Upgrade - 140: Disappointed Dad Tim Cook

Episode Date: May 8, 2017

Apple’s latest financial statements give Jason and Myke a jumping-off point for analyzing where Apple’s going with the iPad and iPhone, the massive growth in Apple’s services business, and the company’s problems in China and possibilities in India.

from relay fm this is upgrade episode 140 today's show is brought to you by encapsular mac wallen and blue apron my name is mike hurley and i am joined by mr jason snell just another sunny monday morning here in california mike how are you good nobody cares about the weather remember that jason today chris wants to know what was the first piece of writing that you were paid for um this is a very difficult question to answer okay so i wrote i'll go through it very quickly. I wrote a computer program in Basic that was a blackjack game that a computer magazine paid me $20 for. Ah, because people used to print the code for games, right, in the magazines, and then you could type them into your computer. Yes, and they never used it, but apparently they thought it might be an example or something.

I don't really actually know why they paid me for a dumb basic program, but they did. So that was the first thing I made that I wrote technically that I got paid for. I won my high school short story contest and got $100 for that. So I got paid for something I wrote. In college, when you wrote articles for the student newspaper, you got paid. It was very little, but I wrote a lot of articles. So I did get paid for that as well as a stipend for being an editor. So that was my job basically in college. My college job was the college newspaper and I did get paid some small amount of money for that. And the way you got paid was by length of article. And even more than that, you're thinking, oh, like a word count or something like that. No, by the inch.

Literally, we had a ruler and you would go through the articles that you had published and see how long they were in inches. Column inches. Is that where that phrase comes from? Yeah, that's it. And then I believe it was something like the first X number of inches. It that where that phrase comes from? my local newspaper, the summer after I graduated, you know, they were paying me to write articles on as the intern. And, and then when I was an intern at Mac user, and I left my first, I guess, official freelance work was a piece about chart making charts in Excel, there was a little how to article for Mac user that I wrote in the little

period, the three-month period, where I was no longer an intern and had not yet been hired as an editor. So any of those would probably count. I would like to thank Chris for his submission with hashtag SnellTalk to open episode 140. If you would like, Jason, to answer a question about literally anything, and I have lots of literally anything questions in our document right now, just tweet with the hashtag Snell Talk and I will get them. But right now we must begin the podcast follow-up segment of this show. Follow-up was, of course, invented by John Siracusa. He is at Siracusa on Twitter. You should thank him for the invention of follow-up was of course invented by John Siracusa. He is at Siracusa

on Twitter. You should thank him for the invention of follow-up. We'd like to begin with affiliate pricing. Remember we were talking about affiliate pricing? I think it was a couple of weeks ago. Maybe it was last week. Who knows? Time is a constant. I don't remember a lot about last week anyway, so, you know, whatever.

Federico and John at Mac Stories came across the realization that uh we would you know we were talking about apple taking seven percent down to 2.5 percent for affiliate commissions well there is an itunes affiliate resources website which published an article about this and nobody saw it for like two or three days because apple don't do anything to promote it there's no extra email but it has been clarified now that the seven percent to 2.5 reduction of affiliate commissions is just on in app purchases so the standard price of seven percent for purchasing in a paid up front app still remains i want to um give a shout out to rick melina at mac gamer hq he's the one who he actually emailed

me about it and said that he talked to an itunes rep and got the details about this um and i like what he wrote up because he didn't write one of those things that is like i know blogs are saying this is true but bloggers are really stupid instead he's like well of course we would expect this it's the the key line in his story is, the message is crystal clear, yet it seems that wasn't exactly what Apple meant. Like, Apple's statement was very clear and wrong, basically. Yeah, Rick was the first person to kind of note

that I think, well, that I'd seen, that commissions wasn't changing what was being paid out. And they emailed the support, and the support gave a response, but it wasn't like official like this is what it is right it was just like people were like well is this the case this is not the case no one was answering anything and then kind of late on friday uh apple published this thing and still didn't tell anyone for like two days until it was just found on uh the linking blog or whatever, the iTunes affiliate blog that Apple apparently has.

So there you go. I don't understand why. People must see this, right? There was all these articles written and people talking about it for a week. And they clarify it, but don't tell anyone. Very peculiar. Very peculiar, indeed.

But it's good. It's good because and again like i said last time inside baseball most people don't care but what you do care about is that some of the things that you read some of the sites you visit are funded by affiliate links like that's a major source of funding or maybe a partial source of funding and that goes for things like mac stories it goes for sites like touch arcade and app shopper and so uh this is good for them because it means that the app referral itself the core app referral part hasn't changed last week matthias and ask upgrade was asking if we could recommend the TimeZone Conversion application. I mentioned the widget that I used, Clock, K-L-O-K. But it's not an application, and the widget hasn't been updated in a long time.

So since the last episode, an application called Zones was updated. And again, to Mac Stories, there's a review that they put up there. Zones is a really nice application. I'll put a link to that in the show notes as well. It has a nice interface. I was playing around with it for converting time, but the widget is static, so you can't do any conversion in the widget,

which is a shame for me, because what I like about Clock is you can actually do the time conversion in the widget, but if what you're looking for is an application that can have many, many, many, many clocks, and you can do a lot more advanced stuff in the app, I think Zones might be the one for you. This app's been around for quite a while, and I've used it a bunch in the past. So it just, literally within the, between this episode and the last episode, it got a nice upgrade and a user interface refresh to version 2.0. So, Matthias, that

may be the one to check out. And as I said, I'll put Federico's review in our show notes so you can go and read it if you want to fully make up your mind before purchasing. So on the Mac, I just used the... You can use the World Clock widget on the Mac.

Although it's not great, but it does exist. I use something on the Mac called clocks. In general. How is that spelled? Is that like Q-U-L-O-X? Quite literally just the word clocks. Okay. In general, I find time zone conversion applications to be very uh very appropriately and

boringly named um but that's that's a pretty good one actually uh i like that one on the mac um okay so you can check that one out too if you want jason marvel have joined comiXology unlimited we spoke about comiXology unlimited a back, which is their kind of subscription service. It's like Netflix for comic books. And when it was launched, it was mostly independent publishers. And what was the big publisher that was in Comicsology Unlimited? Was it Image? Yeah. I mean, there are a lot in there, including Image. So for people, there's been some confusion about this, and I'm trying not to sound cranky about it because I have some opinions about these services and that they're very different from each other. And then there's a lot of conflation going on, and it makes me kind of cranky. So just to be clear, so Marvel Unlimited is a service that Marvel sells monthly or annual where you get access to like 17,000 older comics.

monthly or annual where you get access to like 17 000 old older comics and it means very old comics as well as things that were published six months ago because they basically publish out on on delay all of the stuff that they put that they sell to marvel unlimited it shows up six months later um it's a little bit like waiting for a new season of a show to show up on netflix there's a delay of a tv show a broadcast show and then it shows up because they want to sell it first and then they'll make it available for subscribers so um that's marvel unlimited and that's just marvel comics and it's like 17 000 of them comixology unlimited same name right is a very different very different service it's cheaper it's five dollars a month. It is smaller.

