Category Archives: Mac

MacBook Pro with Touch Bar Review

November 14, 2016 Jan Dawson

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.

Siri

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.

Testing

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.

Portability

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:

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.

Design

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.

Conclusions

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, Mac, Microsoft, Touch, Touch Bar

Apple, Microsoft, and the Future of Touch

October 27, 2016 Jan Dawson

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:

My Techpinions Insiders piece on Monday was a scene setter for this week’s events
A media comment on Microsoft’s event
My weekly public Techpinions column gave a longer take on Microsoft’s event
A media comment on Apple’s event.

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:

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.

Apple, Apple Watch, Earnings, iPad, iPhone, Mac, Q2 2016

Apple June 2016 Quarter Chart Review

July 26, 2016 Jan Dawson

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:That 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:Just 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:This 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.

Apple, Apple Watch, Earnings, iPad, iPhone, iPhone 6, Mac, Q1 2016

Apple Earnings: Bad News and Good News

April 27, 2016 Jan Dawson 1 Comment

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:The 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:Whereas 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:That 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.

Apple, Apple TV, Apple Watch, Apps, iOS, iPad, iPhone, Mac, Operating Systems, OS X, Strategy

Apple’s Playbook

September 10, 2015 Jan Dawson 6 Comments

One of the most interesting slides at yesterday’s Apple event was one that Tim Cook used in the context of introducing the new Apple TV:What I found striking about this slide was that it was a great summation of Apple’s playbook for its tightly integrated approach to hardware and software:

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

This playbook was first introduced with the iPhone, although arguably it wasn’t fully fleshed out until 2008, when the developer tools and App Store elements arrived. This approach was then applied again both to the iPod Touch when that launched, and when the iPad launched in early 2010, using the same “modern OS” – now called iOS. Later in 2010, Apple began applying some of these elements back to the Mac (announcing these changes at an event called “Back to the Mac”), starting with the Mac App Store, and continuing since then with a variety of elements borrowed from iOS.

With this as background, it’s no surprise that Apple felt bound to include an App Store in the first version of the Apple Watch, but out of an abundance of caution and a sense of urgency, it was a diluted version of the App Store concept. Only with the launch of WatchOS 2 this month will Apple fully embrace its own playbook for devices when it comes to the Apple Watch. And as of yesterday, we now know that Apple is applying this same playbook to the Apple TV too, something that’s seemed inevitable for quite some time now.

With the release of WatchOS and the announcement of the new Apple TV, Apple now has the same strategy for hardware and operating systems for every element of its portfolio for the first time. The question now becomes which new categories Apple might apply this strategy to in future, and one obvious possibility is cars. Look at that list of bullet points that make up the Apple playbook – is there any element of this that doesn’t apply to cars?

The other thing that’s interesting about all this is that this strategy puts developers at the heart of Apple’s formula for success. Three of the bullet points are about what Apple brings to the table for end users – the hardware, the software, and the user experience these two elements tightly integrated create. The fourth and fifth bullet points are about what Apple provides for developers – the tools to create the apps, and the channel to get these apps in front of customers and make money from them. I think this is a reflection of a genuine understanding on Apple’s part that its devices would be far less meaningful without these third party apps.

Given what’s happening now with Apple Watch and Apple TV, I’m expecting to see a ton of innovation from developers in creating new experiences that are hard to imagine today. We’re about to see the same sort of flourishing of new apps and business models around these devices that we’ve already seen around the iPhone and iPad. And that in turn will reinforce the value of these devices for end users, while creating significant new revenue opportunities for developers.

Apple, Apple TV, Apple Watch, Mac, Smartwatches

Thoughts on Apple’s Spring Forward event

March 10, 2015 Jan Dawson 2 Comments

I had the opportunity to attend Apple’s Spring Forward event yesterday, and wanted to give my quick take on both the event and the brief hands-on I had with both the Apple Watch and the new MacBook. I’ve already written about Apple’s ResearchKit announcement over on Techpinions (for Insiders), and put out a brief comment for reporters yesterday too.

A surprising order

Apple often starts its keynotes with a minor update on retail and other statistics, and this one was no different in that respect. However, it then normally focuses on the main event, followed by one or more additional items – the legendary “one more thing” Steven Jobs was so fond of. What was so interesting to me here was that the Apple Watch was the focus of all the pre-event speculation, and yet it was held for last, almost an hour into the event, and was given only just over 30 minutes of its own. Much of that first hour was taken up with several other announcements: ResearchKit, the new MacBook, the Apple TV price drop and the HBO Now exclusive. I think the reason for this order was likely that Apple had already covered the basics of the Apple Watch in September, with little new information to be announced yesterday other than price and availability.

