Tech Brew Ride Home - Thu. 01/03 - Apple-ocalypse Now?

Episode Date: January 3, 2019

Apple lowers its guidance and the tech world freaks out, the company that you can outsource your censorship friendly China content to, a more durable e-scooter is coming and what to expect from CES. Sponsor: Mealime.com (iOS App) (Android App) Links: Letter from Tim Cook to Apple investors  Censoring China’s Internet, for Stability and Profit (NYTimes) Segway unveils a more durable electric scooter and autonomous delivery bot (TechCrunch) What to expect from CES 2019 (TechCrunch) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Thursday, January 3rd, 2019. I'm Brian McCullough today. Yes, Apple lowers its guidance and the tech world freaks out.

We learn about the company you can outsource your censorship-friendly China content to. There's a more durable e-scooter coming and what to expect from CES, which is definitely also coming. Here's what you miss today in the world of tech. Well, just as I hit publish on yesterday's episode, the news broke that Apple's shares were being halted pending news, and I'm sure you've heard by now. The news was that Apple was revising its earnings guidance for fiscal Q1 2019 downwards. This is the first time that Apple has had to revise its earnings estimates since 2002. Apple now expects $84 billion in revenue this quarter down from its estimated range of $89 to $93 billion.

So that's pretty big news right there, full stop. Apple is usually super cautious about its guidance so that it can reliably overperform its own estimates. But then in the actual statement about how it sees business going forward, Apple had to own up to the fact that it was straight up surprised itself by the weakness it was seeing. Here to me is the key graph, quote, while we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China.

In fact, most of our revenue shortfall to our guidance and over 100% of our year-over-year worldwide revenue decline occurred in greater China across iPhone, Mac, and iPad, end quote. Okay, so let's start there. We have been talking about the evolving trade war between the U.S. and China and how it could have a significant blowback for tech companies, But the assumption all along was that this blowback would be in the form of probably supply chain disruptions.

But Apple here is saying that it is seeing softness on the consumer side. To put it bluntly, Apple is having a hard time selling iPhones in China. And Apple made a big bet on China as a key growth area, so that is a problem. Again, here is Tim Cook's actual statement, quote, lower than anticipated iPhone revenue primarily in Greater China accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline. In fact, categories outside of iPhone, services, Mac, iPad, wearables, home accessories combined to grow almost 19% year-over-year. But then Tim had this next bit to say, quote, while greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline in some developed markets, iPhone upgrades also were not as strong as we thought they would be, end quote.

So hidden in here is the suggestion that sales are sluggish not just in China, but in other, or should I say, some developed markets. Now, in this statement and subsequent statements, Tim Cook has mentioned that that iPhone battery replacement, program for older phones was probably a big reason why people didn't upgrade their devices like Apple had hoped they would. Now, of course, there has been a metric ton of hot takes on this, as you can imagine, and a lot of the more Sky is falling takes have generally taken this tack. Really, the battery replacement program was popular enough to lead to a significant hit in iPhone sales? We knew that Apple had reached peak smartphone, of course. We knew Apple would run up against the the law of large numbers eventually.

So maybe this battery replacement thing is just a convenient excuse for Apple to use. Maybe it's also convenient at this point in time to use China and trade wars as a convenient excuse. But might that also be a clever obfuscation of the fact that people just generally don't feel the need to upgrade their phones as often anymore? Even four-year-old smartphones can still feel good enough. and there's that little thing of the increase in iPhone prices recently. There's the little matter of carriers no longer subsidizing the cost of an iPhone purchase anymore.

In other words, the skeptics are saying, Apple's ability to grow iPhone sales have finally hit a wall for all of the various other excuses that Tim Cook might be trotting out. The natural upgrade cycle for smartphones really is three to four years now, not one or two. Heck, maybe all those concerns about the muddled product lineup and disappointing iPhone 10R sales really have come home to roost. In other words, is this the Apple oculips that we knew had to come someday? Is it finally, finally here?

Now, no one, even the biggest doom and gloomnesayers are saying that Apple, as a company is in trouble, is about to go out of business, is doomed, anything like that. Even at this revised downward guidance, Apple would still be on track, I think, to report their second biggest quarter of all time. But really, just focusing on this being an Apple concern troll story is sort of missing the forest for the trees here. Although there is an immediate impact just in the fact that Apple, which opened down 9% this morning, has now been surpassed by Alphabet in terms of market cap. Just months ago, Apple was the most valuable company in the world, the first trillion dollar market cap company. As I'm writing this, Apple is now only the fourth largest tech company in the world behind Amazon, Microsoft, and now Alphabet.