I think it's like 10,000 comics or maybe even less. It comes from multiple publishers. And the way it, a lot of times what it is, is it'll be the first trade or the first 12 issues of various comics. So it allows you to try new comic series that you might not otherwise want to pay to try, which is great. And that is the purpose of the service.

What it's not is what Marvel Unlimited is, which is sort of like you can just keep on pursuing dozens and dozens and hundreds of issues of various storylines across it. That's not what Comixology Unlimited is for. It's for trying some new stuff out, the beginnings of these storylines. And quite honestly, from a publisher's standpoint, the goal here is to get you hooked on the first four issues of a comic so you'll buy the rest. And Comixology, as a middleman, and they're Amazon, basically, Amazon owns Comixology, they want to sell you comics too. amazon owns owns comiXology they want to sell you comics too so the goal of comiXology unlimited is for a low fee you get to try a bunch of stuff with the hope that when you find stuff you like you will then start buying it um and that's a little bit different so marvel is now a part of that which means that there are some select first you know first groups blobs of issues of various Marvel comics that they will also be

putting on there. Also, I have to say, Comixology Unlimited has a lot of on and off where they'll bring things on for a month or two or three, and then they go away, which means that like some TV shows on Netflix and Amazon, if you're in the midst of reading them and they get pulled, you're out of luck. You got to go buy them because they will go away. It's not a Marvel Unlimited. Once they're on the service, that's it. They're there forever, basically, because they're building a huge catalog. So they're just very different services. So if you're somebody who is curious about comics, but doesn't know where to start and does not want to start buying issues, Comixology Un unlimited could actually be a useful service but be aware that the their purpose is to get you into things so that you'll start buying them that's just that's just how it

is it's they're going to give you the first 20 issues of something in the first taste is free jason first well first and this this is one of the things that kind of hurts me a little bit first taste is five dollars a month but it's you know but it's but it's as much as you want for that for that to get inside the door so anyway it's good the real question is what happened to dc comics which is the only major comics publisher now not making its comics available to a digital subscription service so far as i can tell because almost everybody else is in comiXology unlimited and then of course marvel also has its own product and And DC Comics, nowhere to be seen. So if you want to buy DC Comics, you just got to buy them a la carte. That's just how you got to do it. But anyway,

that's the digital comics. Somebody was asking me, oh, actually, you know, our friend Gray was asking me what I use to read comics these days. And my answer was Comixology, Marvel Unlimited, and Chunky Comic Reader for all of the non-DRM stuff I have. Chunky Comic Reader, very nice iOS app. And I do all my reading on my iPad Pro. Chunky Comic Reader. Chunky Comic Reader.

Yeah, it's very good. I used this when the iPad first came out because i was like this is going to be great for comics this app has been around for a very very very long time awesome that's real cool uh last week we're talking about stickers and what to do if you want to remove your stickers and you mentioned that there was something that you couldn't think of the name of that you would use to remove stickers turns out via upgrading jason that it's called goo gone goo gone i mean i'm sure there are other other things out there but this is what i was thinking of it's goo gone and it's a it's like a spray bottle like a like a

like a you know a household cleaner kind of thing but what it's designed for is to dissolve the the the adhesive that stickers use so if you you got to still use some elbow grease but if you use elbow grease and something like googan you can get um you can get that laptop back looking like it never had a sticker on it and finally for follow-up this week uh Recode are reporting that they've heard from Amazon employees that an Amazon Prime video app will show up on Apple TV in the third quarter of this year. Exactly. Sorry, that was the herald of Amazon arriving in the Apple compound.

Please all rise for Lord Amazon. Sir, Lord Amazon approaches. something's changed right i mean this this hasn't happened just like it took this long right like it's like oh we've really been trying we've been toiling away in the app development mind to create this has not been what's happened something's changed, my thinking on this is, does Amazon know something that we don't, right? Is there something coming? I don't think it's that.

I was looking at the people who cover this closely, the TV deals and the Apple TV deals, including Peter Kafka, who I think wrote that story, right? And Jason Del Rey, both. It sounds to me like, first first off it sounds like on apple tv the 30 for your subscription service thing is not there it's like negotiable this is this is what which i didn't realize but apparently has been known for a little while

it's like netflix is not giving Apple 30%, right? It is on the Apple TV, those signups, it's completely negotiable. So it sounds like maybe there was a lot, it sounds like behind the scenes, there really was a negotiation happening between Apple and Amazon about how much Amazon was willing to pass to Apple to be on their platform versus not. And the question is is did they come to

a resolution or did Amazon just decide they're going to do what they do on iOS which is not let you sign up but my guess though is that they came to a resolution that that Apple thinks is beneficial enough to get Amazon on their platform and get the Apple TV and Amazon's storefront too, because remember, they won't sell a streamer box that doesn't have Amazon video on it, and also works for Amazon in terms of the amount of percentage they're willing to give up. My memory says that when we were talking about the subscription pricing changes before WWDC last year,

I remember seeing stuff at that point which was saying that HBO got a 15% deal or whatever. This was a thing because it was like, oh, well, this has started to happen. That was the beginning of this happening. But my thing about this is, let's say that that is the case, right? And they got a different deal.

Why is it taken till now? That's what I'm interested in. I wonder if either apple or amazon one of those two companies has broke and there's a reason but we don't know what it is yet right like one of them has given in on what the other side wanted and i wonder if it's like apple have maybe a new apple tv that they really want amazon to be on that. Yeah. Or Amazon have a really big show that they're working on and they want everyone to have it. You know,

this is, these are the two things I'm thinking about. Well, what I was thinking is it's also possible that the TV app hasn't gone as well. Yeah. As Apple had hoped. Yep.

And that maybe, maybe Apple thought that that would be a thing that would sweeten the deal would be to get Amazon to agree in exchange for what Apple would give them in the negotiations. That one of the things maybe Apple would get back is Amazon's participation in the TV app, right? Because that's a new-ish wrinkle. Not the TV app itself that came out last fall, but the fact that the TV app app momentum is so slow there's so little in there that maybe that was a a connection um yeah i do wonder like you said if if what's happening here is apple is looking at what its tv rollout update refresh is going to be this fall and is thinking we need to cut we need to make deals to have that be a good offering. And that Amazon's one they can take off the board, right?

Amazon, they can just go in and say, okay, we will do this. Can you do this? This is what we want. So they can put that in the win column when they're trying to build their list of what they need. Because they're either going to want to do their own service, or they're going to want to integrate with existing over-the-top services in the TV app. They're going to want to have a story there about where do you play compared to PlayStation View and Sling and list them all off. YouTube TV and DirecTV Now and now Hulu TV.