ResearchKit

See my Techpinions piece for a deeper dive into what I think ResearchKit means and represents for Apple, but in some ways this was the announcement I was most excited about. It suggests various things about Apple and its potential, not least its ability to marshall its considerable resources and its installed base not just in the service of selling more product, but also in the service of doing good in the world. I see this is as a first move beyond the hobbyist self-tracking that’s usually associated with health and fitness trackers and into something that’s truly meaningful in the field of medicine.

New MacBook

The new MacBook is interesting for three key reasons: the naming and positioning, the switch to USB-C, and the technological advances involved. Taking the last first, this is clearly an example of the way in which Apple can, when it wants to, move to extend its lead in key product categories through the use of focused, meaningful innovation. Just as the MacBook Air was a huge leap forward, and has arguably maintained a lead over the competition for several years, this new device is likely to set Apple’s computers apart for the foreseeable future. It’s both a great step forward in portability and a bet on the future – a wireless future which seems more and more possible all the time, and which is being held back at this point mostly by the poor performance of wireless charging. I’ve no doubt that at some point Apple will embrace that too, but for now it’s betting instead on making battery life so long that charging is an occasional rather than a constant concern on these devices.

The switch to USB-C, and the removal of almost all other ports, is the biggest visible representation of this bet on the future, and like the removal of CD/DVD drives and Ethernet ports, will cause some consternation and complaining about the need for various adapters and such. In a scenario where someone wants to power their deice while carrying on a Skype call using an external mic and display, a MacBook user will need to plug three different items into that one port, something Apple has clearly envisaged with its various adapters. But Apple has also been laying the groundwork for this move with a variety of wireless technologies including AirPlay and AirDrop, and various standardized technologies such as Bluetooth and WiFi obviously play a role too.

Naming and positioning was the last interesting aspect, in that this device obviously looked a lot like a MacBook Air from the moment it appeared on screen, but was never referred to as such and indeed fills the MacBook slot rather than the MacBook Air slot. My sense is that the MacBook Air filled a temporary role in Apple’s product portfolio, necessary as long as the technologies involved commanded a significant premium over the base level, but soon to disappear as the key attributes (thinness, lightness, massive battery life) make their way into the MacBook line. Over time, Apple is likely to go back to the 2×2 matrix Jobs trumpeted when he returned to Apple – pro and consumer laptops, in two flavors rather than three.

I had an opportunity to use the MacBook for a few minutes at the event, and it’s truly impressive in terms of the thinness and lightness combined with the amazing screen. The absence of a fan is a plus in some ways, but it’ll be worth watching the reviews for the tradeoffs in terms of performance. Others have pointed out that the specs and performance may be more on a par with Macs from several years ago than any of recent vintage, but I’m curious to see how real-world performance is. Talk of taptic feedback in the keynote had me concerned – I’ve never been a fan of haptics in devices – but the instantiation in the MacBook trackpad feels nothing like any haptic technology I’ve ever experienced before. It’s basically used to provide a second-layer clicking feeling for the “force click” even as the new trackpad doesn’t actually travel. It’s another one of those things that has to be experienced in person to be understood, but it’s very effective, along with the new on-screen functionality associated with that force click. The keyboard keys are different enough that they were tricky to use at first, with quite a few typos, at least partly because the keys are wider than in the past. But I’m guessing it’s the kind of thing you’d quickly get used to.

Apple TV and HBO

The Apple TV and HBO Now announcements are interesting partly for what was announced on Monday but at least partly also because of what they signal about the future. HBO Now has some potential, and as I’ve said elsewhere I think a big part of the success will depend on how effectively HBO can get people who currently use someone else’s HBO password for HBO Go to switch to paying $15 per month for their own service. At least part of that will be about making the first real efforts to discourage sharing of passwords, and I’m curious to see how they accomplish that. The price cut on the Apple TV is clearly a concession to the much-lower price of the various streaming sticks such as Chromecast – the new price is now 2x the Chromecast price, whereas it was previously around 3x the price.