But more importantly, at the time of this writing, the entire stock market is down big time. And probably the reason for that is Apple. And that's the biggest picture here. There's a reason the Wall Street people I follow on Twitter were busy clutching their pearls all night long. There's a reason prominent venture capitalists last night were urging any startups out there to close their funding rounds while they still can. We're almost precisely 10 years into this current bull market. which is a long time, a long time historically between recessions by any historical measure. And this is a bull market that has 100% been led by tech. In fact, it's been a market where tech

became triumphant, became master of the universe. We've been watching for months now as tech has swooned. And again, the old saw is that the leaders in a bull market are often the first to signal the arrival of the bear. And here you have the biggest tech company in the world, biggest business success story of the last 20 years, the most prominent brand, company, stock, what have you, of the 21st century, the company that stumbled upon the greatest business model and product, maybe of all time, consumer products, certainly, the biggest money-making machine we've maybe ever seen. You've basically suddenly got that company saying they might have hit the wall. This is not good. And maybe it is just the Chinese market slowing, but that's not good either.

Maybe it is trade concerns, but that's not good. Look, nothing I say on this show is investing advice, and I'm certainly not at all qualified to prognosticate on the stock market or the broader economy. For all I know by the time you hear these words, the Dow and NASDAQ and even Apple's stock will have roared back into the green, but recessions are inevitable over a long enough time frame. And they don't usually come because of one big earth-shattering event

like a bear stern's going under or something like that. More often, recessions come as the result of a thousand little things, death by a thousand cuts, as it were. And sometimes recessions come just because we all collectively decide that a recession is coming. It really is a case of believing it to be true can make it come true. Just from our narrow tech industry perspective, it is not good that Apple, the driver of so much of tech's success for the modern era is looking a bit queasy suddenly. But it's also not good for the overall global economy if a prominent leader in the industry that has absolutely driven the recent market cycle is reporting turbulence because it's business model. Again, perhaps the greatest business we've ever seen developed,

putting supercomputers in every person's pocket and earning fat margins to do so. It's not good news if that very business and business model that has been ridden to such success for 15 years now is suddenly looking weak. I've spoken recently about tech companies having to learn new tricks. It's looking like Apple is going to have to learn a new trick beyond just selling more iPhones, and it's going to have to learn it pretty quickly. We know that Google has flirted with the idea of creating a censorship-friendly search product for the Chinese market. It's unclear if that ever see the light of day, but it is clear now that that is very much something that Google has been cooking up internally. Google tends to do things itself in house. But it turns out, if you want

to crack the Chinese market without running afoul of the Chinese government's censorship regime, there's actually a company that you can outsource that to. The New York Times has a profile up of Beijing-based Beyond Soft, which runs what the Times calls censorship factories for media companies eager to please China's sensors. BeyondSoft has more than 4,000 staff whose only job is to monitor online media. Yang Zhao, a BeyondSoft executive, proudly told the times that BeyondSoft likes to think of itself

as the Foxcon of the data industry. Quote, BeyondSoft software trawls through webpages and marks potentially offensive words in different colors. If a page is full of color-coded words, it usually requires a closer look, according to the executives. If there are only one or two, it's pretty safe to let it pass.

According to BeyondSoft's website, its content monitoring service called Rainbow Shield has compiled over 100,000 basic, sensitive words, and over 3 million derivative words. Politically sensitive words make up one-third of the total, followed by words related to pornography, prostitution, gambling, and knives, end quote. Interestingly, the Times article says that,

obviously, Beyondsoft is investigating ways, that it can use AI to take over this sort of work. They're investing in machine learning models and the like. But at least so far, humans just are better at this sort of thing than the bots are. Quoting Li Shangji, one of the professional sensors, quote, The AI machines are intelligent, but they aren't as clever as human brains. They miss a lot of things when reviewing content, end quote. So note to self, at least for the foreseeable future,

if you want a robot-proof career, consider going into the internet censorship industry. We spoke recently about how one of the big problems for the e-scooter players is durability. The whole business model of e-scooters as a service is predicated on getting enough rides out of a given scooter to earn back the purchase price and hopefully clear a margin. But the problem is the scooters thus far