And so that's all going on. There's so much change happening in the tv world so it would be interesting to see uh what they would like to come out with in the fall and then see whether that was something that maybe motivated this but you know you'd make those you'd want to make those deals now right you you can't wait until august to make a deal about the product you're launching in september assuming you are, which I am assuming they will. I do think that the fact that it's Q3 might say something about refreshed Apple TV, because let's imagine they've just made this deal like two weeks ago. I don't imagine that Amazon have just now started working on this app. I'm sure that it's done. They've had it done for ages, right? Like in case anybody ever changed their mind yeah this not not a not a technical issue right it's a it's a just a deal issue joe steel in the chat room points out also

that amazon's got a lot of um 4k and uh hdr content for uh their programming and that if apple is trying to find if apple's going to do a you know uhd a 4k apple tv they're going to want to have content to point to there and there's like netflix and amazon and not a lot else so it would allow apple to bulk up its argument for why you would want to buy a 4k apple tv i have one of those 4k ultra hd compatible televisions me too and too. And I've seen a couple of things on it in that format. Like the BBC had like a test for one of the nature shows. My word, it looks so good. It looks so very good.

I'm excited for more services to be going to NetBandwork. And I think House of Cards is all shot in 4K, right? Yeah. So I'll be able to watch House of Cards in glorious 4K. That'll be nice. watch house of cards in glorious 4k that'll be nice all the all the marvel stuff is there's a lot of amazon and netflix stuff that they're doing in 4k now and i'm watching some of it but it's through my tv's kind of terrible player interface and i i would like to get one box that i can trust that i can show everything on the other

thing about 4k and apple which i think um we we haven't talked about much, but I want that 4K content on iTunes too, right? I mean, I feel like that has to be part of the story too. I want to be able to rent a movie and have it be in that or buy it and have it be in that format too. And we're not there yet. All right. This week's episode is brought to you by our friends over at Mack Walden. They make the most comfortable socks, shirts, underwear, undershirts, hoodies, and sweatpants that you're ever going to wear. Mack Walden is better than whatever you're wearing

right now. They're so confident of that statement that they have a no questions asked return policy. If for any reason you don't like your first pair of macworld and whatever it is you buy maybe you buy socks and you just think i don't like these socks you keep the socks and they'll refund you no questions asked because they are so confident that you will love those socks dear listener because they pair premium fabrics with their attention to detail all sold with a simple shopping experience macworld and delivers a new level of daily comfort straight to your door mac walden make undershirts that stay tucked socks that stay up and waistbands

that don't roll everything is made with premium cotton blended with natural fibers and their website is built to get you in and out as quickly as possible now last time jason you mentioned that you just take a delivery of the sweatpants that i love so dearly yes i stole your sweatpants no it's my own set and what do you think of said sweatpants the same of yours i'm wearing them now they're very nice i mean i'm enjoying them they're very they're they're they um they're very comfortable i could hear you looking down at them just to check i'm yeah i'm feeling them now and just it's they look casual which they are because they're sweatpants, but they feel really great.

That's one of the things about it is the material is this very light, soft material, which is really nice too. And it's got like a little secret pocket. It's got a couple of little secret pockets. It's got not just your little, little normal pockets where you put stuff, but it's got like a little zip pocket that you can put something and know that it's not going to fall out, which is pretty cool too. The Ace is the name of them.

The Ace. Yes. They Ace Pant. They're very nice. Do you see what I mean about the fact that they don't look like sweatpants? They don't have that, I feel, that traditional sweatpants look. I got them in the color, the nine iron color.

I agree. They could be mistaken for slacks. Yeah, and I like that. I like that, especially when I'm traveling in them. I feel like it just makes it look a bit better for me. You should go try those, I think, everybody out there, because they make great stuff. It performs well, it looks good.

Listeners of this show, they can get 20% off at macweldon.com That's M-A-C-K-W-E-L-D-O-N dot com when they use the code UPGRADE. So, dear listener, 20% off you can get with the code UPGRADE. Thank you so much to Mac Weldon for their support of this show and RelayFM. It is that time, the time of the quarter, as you said on download.

It is earnings season, and we're going to talk about Apple's earnings results. So, I'm going to start off by giving some top line results so people can just kind of get the numbers in case you are dying for those numbers. And you wrote a great piece on Macworld about the six key takeaways. So like distilling down everything that happened from the numbers and all of the analysis and all of the questions. And we're going to talk about those. So let me give somebody's top plan results, Jason. So Apple's revenue was reported at $52.9 billion,

which is up from $50.6 billion year on year. Profit is at $11 billion, up from $10.9 billion dollars which is up from 50.6 billion year on year profit is 11 billion up from 10.5 billion dollars so let me let me stop you with those two because i think i think what's interesting is to put those in perspective uh they're both pretty flat they're up a little bit not a lot year on year but what's interesting is so just 53 $53 billion in revenue. Just to be clear, Apple's big competitors, Google and Microsoft, their revenue was in the $20 range. So it's pretty dramatically different in revenue. And Apple's profit of $11 billion, again, I'll just point out that some of their competition is making $20 billion-ish in revenue. So something to keep in mind with Apple is the scale of the business. And what I'm not saying is anything about where it's going in terms of size, in terms of growth.

It's going up, it's going down. But we should keep in mind the scale of it. It's going up, it's going down, but we should keep in mind the scale of it, that the scale of Apple right now, these aren't a stock, you're looking at the future, not the present. And investors are more concerned about having the company grow so that their stock price grows than they are about the company being a reliable, profitable machine. That's kind of not what – that's already priced into the stock. But that can skew your understanding of it as a business. And so it's just it was a moment to remind our myself and to remind everybody that this is a this is a staggeringly large business that Apple has. It is it is not Google. Right. It's not even it's not Google. Google's not close to it microsoft's not close to it and i guess it's kind of two things right apple sells products at high prices and they sell boatloads of them right like i guess that's what makes these companies different right it's like not only are their products high prices you know higher price than maybe some of their competitors

but they also sell way more right like google's business is mostly advertising right that's their revenue and it's it's kind of a different ball game completely yeah and and 25 billion in revenue but they also sell way more, right? Like Google's business is mostly advertising, right? That's their revenue. And it's kind of a different ballgame completely. And $25 billion in revenue for Alphabet is pretty good, right? That's pretty good. That's pretty great. It's huge. It's a massive amount of money, but it's half.

Yeah, but it's half of Apple's. And Microsoft is $22 billion, and it's got a great, very thriving cloud business, and it's doing very well. But it's less than half of Apple's. It's twice Apple's profit. And I don't think that what you're saying here is that this makes Apple twice as good

as those companies, right? No, no, but it is a false equivalency to say, well, they're all pretty much the same. Their businesses are pretty much the same. Not only do their revenues come from very different places, we don't flatten them all together, right? They're like, they're tech companies.

