It’s been a rough 10 months for Apple AAPL -0.63% since the stock touched $700 and the iPhone 5 was released last September. Slowing growth, a lack of new products outside of a smaller iPad, and a relentless technology press have more or less created the impression the company is yesterday’s news. AfterMicrosoft MSFT -0.69%‘s disappointing earnings results last week highlighted the software giant’s troubles transitioning to a mobile world, surely Apple will join its old rival in the tech company dead pool when it reports later today. Oh, and it’s going to let everyone know next quarter won’t be much better. That’s the conventional wisdom anyway.
The source of Apple’s woes, according to the multitude of experts, is some combination of CEO Tim Cook’s failure to effectively replace Steve Jobs, a lost ability to innovate, or something to do with the admittedly poor rollout of Apple’s Maps product with the new iPhone. In the short run, though, the company has faced more tangible execution and product-cycle issues rather than ethereal “innovation” problems. And many of those seem to be clearing. Consider:
The iPhone is too expensive, but still very popular. Apple sells iPhones to carriers for an average price of $641. That’s true even though nearly half of them are older iPhone 4 and 4S models, according to data from Consumer Intelligence Research Partners. (Their survey is U.S. only; it’s likely that the total is even more skewed toward older models in at least some other countries.) In Russia, these high prices recently led the three largest carriers to drop the iPhone entirely. Clearly, Apple has some problems, which is why nearly everyone expects a lower-priced model with a plastic-shell from the company this September.
In the meantime, though, Verizon activated 3.8 million iPhones in the quarter that just ended, an increase of 41 percent over last year. Verizon has historically accounted for about 11% of Apple’s iPhone activations, suggesting as many as 34 million iPhones were sold in the quarter. The consensus forecast is looking for only 27 million. While extrapolating from one data point is fraught with risk, any upside here in a quarter where nearly every tech bellwether has been disappointing Wall Street would be especially noteworthy for Apple.
Apple seems poised to compete for more customers. Never mind the ridiculous report that Apple is delaying the new iPhone to switch the screen size. Figure on a new model in September that strongly resembles the current iPhone 5, with some upgraded features and the new iOS 7 software on board. The more intriguing rumor this week was that Apple was “testing” larger screen sizes for the iPhone (and iPad), presumably for a follow-on model that could ship next year. While that’s not as soon as some (myself included) would like, it would address the problem that Apple currently has with market share: It currently has 0% of the market for phones over 4 inches, a fast-growing segment.
With the low-cost model coming out and a new premium iPhone 5S sharing many common internals like the Lightning Connector and 4G radio, it seems like Apple might still wind up with a three-phone lineup, but one that is better priced and better able to compete for more customers globally than one that relies on 1-year and 2-year old phones — even though the current lineup does a pretty solid job. Contrary to the wishes of some analysts, Apple will discuss none of this on the earnings call today, although Cook has given some subtle hints before so expect his remarks to be scrutinized.
Maps just got an injection of talent and functionality. Apple has been improving Maps since release and at least anecdotally, it works well enough for most people most of the time now. I have been running a test where I use both Apple and Google GOOG -0.5%‘s apps in the car (nearly) simultaneously and I’d say they’re similar in the San Francisco Bay Area. But Apple lacks a lot of niceties that Google offers in terms of location information and transit data. It used a tiny portion of its giant cash balance to buy some help last week in the form of Hopstop and Locationary. The former makes terrific apps that help people find things in cities, including transit info, which has been missing since Apple and Google parted ways on maps. The latter helps ensure that businesses and other points of interest are where they’re supposed to be on maps and that they still exist. Anyone directed somewhere that’s gone or not where it’s supposed to be knows how important accurate and up-to-date information is. That’s what Locationary is all about.
Apple should never have rolled out Maps in the state it was in last September. But circumstances with the Google contract made for a messy divorce and less than a year later, the recovery is well underway.
The new products are finally coming. Since the iPad Mini, Apple’s product drought has been a long one. The recent introduction of Macbook Airs identical in appearance to the previous ones (albeit with incredible battery life thanks to new chips from Intel) hasn’t done much for the perception that Apple hasn’t done much new in a while. That doesn’t change immediately, but it will change. A new 9.7-inch iPad comes this fall, with a smaller form factor and quite possibly better battery life. It’s likely the iPad Mini will also see a redesign to make it even more portable, though rumors suggest a higher-resolution “Retina” screen will wait till next year. The excuses around why aren’t good ones; but once the Retina Mini is real, the problem is gone.
The high-end Mac Pro that designers have been wanting now for several years will finally arrive later this year and while it’s a low volume product, it should add another billion-plus in revenues. Macbook Pro and iMac will also see updates to the newer Intel lines, the former benefiting from the battery improvements.
Together all this represents a lot of possibilities of resurgence, very little of which will be reflected in today’s earnings report or perhaps even the next one. But Apple has been held back by the perception that it’s “Cook-ed.” Even a bit of good news might begin to change that view. We’ll know if that perception is changing soon enough.
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