But the more interesting thing is what trends these two moves presage. A shift to a cheaper Apple TV suggests either that a new device might be coming or that Apple’s focus going forward might be less about making money on the hardware an more about seeding a base of devices that can in future subscribe to a TV service from Apple (or perhaps a range of services from various providers). I’ve written on Techpinions about what I think it would take for Apple to really turn the Apple TV into something other than a hobby, and it’s really about providing a fully-fledged subscription TV service on the device (and of course on other Apple devices). Apple is no doubt taking a cut of the HBO Now revenues, and is handling billing and so on for the service. App Store revenue sharing would suggest at 30% cut, but I’ve no idea if that’s accurate. I do think this makes it more likely that we see some sort of TV service from Apple, or more deals like the HBO one that allow Apple to act as the aggregator of a loosely-bundled pay TV replacement, and I’ll probably write more about this.

Apple Watch

Lastly, then, we come to what was to have been the main focus of the event according to all the preview coverage, but what ended up being just the last act of a multi-act performance. The key new details were the pricing and availability details. These confirmed to me several things: the Watch Edition is important in terms of positioning and in terms of Apple’s foray into true luxury (and beyond simply affordable luxury, its past focus). But ultimately, it’ll be a marginal story, available only in few places and in small numbers, and sold at a price to make it affordable for very few people. It’s an interesting story, but essentially all the action will happen between $349 and $1100, in the two other categories. Interestingly, that might well make for an ASP very much in line with the iPhone and iPad, somewhere between $500 and $700 per unit.

I had a chance to wear the Watch (the stainless steel version) and play with it some at the event, and the first thing you notice is how much functionality is there. In my five-minute demo we barely scratched the surface of what the Watch does, and I think that’s illustrative of the challenge and the opportunity for the Watch. The use cases for different people will be at least as diverse as they are for the iPad, with third-party apps making up much of the value proposition. Apple talked about three broad things the Apple Watch does: timekeeping, intimate communication, and health and fitness tracking. And there will be some number of people for whom each of these is perhaps the main focus. But there will be many more who will end up using the Watch for a combination of things that doesn’t fit neatly into any of these three categories, but rather combines both pre-installed and third-party apps in a way that creates a mosaic of useful experiences. That makes it challenging to market, but as I’ve said before I think the early adopters who buy the Watch right off the bat will be a big part of how the device reaches the next wave of people, as they discover its usefulness and communicate it to others.

Edit: I’ve been asked by a Twitter follower to add a little more on my experience with the device. It fit well on my wrist, was comfortable and felt very much like the analog watch I normally wear. It instantly felt better than pretty much any of the other smartwatches I’ve worn, at least in part because of the quality and fit of the band. The materials looked great on the one I tried and the others. The screen was responsive and easy to use. The best way to think about the buttons is that pushing the digital crown is like pushing the home button on an iOS device – it always takes you back to the main screen. The other button, meanwhile, is the communication button, which is an interesting departure for Apple – a dedicated button on a personal device for a specific set of functions. There’s lots of swiping involved too, whether to get to Glances, to swipe between Glances, to navigate on the main apps screen, to select emoji and so on and so forth. Then the digital crown is also used for scrolling and zooming, in some cases with the digital crown offering vertical scrolling and swiping on the screen controlling horizontal scrolling. I’m not going to go into any more detail just because I think it’s worth waiting for a thorough review.

I’ll no doubt write more about all of this going forward, and I’ll have at least one other piece on Techpinions later this week (Thursday is my regular day for my public column), but would love to hear your thoughts in the comments, as always.

Apple, Earnings, iPad, iPhone, Mac, Q3 2014

Thoughts on Apple Q3 2014 earnings

October 20, 2014 Jan Dawson

Note for new readers: I stick to calendar quarters in analyzing earnings, because it makes cross-company comparisons easier. As such, all references to “Q3 2014” refer to the quarter ending September 2014, not Apple’s fiscal Q3 2014. Once again, this post is part of a series on major tech companies’ earnings (this is the second for the current round of earnings; analysis of Q1 2014 earnings can be found here, and for Q2 2014 can be found here).

iPad plus Mac is the number to watch

Lots of attention was paid by both Apple and commentators this quarter to both the iPad and Mac numbers, but the key is increasingly to look at the combined results of these two segments, both in unit shipment and revenue terms. For a while there, as the Mac started to shrink, iPad growth offset that decline, but the two have now switched places. Nonetheless, year on year, the two combined continue to operate within a very narrow range:

ASPs continue to tell an interesting story

Given the near demise of the iPod, and the declining average selling price (ASP) of the iPad, the iPhone and Mac are actually the best two products for Apple to be selling. Interestingly, they’re also the two products which are most likely to experience substitutional effects with the iPad. Note the ASP trends in the chart below, which shows trailing 4-quarter ASPs to smooth the quarter-to-quarter fluctuations:

The iPhone ASP continues to hold up remarkably well, staying within $10 of $600 for the last five quarters, though rather lower than the $640 or so it regularly hit earlier. With the launch of the iPhone 6 Plus it’s likely that ASPs will trend somewhat higher over the next couple of quarters, and this quarter’s ASP was $42 higher than last quarter’s, partly for that reason.