And this is actually, I suspect, the source of a lot of the terrible analysis about tech companies that we read on blogs. This is the sort of thing that the macalope gets to write about. I suspect a lot of it is from people who really want to think, and this has always been the case for criticism of Apple by especially Wall Street types. But there are a lot of people who misunderstand Apple. And again, not saying Apple can't be criticized. I'm saying Apple's often criticized for the wrong things by people who fundamentally misunderstand Apple.

And I think this is one of the reasons is that everybody wants to put these companies in a box and say they're all the same. And like Google, Microsoft, Apple, Facebook, Amazon, their businesses have some overlaps, but largely have nothing in common. And then when you look at the size of the businesses, the sizes are different, which means their revenue is coming from very different places. And it's just something to keep in mind, that keep it all in perspective, that it's so easy. All of us as human beings want to simplify and make it like a and b are the same and let's compare them in detail and the fact is like the like the saying goes a is a ends up being an apple and b is an orange

and you really shouldn't compare them because they they have they are both fruits yes they are in that category but that's it. Like beyond that, why are you comparing them? It's like Google, Apple, and Samsung will all go on stage and throw their products around as if they're all equal, right? Like these are what our businesses are. But all three of those companies, their businesses, the revenue is so fundamentally different, like where it all comes from, right?

Like a company like Samsung, not Samsung Mobile, right? Like a company like Samsung, you know, like not Samsung Mobile, right? I know that they break them up, but let's look at Samsung, the holding company, like we look at Alphabet, the holding company. It's like all over the map where that money comes from compared to Apple, right? Like it's so very different,

but their public facing messages, they treat it like they're all competing on the exact same battlefield when they're not really on the exact same battlefield, when they're not really, right? Like, they have overlapping products, but looking at the whole businesses of all of them, they're very, very different.

So, it's an interesting comparison to put forward. Going back to the results of, this is Q2, right? It's the Q2 results. iPhone, 50.8 million units sold. That's down from 51.2. iPad, 8.9 million units sold, down from 10.3. The Mac, 4.2 million units sold, up from 4 million. Services, $7.4 billion in revenue generated,

up from 5.99 billion from last year. And other products, so this includes the watch and Beats and AirPods, is at $2.87 billion up from $2.19. So Mac services and other products are the lines that are up. iPhone and iPad are down. iPad down more significantly. And iPhone, so what you did for those three product areas is is look at unit sales if you look at revenue iphone was actually slightly up it was slightly

down in units slightly up in revenue and we'll get to it but that's because the mix of what one of the things i think this is a fairly flat quarter we can glean things from it. There's a lot that's not particularly interesting about these results. They are up slightly. In a simplified version, it's like they're good, they're up slightly, that's about it. But when it comes to the breakdown of what they're selling in these product categories, it gets a little more interesting. And the iPhone is an example where having your units go down and your and your revenue go up that suggests that you're sold more of your more expensive products and the mac is the same way mac went units went up but revenue went way up and for similar reasons so i don't ever listen to these calls because i can't bring it upon myself uh to do that what do you they sound way better now they're they fix their

whole they fix their whole workflow they uh they they are they're like podcasting now they've got they're like routing it i was trying to dan morin and i on the six colors podcast last week we talked about like i had a i have a theory about what they did and it's just like imagining how instead of streaming a phone call what they did is they piped the phone call into a mixer with good microphones in the apple conference room where they do this and then streamed that and so all the apple people sound great and then all the analysts are just people on a phone so i assume that you know apple's getting ready to do a podcast any day now right well they you know they do they actually do podcast the uh the keynotes and i think the

earnings calls there you go so you can subscribe to the earnings call podcast it sounds way better than it used to thank you um so from listening to those do you get a sense for what the analysts prefer do they prefer unit sales or revenue from the products or do they not really have a preference uh they don't have a preference because they're not they're not looking at they're looking at signals and they're looking for growth and so they want to know like when they look at those like with the iphone you know they they aren't going to say oh well i'm disappointed because units went down and they're not going to say oh i'm happy because uh revenue went up what they're going to say is oh the product mix changed and the average selling price went up because if you if you divide your units uh and your and your uh and your dollars units by

sales what you get is average selling price that's actually pretty simple math um and from that you can see that average selling price of an iphone went up and that that matters to them in the sense not that they always want asps to go up either but it's another bit of data in the mix about that they can use to sort of glean like where's this product line going and where's the market for smartphones going and Apple's place in it so I would say that they there are not other than just generally they like growth that Wall Street likes growth there are beyond that it's all about the details so there was growth of some kind in the iPhone right but like But like it wasn't overall, but it was growth in a certain line. I would say if you gave it to analysts and said, which are analysts happier with sales growth or revenue growth?

They will always say revenue growth. Because that's what drives the value of the companies. In the end, if what that means is that you're selling fewer of the cheap phones but more of the expensive phones that's great they like that so let's get into some of the things that that you think are interesting from from the call right so okay first being that uh tim cook addressed on the call that he believes that there has been a pause in purchases of the iphone because the rumor cycle has begun earlier and there are more frequent reports than usual. So this new iPhone that's apparently coming in September

that we know everything that we think we know about, that this is something that they believe is affecting sales and it's happening with a lot more bigger than usual and that they're actually addressing this as the reasoning. Yeah, we could argue whether this is true, right? Is it true? Is it really true that the reports about future iPhones have come earlier and are much more frequent?

It may be. I'm going to leave that analysis to someone else, but it may be that because this bezel-less iPhone thing, when did we first hear about that? It may have been last year. It was last year. It was before this one.

Before the 7, right? And so if it's really true that that was the phone they were working on for 2017 and in mid to late 2016, they were already talking about it and had skipped a whole generation well yeah that that's pretty early right um but so there's the question like why why would that be happening and what would the impact of that be i don't i don't know i mean i'm sure that people anticipating a major new refresh of an iPhone is going to be a reason to hold off. If you're somebody who has the 6 or the 6S or the

7, and you know that there's a big, big, big new redesigned iPhone coming, I think that some percentage of the people in all three of those categories are going to hold off. Like I've got a six, why get a seven? If I can, I can, six is still pretty great as a phone. Why don't I just wait it out? Cause there's going to be a completely new version and not one that looks more or less like my six, but it's just a little bit better. So I can see, I mean, I think that's a real thing. People deferring purchases because everybody knows that the next big iPhone is coming. This does lead to yet more seasonality in Apple's numbers. If Apple ends up with this new rumored model selling a billion of them because billions of them, billions and billions of them, if it's a hit like the 6 was because there was all of that pent-up demand for the big screen 6,

all of that pent up demand for the big screen six, we may end up in a situation where once again, Apple's iPhone sales trajectory has to be smoothed out over years because it may turn out that there's a, there's always a huge bump in sales for a brand new style. And then they kind of let it ride for a year or two. And then there's another huge bump that could happen. And then what that means is that they'll have a really great year, followed by a year where everybody's complaining that they didn't grow like they did the previous year, because the previous year was such a huge bump.

