense than it will this time next week, when we know what Siri will look like in the second half of 2016. If past patterns continue, it seems likely that at least some of the new features will be available to developers  almost immediately, to participants in Apple’s iOS beta program shortly after, and to everyone with an iPhone in September.

Three components to digital assistants

Even though people talk about voice-based assistants in a unitary fashion, there are really three main components to these products, and if you really want to evaluate an individual example, you have break it into these constituent parts. Those three parts are:

  • Voice recognition – turning sounds into individual words
  • Natural language processing – turning collections of words into phrases and sentences with specific meanings
  • Serving up responses from a cloud service.

An effective digital assistant needs to be good at all three of these things in order to do the overall job well. First, it has to recognize the words accurately, then it has to properly identify the meaning of the set of words the user says, and then it has to serve up a response based on the set of things it’s capable of doing.

Siri is competitive but not a leader today

For today, Apple’s Siri is decent but not stellar on the first two points. In both cases, Google’s voice search and Amazon’s Echo device do a better job of both recognizing individual words and ascribing meaning to phrases and sentences. The gap isn’t huge, but it’s noticeable, while Microsoft’s Cortana generally performs roughly on par with Siri in my experience. On the third point, Siri has expanded the range of tasks it can perform, but it’s still limited mostly to things Apple’s services can perform with a handful of third party services feeding in data on particular topics. Google’s voice search can pull in a little more third party data and has a much wider range of first party data to pull from, while Amazon’s Alexa assistant has an open API that’s resulted in connections to many third party services, though a large number are from tiny companies you’ve never heard of. Cortana is, again, roughly on par with Siri here.

On balance, then, Siri is roughly in the same ballpark as competitors, but lags slightly behind in all three of the key areas versus both Google and Amazon. Though it’s not available yet, Google has also announced the next generation of its digital assistant, called simply “the Google assistant”, which will be able to respond to text as well as voice queries and engage in conversations with users. This is capability Cortana has already, but others including Siri don’t. It should roll out over the next few months to users, but it’s hard to evaluate how effective it will be based on keynote demos alone.

Where Apple might go next week

Returning to my first point, as of right now we’re comparing the 2016 versions of others’ products to the 2015 versions of Apple’s, so the question becomes how Apple might move Siri forward at WWDC and close the gap in these various areas. Across those three areas, the most likely changes are:

  • Voice recognition – Apple has been continually improving its voice recognition, and although we’ve seen the least concrete rumors ahead of time in this area, I would expect it to talk up further improvements at WWDC
  • Natural language processing – Apple has acquired a variety of companies with expertise in artificial intelligence recently, and among them is VocalIQ, which specializes in conversational voice interactions. I would expect significant improvements in natural language processing including multi-step conversations to be announced at WWDC, which should move Apple forward in a big way in this area
  • Responses – the biggest thing holding Siri back right now is its lack of third party integrations, and especially the inability for developers to make functionality in their apps available to Siri. Were that to change at WWDC – which it seems likely to do with a Siri API – that would again dramatically improve the utility of Apple’s voice assistant.

I’ve so far focused mostly on the voice aspects of these digital assistants, but Apple also added other elements last year, and might continue to build on them this year. In 2015, it introduced the Proactive elements of Siri, which serve up contacts, apps, news, and other content proactively through notifications and in the Spotlight pane in iOS. The main area I’d like to see it adding more functionality this year is in text interactions with Siri, which could potentially happen either in the standard Siri interface or through iMessage, such that Siri would appear as just another contact you could exchange text messages with. Apple could even open up iMessage as a platform for bots and conversational user interfaces from third parties, which would help Apple keep pace with announcements from Facebook, Microsoft, and Google in this area.

The other thing that’s worth bearing in mind is that these digital assistants are only useful when they’re available. Amazon’s Echo device does very well where it’s present, but its biggest weakness is that Amazon has only sold around three million devices, and its Alexa assistant isn’t available on phones, the devices we carry everywhere with us. Google’s assistant is pervasive, available both on Android and iPhone, on the web, and elsewhere, while Siri is available on most of Apple’s devices in some form (with the exception of the Mac). Cortana is available on PCs running recent versions of Windows, but its availability on phones does little to help since there are so few Windows phones in use. If Apple extends Siri to the Mac at this year’s WWDC, another credible rumor, then it will make it even more ubiquitous in the lives of those committed to the Apple ecosystem.