have been breaking down sooner than people would like. If someone could simply come along and engineer a more durable, longer-lasting scooter, that is where the fat profits in e-mobility will come from. Well, kicking off the Consumer Electronics Show, today Segway 9Bot unveiled a new e-scooter called the Model Max. Model Max was designed taking into consideration complex shared usage scenarios, consumer overuse of vehicles,

operation models, and maintenance costs, Segway wrote in a press release. At the same time, Segway 9But is also more, more open to accept the customized needs of various operators to meet the different needs of users and customers in each market, end quote. No further details about the new specifications of this new scooter were released, but the image that was released along with the announcement shows a scooter with a bit more heft to it. Looks more like an off-road style machine than a light and tiny sidewalk toy. More specifics are supposedly coming next week. Oh, and Segway also

unveiled what it's calling the Lumo delivery bot, an autonomous delivery vehicle. It looks like a rolling filing cabinet with actual drawers that slide open when unlocked via smart device. So maybe this is how I'm finally going to get my autonomous burrito delivery. Having mentioned that, yes, CES kicks off properly next week. It runs from January 8th through January 11th. If you've never been, you should definitely go to CES at least once in your life. It's quite a trip the first time, though repeated attendance somehow morphs that into quite an ordeal sooner than you would think. The golden era for CES was right after the iPhone and iPad debuted those years when mobile just exploded into a dizzying array of consumer devices. When you would go to CES, you felt like you were seeing not just entire product lines, but entire industries debuting right before your eyes.

I can remember getting my first hands-on with consumer and commercial-grade drones at CES. There's also a lot of crap, too. God, the amount of 3D TVs I saw. Remember with 3D TVs we're supposed to be a thing? Someone's probably still going to try to flog those this year, I guess. Anyway, at TechCrunch, Brian Heater has a useful and timely rundown of what he expects to be the big trends at CES this year. as we've said before, the big narrative of the year for tech is going to be the rollout of 5G.

So expect a lot of 5G ready handsets to debut next week, as well as hardware companies rolling out a lot of 5G components. But Heeter says, think beyond just mobile. The whole promise of 5G is that the whole world is going to be connected. The internet will suddenly just be everywhere in the ether. So Heater says to expect everything from enterprise products that take advantage of 5G to health monitoring wearables to, and this has been the case for a while now, but expect a continued cascade of smart home devices, but now not just tethered to Wi-Fi alone. Another promise of the rollout of 5G is what it can do for autonomous vehicles, for smart cars. Automobile tech didn't used to have a big presence at CES, but that has changed rapidly. over the last couple years.

So next week, expect demos of more EV and self-driving technologies as well as augmented reality, like heads-up displays and whatnot, maybe even more of those delivery robots we were just talking about. Speaking of, the AR VR-VR push has waned just a bit from what it was only a few years ago, but there are still plenty of people plugging away in the space.

Quote, AR's immediate future is two-pronged, Heater says. Most developers are focused on leveraging existing devices like smartphones and tablets using AR kit and AR core, but a number of headset slash glasses have already begun to pop up on the periphery. Expect plenty of these to be on display at the show as startups attempt to convince us that it's an experience we need to bring directly

to our collective faces, end quote. And as for the TVs, the wall after wall, display after display of TVs, quoting Heater again, another year, another K, this year 8K will very much be the thing. It's like 4K, but with more Ks. Is it a gimmick?

Kind of. Is it cool? Sure. Mostly, however, it's the latest reason to get you to upgrade that three-year-old TV that cost you three months rent. Companies have been showing off 8K sets for half a decade now. This is the year manufacturers will really get serious about the technology, though the same probably can't be said for content, end quote. Ah, yes, this is how we'll see it.

it. 8K 3D televisions, anybody? You know that old saw about how long into the new year you're still writing the old year on your checks? Well, I am legit having that sort of an issue right now. The title of this word document that I'm reading from is Thursday, January 3rd, 2018. That's how I wrote it this morning because I wasn't thinking. Now, I'm pretty sure that I said Thursday, January 3rd, 2019 at the beginning of this show. but I feel like it's inevitable that one of these days I'm going to slip and say 2018. So get ready, eagle-eared listeners, to let me have it on Twitter whenever I do, screw up.

Talk to you tomorrow.