What fascinates me about it is that they actually blamed this on rumors, because Apple doesn't like to talk about rumors. They don't like to talk about future products. They really don't like to talk about rumors about future products, right? And yet, like to talk about future products. They really don't like to talk about rumors about future products, right? And yet here it is. They didn't make a big thing of it. He said in passing, he moved on. They didn't talk about it again, but earlier and much more frequent reports about future iPhones, that is the rumors are out there and we think it's slowing sales. And we're going to use it as a, as a reason why people are not saying they're intending to purchase an iPhone. Because the number that people were asking about is some analyst reports of plan to buy

studies, which is basically, are you planning on buying a new iPhone in the next three months or something? And those numbers are down from their historic numbers. And the question is why? And what Apple's saying is it's not that they don't like the iPhone. It's not that they don't like the iphone it's not that they don't want an iphone it's that they they have heard about the new iphone this fall and so they're waiting that may or that may or may not be true but that's what they're saying that's what apple says is the reason i i believe it i honestly do believe it i think that it is uh of a stronger intensity than than for two reasons, right?

It is that people know when the phone's coming, right? People know now that September is new iPhone time, right? Like that is a given at this point. But I think it's different this time because the current phone looks like the one before it and the one before it. So I think people were less inclined to move now to buy an iPhone because they're aware of the fact that it hasn't changed

for a while and that it makes it less I think it makes it less appealing for people that are maybe looking to upgrade because they know that or potentially know or they ask the person in their life that might know which I think is a role that many of our listeners will play for their family

and friends and those people are saying don't buy an iphone now because there might be a really cool one in september yep so i buy that's that's i i totally get it right like if i had a six or a or a success uh and i was thinking of getting i think the six is a good example right because so many people bought the iphone 6 it was such a huge hit why would you buy a 7 if you if your 6 is still in pretty good shape and it is that's a great phone and the new model is coming like at this point would if you could wait i'd tell anybody that right if you can wait wait because there will be a new new iPhone this fall and it may be dramatically different

from the ones you've seen before. And if it isn't, then, you know, you will have waited a little bit and you'll still get it. You could still get a fresher model, right? Because I think we're all assuming that there will be, in addition to this new model, there will probably be an updated version

of the existing phone style, like a 7S or something like that. And if that's all true, then why not wait and see? Because you're going to get a better phone regardless, and you might want to at least consider this super fancy new phone that may be coming. At least give yourself the option, right? Right.

No, it's being a smart shopper for that stuff. So it's all logical. It's entirely logical. The analysts are worried about Qualcommcomm this is something that i have been aware of this qualcomm situation but haven't really been interested in covering so let's do it very quickly right now so give you a quote from tim cook um in case you're need some catching up so qualcomm's trying to charge Apple a percentage of the total iPhone value because Qualcomm chips are in iPhones. And they do some really great work around standards essential

patents. But it's one small part of what an iPhone is. It has nothing to do with the display or the Touch ID or a gazillion other innovations Apple has done. And so we don't think that's right. So what Tim is saying here, Qualcomm is trying to charge Apple a percentage of total iPhone sales because Apple uses chips and or the chips that they use include patents that Qualcomm own. Right. So they're trying instead of charging the standard license fees, they now want to charge a percentage instead. And Apple is not willing to do that because of the actual what they consider percentage of value that Qualcomm is adding to the phone. because of the actual what they consider percentage of value that Qualcomm is adding to the phone. One of the big issues around this is not just that they're fighting this fight. Apple has stopped paying Qualcomm,

and Qualcomm is trying to seek injunctions on phones being shipped to the US. Have I done a good job of trying to summarize that? All this stuff is stupidly complicated. Well, is Qualcomm seeking injunctions they have said that i have seen reports that they are considering it uh okay they're threatening yeah so uh they asked tim cook about that and he said he said they can't see he says you never know but their lawyers basically can't see any um any real likelihood that that would happen, that there would be injunctions. I have to say, this is all posturing, right?

So what Cook is saying, too, they asked him about not paying Qualcomm, and his response was something like, well, how can you pay somebody if you can't agree on what the price of the bill is? It's like, well interesting you could pay you could pay them and still sue uh you could so it's you know it's a negotiation that has led to lawsuits because the way cook put it is if we can't come to an agreement then this is the next thing and and if you're asking yourself like why is uh why are lawsuits a recourse in a corporate negotiation the answer is it's uh it's fran'd patenting basically it's considered a standards essential patent and there is a legal requirement of the patent holder which is qualcomm to license it at a fair rate and apple says it's not a fair rate right so the

idea is that like they've created technology that everybody should be able to use right like that that's what's considered as a thing like it should be but it should be priced fairly right there are standards that everybody uses for wireless and those standards include patents owned by Qualcomm and others. And so the FRAND idea, the standards essential patent idea, is that you can put your patents... It was meant, I believe, to encourage the growth of standards by saying, look, let's agree on a standard and some of it will be patented. But what we'll do is make those legally required to be offered at a reasonable price. So you'll get your money, but you're not going to be able to hold the entire standard hostage with your patents. And Apple's saying that Qualcomm's charging method for their patents is not legal. And that's why it has to go to court. That Apple says that this does not fulfill Qualcomm's legal rights and legal requirements under standards of essential patents.

standards essential patents um and the second part of the quote what you read is apple's argument apple's argument is is that is that qualcomm is charging a tax on the the price of the phone even though the phone contains all sorts of innovations that qualcomm had nothing to do with so i think apple is arguing that qualcomm should charge a price per phone not a percentage of a phone sale which i think the way i read it is maybe what they're trying to do here and you could see that if you're selling more expensive phones what qualcomm saying is that basically if you use our our patents in a 200 phone or a thousand dollar phone you pay a different price. And what Apple's saying is the radios are the same. We don't want to pay you anymore.

So, and then, you know, I'm not a lawyer. It's going to go to the lawyers or the threat of all the lawsuits is going to lead to more negotiations and they'll reach a settlement. But the way Apple spins this is that Qualcomm has been taking advantage of everybody because they have these patents and they're tied to the standard and and probably somebody at apple said they're not supposed to be able to do this this is why this this regulation exists and maybe apple felt like they are they have the most leverage and the most. And so that they can be the one to take them on. And they're fighting for all the other phone makers that are out there. It is funny because this is Apple's key product.