Changing the narrative

What Apple’s faced with as it heads into WWDC is a growing narrative which suggests it’s falling behind in both AI generally and the realm of digital assistants specifically. As I’ve already said, given the quirks of the calendar, Apple has naturally been silent as others have revealed their 2016 plans, and so this comparison is partly unfair. But Apple has a chance during its developer conference to demonstrate that it’s committed to not just keeping up but establishing leadership in these areas. By Monday afternoon, we’ll be in a much better position to judge whether it’s been successful in changing the narrative.

Apple Earnings: Bad News and Good News

Apple’s earnings for its fiscal second quarter (which I will refer to from here out as Q1 2016, as is my custom) were rocky. As Tim Cook said, it was a challenging quarter. There was bad news not just in iPhone, where Apple had already suggested there would be, but in other areas too. It’s worth enumerating exactly what those sources of bad news are to understand what’s going on at Apple. But there was also some good news in the earnings, which is particularly important when looking at the longer term. This post outlines both, starting with the bad news.

All three major product lines shrinking

Yes, iPhone shipments and revenues dipped year on year for the first time, and that was a major cause of the overall problems. But what compounded it was that Apple’s other two major product lines were shrinking too in the quarter:Year on year growth by product lineThe iPhone decline was new, but the trend line in Mac sales has been worsening consistently over the past year, and has now been below zero for the past two quarters. That’s significant, because for a time the Mac was offsetting shrinkage from the iPad, such that combined revenues from the two were rising or steady. Now that this aggregate number is also in the red, the declining iPhone sales just exacerbate the problem.

iPhone ASPs falling

Besides the stellar growth in iPhone sales the iPhone 6 prompted, it (and the iPhone 6s) also helped drive significantly higher average selling prices. The chart below shows ASPs on a cyclical basis, so you can see the trend over the past several years and where Q1 2016 should have landed, and where it did land:iPhone ASPs As you can see, at the end of 2014 ASPs dramatically increased as a result of larger, more expensive phones, and higher storage tiers. The 2015 ASPs were above 2014 ASPs for the entire year, but Q1 2016 saw ASPs dip, below the previous year’s number (and below even 2011, which was next highest for Q1). All of this suggests a combination of mix shift toward lower-tier and older iPhones, as well as possible discounting in some markets. Since ASPs have a direct impact on margins, that’s not good news. Worse still, Apple is projecting even lower ASPs in Q2 driven by a combination of inventory changes and sales of the iPhone SE.

Softness in China

China has been a major driver of Apple’s growth over the past couple of years. The relationship with China Mobile, expansion of better cellular networks in China combined with expansion in Apple’s distribution, and then the launch of larger phones all contributed to outsized growth there. Over the last couple of quarters, though, things have changed dramatically:Revenue growth by regionWhereas China accounted for half or more of the company’s revenue growth for several quarters, it’s now accounting for half its year on year shrinkage. One of Apple’s biggest drivers of growth has become a driver of decline. Again, the biggest culprit is iPhone sales and the massive iPhone 6 year, and the underlying decline in Mainland China is much less dramatic than reported results for the Greater China region, which includes Hong Kong. But for the time being, this is more bad news.

What you have overall, between the three major declining product lines, falling iPhone ASPs, and softness in Greater China, is a perfect storm of sorts that’s driving the current problems for Apple. What, then, is the good news in all this?

iPhone decline is temporary and cyclical

As I wrote earlier this week, the most important thing to understand about iPhone growth is that it’s temporary and cyclical. That is, the massive growth Apple experienced over the last 18 months or so was entirely down to the introduction of larger phones, and demand is now simply returning to its prior trajectory. The iPhone shipments number Apple reported was bang on with the projections I shared earlier this week and therefore also absolutely in line with the pre-iPhone 6 trend. That suggests (and Apple’s guidance for next quarter confirms) that iPhone growth should be back on track later this year, at high single digits or low double digits. The iPhone SE will depress margins, especially because it’s going to sell best during the annual trough in high-end sales, but for the same reasons, ASPs should recover by the end of the year when a new flagship phone launches. In the meantime, it should help fill that usual trough in sales a little, boosting sales above where they would otherwise be.

