Apple CEO Tim Cook faces his toughest challenge yet: how to take the company forward when its top product, the iPhone, has lost lustre with consumers.
san francisco — Apple’s Tim Cook confirmed that the latest iPhones, his flagship product, are not selling up to expectations. The news exposes his toughest challenge since taking over as chief executive officer from the legendary Steve Jobs: how to take the company forward when its top product has lost lustre with consumers.
Cook has dealt with a series of controversies during his more than seven years in the role. He has calmly navigated the politics of President Donald Trump’s administration, and so far has avoided tariffs on the company’s key devices as the US-China trade war widens.
Now comes the disclosure in a letter to investors that Apple sold fewer than anticipated new iPhones, and would cut its holiday quarter sales outlook by as much as $9 billion. Cook was to address Apple staff about the situation on Thursday at an all-hands meeting where he will take questions from workers, according to a person familiar with the matter.
“This is probably one of the hardest things Tim Cook has had to do as CEO, putting out that letter,” said Michael Gartenberg, a former Apple marketing executive who has followed the company for decades. Daniel Ives, an analyst at Wedbush Securities, said “this is going to be the most defining moment of Cook’s career.”
The stock price has gained 194 per cent since Cook took the top job, share buybacks have been strong and annual revenue has more than doubled. The disclosure of lowerthan-anticipated iPhone sales due to an economic slowdown in China and fewer upgrades to new models by existing users calls into question Apple’s strategy of being so reliant on the device. The company’s shares fell as much as 8.5 per cent in extended trading. Apple’s US and Asia suppliers also declined.
“It’s a two-fold challenge: they need to prove that this is a blip, not a trend,” Gartenberg said. “We’ll see a lot of efforts from Apple from marketing and PR to show that. For Tim, the other part is: how does Apple juice iPhone sales?”
Gartenberg said Apple may try to highlight its other products and reduce the attention on the iPhone “since the next major model isn’t expected until September. We’ll see Apple try to position the iPhone as more affordable.”
Wedbush’s Ives said Cook has two choices: “Cut prices and figure out China and realise recent iPhone pricing was a mistake or they can have a sense of hubris and continue the current strategy.” He expects Cook will steer Apple toward the former.
Apple needs to look beyond its core product. Smartphone sales have stagnated and are virtually unchanged worldwide the past two years. Wholly new categories like self-driving car technology and augmented reality glasses still appear years away, while a major new iPhone for fifth-generation networks isn’t expected until 2020.
For now, it appears Apple’s iPhone sales problem is China-focused. According to analyst Shannon Cross of Cross Research, as long as the problem doesn’t spread to other regions, Cook can weather the storm. “It’s going to rely on understanding the supply chains, how to make sure costs are efficient and effective,” which are Cook’s strengths, Cross said.
Cook could also use this as an opportunity to reassess the company’s reluctance to make industry-shattering acquisitions. His biggest deal to date was for Beats Electronics and Beats Music, which sold for a combined $3 billion in 2014. —