And Apple's got a lot of money. So you could just let it ride and say, yeah, Qualcomm's going to wet its beak here. That's fine. We're still making money. But obviously, Apple feels like Qualcomm is getting away with something here. And so because I don't, you know, it's an interesting thing when a company has so much money in the bank and make so much money in profit every quarter that they would they would look at something and say, I want I'm a bit of a cheapskate. I want to lower how we lower

that price Qualcomm. But obviously, this relationship has gotten so fraught and stressful and apple feels like qualcomm is ripping them off because what you could just let her ride and pay them and you'd still make a lot of money but apple seems to have decided that they're not they're not willing to do that or that they can get a lower price by threatening them okay that makes i mean this is these things happen every now and then right this is i don't think this is the first company that i've tried to get an injunction on on apple shipping phones i think like maybe samsung tried to do it once i don't know it's it's hard to keep up with but it is a it is something that is worth noting right because yeah it's a problem because imagine if they'd imagine if they're successful well that would well if the

if the iphone doesn't ship because qualcomm got the shipments to be halted that's bad that's like spectacularly bad that is that is the risk here and to the analysts who asked about it tim cook's response was we don't think it's a risk um so i don't know it's all part of it's all part of the game it's all part of the game everything cook says to the analyst is it's about the public posture against qualcomm and it's about reassuring investors that they're playing this game but they think it's not going to be a problem so that investors don't get scared that there's a chance that the iPhone couldn't ship because of Qualcomm. So it's all out there. So next up, we have two countries, China and India, right? These are two big areas for Apple. We'll start with China. So what's going on in China? There's been a dramatic drop-off in revenue year over year in the country.

The 7 Plus did sell well there. There's been growth in the Mac services and retail. Apple are saying that currency devaluation is a problem, as is particularly weak sales in Hong Kong and slumping sales on older iPhone models. How much of a worry is China for Apple? I mean, before it was the great savior of iPhone growth. And now it seems to be Apple's foreign side. So, yeah, I mean, Apple is actually

growing much more everywhere and then not growing in China. That's basically the story right now, is that if you took China out of the equation uh across the board you'd actually see kind of continual growth of slow of a slow variety but instead you add it in and you see this huge growth and then a huge drop off um it sounds like and and i'm going to point people we'll put in the show notes ben thompson at strutekery wrote a great article last week called apple's china problem about this very subject and his argument is that in china wechat wechat is so popular for everything it's not just social networking it's also buying things it is the smartphone operating system it's not even like just a smartphone operating system it's like a life operating system yes right yeah it's everything from food ordering to paying. It's the whole thing.

Yeah, so Ben's argument is that Apple's number one strategy thing, and think about this when we talk about Microsoft's Surface laptop and other things like that. In the end, you can't forget that a huge part of Apple's value proposition is that their products are the only products that run iOS or macOS. If you forget that, you're missing a huge part of the equation. So like if you're, if you're penciling out the specs of the surface laptop versus the MacBook or the MacBook pro without touch bar, don't forget the other key differentiator, which is only the Mac runs Mac OS. Otherwise you're running Windows. And if that matters, and it probably does, you got to put that in there. Likewise with iOS. Ben Thompson's

argument in China is all that really matters is does it run WeChat? And beyond that, and it does, so do Android phones. They all run it. So, okay. Well, then what? What it does is it reduces Apple to being a hardware manufacturer. Yep. If iOS is no longer really part of the equation, it means Apple's a hardware manufacturer. It means that all Apple is competing on with all the other phone makers in China is style of their hardware. And Apple's hardware is pretty good, but it hasn't had any major evolution to the hardware since the 6, which sold wildly well everywhere, including in China.

And there are other phones that have come along that are more stylish. And like the cost to jump from an iPhone 6 that you bought two and a half years ago to a new fancy phone that you see today in China, the cost is almost nothing compared to the cost of leaving the platform anywhere else in the world because does it run wechat check okay then it doesn't matter i'll just log into wechat and the financial cost is the same right you're going to move to one of those two phones you that they're all priced the same like they're you know you're already getting a price and advantage john ruber wrote a big post about this as well which is also very interesting. And John seems to be more of the opinion that in his belief that this wouldn't be a factor, that the iPhone is still desirable.

I understand that, but I think it's coming at it from a different perspective. And I can totally see the argument and i think my personal opinion again like like john not knowing really anything about this market but my personal opinion is if what you're trying to do is show that you have the latest and greatest as a status symbol which my understanding is that is a big thing in in asia that yes it doesn't matter how great the iphone is it's not the new one. And so like, you know, I've seen a lot of people saying, maybe that's one of the reasons that Apple made a red phone. Do you know what? I'm sure it is because the red phone shows new,

but like it doesn't matter if the LG phone is not as good as the iPhone. If people know the LG phone is newer, then get the LG phone. If it doesn't matter what your phone is, all you're trying to do is show that you have money and access WeChat, then why would you get an iPhone 7? Well, and it goes back to the core of one of the reasons you get an iPhone is because it's an iPhone, not just the hardware, but the operating system. And if the operating system is the same, if like literally every phone in China ran Android, including Apple's, you know, you could see, well,

then Apple's footing is very different because Apple just has to compete as the, as the new thing. They lose that piece of their market. And it's been, let's be honest, it's been three cycles of the same basic phone design with improvements, but the same look. So, you know, if you get, depending on what model you get, an iPhone 7 today in gold is not appreciably different looking from an iPhone 6 from two years before in gold. So, you know, it's an issue. So, I think that's what's going on in China, but it's more than that if you look at the numbers, because what it also says is that Apple's, and this goes to that point though, right? Which is, if you look at the product mix, the suggestion is, and what they say is, older

models aren't selling. Because why would they? So the models they are selling are the 7 and the 7 Plus, especially the 7 Plus, because they love the big phone in China. They love the big phone. I mean, the world loves the big phone, but especially in China, they love the big phone. So that's still selling well. And that is a new phone. And to Gruber's point, like the jet black iPhone seven plus, like you can tell

that's the new iPhone, right? Yeah. That says new all over it. It doesn't look like a previous iPhones do. So you could get that. And those are selling well in China, according to Apple, it's the old models that are not selling as well because it turns out apple strategy of selling old phones to people for 100 or 200 off doesn't work so well in china probably for some of the reasons that we've already mentioned and in other parts of the world maybe people care so much but if you're going to buy a brand new phone and it's actually a two-year-old phone some for some people looking for value that's a that's a thing but that does not seem to be part of the market uh as much in china um and then you know the usual complaints that that apple throws in about currency devaluation for value, that's a thing, but that does not seem to be part of the market as much in China.

And then, you know, the usual complaints that Apple throws in about currency devaluation, and in this case, Hong Kong, that Hong Kong's had a lot of economic issues, and Hong Kong dragged down the greater China region too. But in the end, you know, that's what it is, is the only phone that Apple's selling really really well in china right now is the seven plus and then move to india cook said that apple have a ton of energy going into this country on a number of fronts yeah it kind of looks like uh apple want india to be their next china cook said at one point i have never seen growth like this before anywhere in the world. And he's talking about the country, not the sales, right?