Who’s buying iPads?

I’ve done some analysis previously on iPad replacement cycles and theorized that we’re due for faster sales over the next few quarters as the many iPads sold 2-4 years ago become due for upgrades. I thought I’d revisit some of those numbers in the context of what we heard today to answer the question of who’s buying iPads. Tim Cook has now given several data points as to the percentage of iPad buyers who were first time buyers, and it’s interesting to look at what that data signifies. Using that data, I’ve put together estimates of the breakdown between new buyers and upgrade buyers of iPads, as shown below:

If these numbers are correct, they appear to show two trends:

The number of people buying upgrades to existing iPads is rising slowly in a cyclical pattern, as would be expected with a growing installed base (I’ll come back to this below)
The number of people buying new iPads has been extremely cyclical too, but appears to have slowed somewhat over recent quarters. Though the Q4 peak last year was higher than the one the year before, every quarter since has been off the year-earlier quarter by some margin. Though Tim Cook rightly points out that the market isn’t saturated, the number of new buyers does seem to be falling somewhat.

Let’s look at that upgrade number in the context of the installed base (the caveat here is that we’re working with two sets of estimated data now). My guess is that the percentage of the existing iPad base that upgrades in any given quarter is around 3%, with a higher number in Q4, both because it’s a big buying quarter anyway and because as a result it’s the anniversary of many earlier purchases. I think the rate in those quarters likely spikes to around 4.5%. On that basis, as the base continues to grow by a few million every quarter, if the upgrade rate holds steady, the number of iPads sold to existing owners will continue to grow steadily too. The big question then becomes whether Apple can turn around the new buyers number with the new iPads it launched last week, and the lower prices on older iPads. I suspect it will and we’ll see a really big fourth quarter, perhaps the first in a year that’s higher than the year-ago quarter.

Apple Watch buried among Other Products

One of the more interesting tidbits on the earnings call was not a financial data point in its own right, but an indicator of future reporting changes. Namely, that the Apple Watch will be reported under Other Products along with both the existing Accessories business (including Beats) and the iPod business, which was formerly reported separately but is becoming so small as to be no longer worthwhile reporting in its own right. It’s worth looking at the history of other Apple products here for a precedent:

The iPod launched in October 2001, and in the next earnings release Apple reported the number of shipments, but didn’t break the product out in its Data Summary with its Mac shipment and revenue data until two years after launch, in October 2003. The company continued to provide occasional iPod shipment numbers in the interim, however.
The iPhone and iPad both received immediate status as segments in their own right immediately after launch, with a full revenue and shipment breakdown (though in both cases muddied by the fact that other related revenue was lumped in with device sales revenue for a time).

What does it signify that Apple won’t report Apple Watch shipments and revenue in full detail from the outset? I think two things:

Apple is exhibiting caution ahead of what is in some ways its most unpredictable new product category in many years, since the iPod. Apple as a company has many times more customers today than it did then, but the Apple Watch is as big a departure from its current product line as the iPod was in its time, and it’s inherently difficult to predict how many it will sell. As such, the lack of reporting in the short term may reflect an abundance of caution about breaking out a nascent category.
Apple’s leadership alluded to this on the earnings call, but the Apple Watch will also have a far more diverse set of price points than any of its other products, ranging from $349 to several thousand dollars, and as such the average selling price will be a huge clue as to which models are selling in a way that it has never been for the iPhone, iPad or even the Mac. As such, Apple is keeping this commercially sensitive data out of competitors’ hands, at least for the time being.

However, all that said, within two years of the launch of the iPod Apple was providing a detailed breakout of both shipments and revenues, and I’d very much expect that if the Apple Watch sells at all well we’ll get (a) ad-hoc reporting of key metrics such as shipments right from the start as with the iPod and (b) a full breakout at such a time as the Apple Watch becomes significant enough as a revenue generator to warrant its own segment. With an ASP that’s likely to be in the same ballpark as the iPad or higher, it will only have to sell a few million to become material to Apple’s earnings overall, and I would expect that to happen within the first few quarters. It will be hard for Apple to keep these numbers buried out of sight for very long.

I’ll likely do another post or two this week as I continue digging through the numbers, so that’s it for now.