The other thing to bear in mind is that, though the iPhone 6 upgrade cycle was itself something of a one-off, all those who bought phones during that cycle will want to upgrade at some point. What was notable about this down quarter in iPhone sales was that Tim Cook said the last six months were the highest ever for Android switching. That implies that what fell short during that period was upgrades. That, in turn, suggests that when this base of iPhone 6 buyers finally does upgrade in large numbers – likely between 2-3 years from their purchase – we could see another big bump in sales, an aftershock of sorts. The biggest impact would hit in a roughly eighteen month period from this September through the following March, which provides more reason for optimism about longer term iPhone growth.

Signs of iPad recovery

It’s easy to focus on the decline in iPad sales, which has been problematic for Apple over the last several years, especially as the Mac has stopped growing. But the reality is that there are signs of recovery in iPad, albeit not growth just yet. But the rate of year on year decline has been slowing steadily, and on the earnings call Apple took the unusual step of signaling where it thinks they’ll come in next quarter, at least directionally. Here’s the trend line for the past couple of years:iPad year on year growthThat rate of decline has improved for three of the last four quarters. Apple’s guidance for Q2 2016 was that this would be the best year on year compare in two years. That suggests a shrinkage of less than 14% (since Q3 2014 was the previous low within that period, at 14% – I’m assuming the 8% it achieved in Q2 2014 is out of the 2-year window). (Update: I’m told by Jason Snell that it was “over two years” and the transcript confirms that, so the 8% might well be within the window after all). That’s obviously not stellar, but it continues and even improves the trend over the past year or so of slowing declines. As this decline slows, that puts Apple in less of a hole that it has to dig out of.

Reasons to believe the Mac will recover

There isn’t anything in the recent Mac results that provides reasons for optimism – as I said above, the results show a steadily worsening trend in the case of the Mac. However, I believe at least part of the reason for the decline is that as of the end of the quarter, Apple hadn’t updated most of its Mac lineup in a long time. The Macrumors Buyer’s Guide listed the whole lineup as “don’t buy” because of the length of time since the last upgrade. Obviously, the MacBook has since been updated, but the rest of the lineup hasn’t. As with iPhones, the evidence is that new customers aren’t the problem here – Cook made much of the high “new to Mac” numbers this quarter. The issue is once again upgrades, and there we should see better numbers later this year as Apple upgrades the product line with new Intel Skylake chips. The timing of that change is hard to predict, but it should help the Mac revenue growth line turn positive again, helping to offset the smaller iPad decline.

Other new products driving growth

The Apple Watch isn’t broken out in Apple’s results explicitly, but it has contributed meaningfully to the overall revenue line over the past twelve months. The Other Products line where it sits includes both the iPod and accessories, which had been declining fairly significantly, but that segment’s revenues have been growing year on year since the Apple Watch launch. In the first part of this year, that growth is likely to be modest, but once again come the fall things should look better as Apple updates the hardware and drives new sales.

Another interesting new product that’s driving growth is Apple Music, which now has 13 million paying customers. That’s good for a run-rate of a little over $1.5 billion on an annualized basis, and the growth rate (around 25-30k new subscribers per day) should see Apple get close to 20 million by the end of the year, which in turn would drive annualized revenue of $2.3 billion. Given that iTunes Music generated around $4 billion at its peak, and is now generating much less, this new service is on track to begin driving meaningful growth for Apple in the music category again. More broadly, Services continues to be one of the drivers of growth at Apple, driven not just by Apple Music but to a great extent by the App Store too. The good thing about that growth is that it is driven by the growing base rather than sales of new devices, so to the extent that Apple is still adding new iPhone customers, it should continue to grow even as iPhone shipments slow down for a period.

All signs point to a return to growth in the fall

All of this taken together points to another couple of tough quarters for Apple as the perfect storm of declines across its three major product areas, its second most important region, and iPhone ASPs hits home. But it also points to reasons for optimism come the fall, when the iPhone should start to rebound, Mac sales should be stronger, a new Watch should drive sales there, and iPad shrinkage will be lower. The narrative Apple needs to be spinning is less about Services, though those are an important component of future growth, and more about the fact that the current dip in revenues is temporary. There were some references to that in the earnings call yesterday – Tim Cook used the phrase “pause in our growth,” suggesting that he believes this. But of course Apple doesn’t provide guidance beyond a single quarter. That may need to change if it wants to get investors back on board.