Yeah, no, he's talking about the country. He's talking about the growth and he's talking about technological growth. He's talking about putting high-speed wireless internet into India and how that's growing rapidly, which means that there's more of a market for their phones. And they've got a new developer center in Bangalore that they put in. Phil Schiller was out there. Apple has struggled in India, but Apple's putting a lot of resources into India. And I think Apple feels like it will pay off eventually that Apple is laying the groundwork there. They feel there will be an explosion of growth in smartphones in India,

and that they have an opportunity to ride that wave. But it is a challenge for them to sell better. That has been one of their weakest markets. But the growth means there's a huge opportunity there. And Apple's got the money to invest in it. The question is just, means there's a huge opportunity there and apple's got the money to invest in it the question is just can they come up with the right combination of products uh that will that will work with that market as it grows um i i liked the line from cook cook cook played a little um i don't know it was like disappointing dad disappointed dad a little bit like he was trying to school on someone right he was listening it was kind of weird well well what did he say what did he say so what he said was our growth rates are good in india

really good by most people's expectations maybe not mine as much and i thought that was really interesting because i think what he's trying to get at is Apple's doing fine in India. Depending on who you talk to, you might look at how Apple's doing in India and say, oh, it's actually not bad. Like you're doing pretty good. But he, and so he wanted to give the analyst that positive spin. Look, we are growing.

We are, it is, it is, is doing that. But he didn't want to leave it there because he wants to, he wants to express his dissatisfaction. We can do better is basically what he's saying. Like, I expect us to grow faster in India. And it was funny how he phrased it. Maybe not mine as much.

But I think in the end, what he wanted to do was, I think he maybe realized that he had done the usual kind of positive sell of, hey, things are great. We're growing great. People think it's, it's like, it's not just good. It's really good. Like he pumped it up and then he realized maybe he needed to add a little note of dissatisfaction there because, you know, what he's really trying to express is he thinks that Apple can do way better in India. And you can't just look at the numbers now and say they're good enough because he doesn't think they're good enough. Now, yes, there may be somebody who's an executive inside Apple who is focused on Indiaia who's like no no you know well i know i'm seeing in the morning clean out your desk bob clean it out yeah yeah i that that it was weird to hear

that and and to read that because that really does feel like for me coming from the corporate world like that's what your boss would say on a conference call with a larger department right like we're going well but not good enough and and that is a way to like send i know that's not what they're doing but to send a signal to that post that employee that their job is that they're not doing a good enough job right but it's like i i can imagine them having that feeling because it doesn't really feel like an incredibly planned statement, right? No, no. And again, I think the reason he said it was to put that note of we think we can do better here into the statement. So it didn't come across as just Pollyanna-ish, kind of like, it's great.

No, India's great. Yay, India. While people are like, Apple, you've got some problems. You need to grow more in India. So he threw it in there. I do wonder though, if yes, in the back of his mind, what he's thinking of

is an actual frustration he has in some secret meeting somewhere in Apple where he's like, damn it, everybody. Why are we not doing better in India? And if it just sort of popped out, like the way it got phrased because those are his real feelings

that he had on the inside this was just the next meeting that he went to so he's still thinking about the last one yeah i have no doubt that he that his phrasing serves the purpose of the analyst call right but yeah the way it came out i'm sort of like i i bet there have been meetings about this right where tim is like i am not satisfied like you, you know, what do you mean this is a really great number? It's not good enough. So, you know, disappointed dad, Tim Cook. There he is.

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Services growth via subscriptions. So Apple's services and kind of the money that they're bringing in from that is the most consistent growth area for Apple. This is the one line of the earnings report quarter after quarter that continues to shine, right? Like this is what they can hang their hat on as you want to see some growth in the company. They point to that line. It's not the biggest line right but it's it's growing and it continues to grow and that is a an area of excitement for apple because what they're doing is turning their existing customers their hundreds and hundreds of millions of customers into a consistent and growing profit center right what a great thing to do for as a company right this this is exactly what wall street want to see

apple provided a little bit more detail on that growth in this call. They updated a number that they previously mentioned. So three months ago Apple said that they had 150 million subscriptions to their services. Now they have 165

million. But this isn't people necessarily, right? No, it's duplicative so like i have an icloud drive subscription and i have an apple music subscription and so those are two subscriptions i'm one person but those are two subscriptions so it's it's but you know in the end every subscription is worth money so they are growing and that's a huge percentage growth in sequential quarters for Apple subscriptions. So yeah, this is the thing Apple said a couple years ago. They were going to be beating the drum on subscription revenue, and they felt that they could make a lot of money on subscription revenue.

And here we go. revenue. And here we go. Analysts love it. It is the single area of Apple's balance sheet that is consistently growing. And there are two ways to look at it, right? I mean, one way to look at it is to say, oh boy, Apple's just going to be squeezing more and more money out of everybody. And they said, the longer somebody is an active subscriber, the more they spend. These are not people who come and then give Apple money once and then tail off. These are people who give Apple more and more money. So these subscribers become more valuable over time. And I think it's fair to look at that and say, wow, part of Apple's game now is going to be to squeeze more money out of us after we use our products. So I feel that argument. I'm starting to think though, that maybe it's all for the best,

because maybe the way you motivate Apple to make good services is by having a major part of their business that they're showing off to Wall Street and that they've taken a lot of pride in in terms of being a growth area of the company be tied to their services. Because it's a lot harder to ignore or do really shoddy services if they're a key part of your business, which they never have been, right? It's always been about the hardware and the software and not the services. But the services are really important now. So if somebody really screwed up an Apple service today, do you think they could skate by and everybody could just shrug it off like.Mac and be like, well, whatever, mobile me, whatever, we don't care. No, it's a huge part of Apple's future growth strategy.

So in the end, yeah, maybe we'll have to pay for those services, but maybe those services will all be better. I know, follow me here. I mean, if Apple, if they're, if they're lousy and Apple's only getting them because of platform lock-in, then it's a different story. But if they're good, maybe the reason they're good is because Apple actually has business reasons to focus on this and care about it that maybe they didn't have when services were just an afterthought to hardware and software. Yeah, I think in the past, Apple services have been like, okay, you're in the platform, let's give you something. But there is a potential now that it's about to start to change into Apple trying to create a competitive advantage, which I don't think that they've ever particularly really driven for, especially with

the add-on services, right? Like email and all the iCloud stuff, things like that. I don't think that Apple's really seriously driven to beat Google or whatever in these services, but I think that that is becoming more and more of a thing

that they know they have to do. And they're trying to compete in their own way, right? Privacy being one of them and stuff like that, right? Apple's trying to find their competitive advantage. But for me, it doesn't matter what it is because as long as it's good, then I'm happy. Because I will say that the services that I use of Apple's have been consistently better and better over time.

Me too. And I think that that's a great thing because I think it has been an off-repeated phrase that their services suck, right? Because they have in the past. And there has been a consistent mistrust at giving Apple anything important, like photos, right?

Everyone was really scared of iCloud Photo Library. But I know some people have had issues. There's always going to be problems no matter how good it is. But I don't think there's been any widespread problems like Apple's had in the past. So I think this is a good thing for the Apple user. And honestly, like, I don't care who my money is going to, as long as the service is good, which I'm getting, right? Like, I don't care if it's apple or spotify as long as it's good so apple getting my money for my music that works great for me apple music is perfectly fine it's everything i want out of a music streaming service i've been a happy customer yeah i think the only

challenge is when apple erects these walls to make it difficult for you to use as competitors and then tries to make money off of you because it's it's more i would like to see apple compete and yes there are always going to be cases where apple can be better integrated than the competition and then tries to make money off of you because it's more... I would like to see Apple compete. And yes, there are always going to be cases where Apple can be better integrated than the competition because Apple can go deeper down into the operating systems. But it still bugs me when Apple... when it feels like Apple is creating barriers to its competition. That the walls are not specifically to give Apple Music better function,

but to make it better than the the competitors just by not giving them those functions right it's kind of what you say right right yeah i mean like a good example would be um so so on the phone google photos and dropbox and anybody else they can't sync all of your photos automatically to the cloud. You have to open the app every now and then. Because the app, if the app's not running, it can't do a background sync. It just, it can't. And it probably should be able to do that, right?

They should be able to compete on that point. Because for some people, that will be the difference between using Google Photos and using iCloud Photo Library. Is that you can't reliably trust that, well, no, I went out and I took a bunch of photos. And now I open Google Photo Library on my Mac and the photos aren't there. And I have to go get my phone and open Google and then have it upload all the photos and then they show up. That's really bad. And on Apple's thing, that's not the case. and then they show up, that's really bad. And on my on Apple's thing, that's not the case.

That said, you know, there are other places where like on the Mac is a good example where sometimes the third parties can play because the Mac is open to all of that stuff, and they don't or they do a bad job. And so what it suggests to me is that if you did it on iOS, the same rules might apply that Apple would Apple would be allowing their platform to be good for people who want to use the competition, but that Apple could just beat them at the game. And that's a better way to compete. So that's my only hesitation here is I get why from a competitive standpoint, you'd want to put barriers between you and the competition using your advantages as the platform owner. you'd want to put barriers between you and the competition using your advantages as the platform owner. But I would rather Apple compete by building good services than by building mediocre services

that are only better than the competition because the competition doesn't have the platform owner access that Apple has. It feels like cheating. It does. But this is the game. I mean, a lot of people play it. A lot of companies play it. Like their advantage is that they own the platform. And this is one of the ways they make money off of it is being able to have that. But yeah, it does feel like cheating because it reduces customer choice

and it makes it not a fair competition. And I don't love that. I think I'd rather have Apple's products be good and win me over by being good. Like if, if Google photos did all that syncing on iOS, would I use Google photos instead of iCloud photo library? Honestly not because on the Mac, I vastly prefer using photos to using the Google photos web client right right yeah yeah maybe i maybe my opinion would change and i would switch but um that that would probably hold me back even if that sync was reliable i might have to agree with you there actually like whilst i find uh

google photos searching and memory type features to be superior um the the fact that they don't have like a good native app where I can just browse my photos, that's a frustration for me. I don't like going through the web for that. I like there to be an app. I agree. Even though the Photos app annoys me in some ways, like the fact that you

can't drag a photo from the Photos app directly into an application as to go to the desktop first, that really annoys me. That is a frustration that I find quite frequently. I just kind of like the web in that regard. So wearables. So Apple spent a bit of time talking about wearables. I got some quotes from Tim here.

Talking about the watch. The watch area is really hard. In essence, from an engineering point of view, it's similar to a phone in terms of the intricacies. So I'm not very surprised that some people are falling out of the business. We're very committed to it and we believe that it's already a big business

and believe that over time it will be even larger we saw the watch as a really key product category for us before we launched it we took our time to get it right and made it even better with series 2 we're proud of the growth of the business watch units more than doubled in 6 of their top 10 markets in the quarter that is a big surprise, right? doubling of sales i don't know who can tell with the details of what those markets are two and yeah yeah yeah i get you i get you but

but yeah that's it's surprising other other than the fact that maybe they were i keep going to think like well were they supply constrained to those markets like are those to those markets like are those did those markets not get very many series twos and that's why they had to wait for this next quarter in order for the the sales to double were the sales suppressed in those markets and then they jumped up we don't know because we don't know any of the details they're definitely putting the most positive spin on it they can while not having a broad superlative to use for the watch you know they didn didn't say the sales were up

because they were probably down year over year and sequentially from the holiday quarter. So instead, we got the cherry-picked sort of six of top ten because they want to say something positive, even though we can't really charge it. But I like the way they're framing it here because the question that somebody asked asked was basically this is hard. Your competitors have really struggled here.

And Cook agreed and said, yes, it is very hard. I'm not surprised that people are bailing out on this thing. They thought it would be easy and it's not. But we're committed. We think this is a good business. We think it's going to keep growing and we're happy with where we are. we think it's going to keep growing and we're happy with where we are. And that's, you know, that's, I think if you had told me to predict the Apple watch trajectory a couple of years ago, I think I feel like I would have guessed something like this, which is

everybody rushes in. Most of them realize that it's not going to work and they bail out. Apple kind of motors away, takes its time and is doing fairly well and everybody's disappointed because they they thought it would be a huge product when it was never going to be uh they did what they always do like apple love to do this and i always like to do this because it is interesting to try and look at what slices of apple's business could be fortune 500 companies all by themselves, right? Because there's so much money flying through the company. And Cook said that combining the Apple Watch, AirPods, and Beats sales for the last 12 months, and it is that size, it would make a Fortune 500

company all by itself. And this was the first full quarter of AirPods sales. So it looks like, I guess it looks like AirPods and the watch are doing well enough that the sales continue. I can't imagine, you know, I know that Beats sells well, but I don't think Beats have had like a big blockbuster product that would have pushed them particularly higher than normal. At least nothing that I am familiar with. And I feel like I would be more familiar with Beats product launches now than before, right? Because Apple owns them.

So it would get into my purview a bit more. So guess you know airpods do seem like a hot product they're still really hard to get a hold of um and i guess watch watches are selling right and they're selling more in some areas for whatever reason so this does seem like an area for apple that there is that there is continued growth as well in their wearable category which would be this i think that's rolling this all into wearables i think is the right thing to do and i think it's it's notable that apple does it talking about beats and talking about airpods that apple is viewing wearable technology as a category with growth and when you think about it that way then the watch stops being being like, oh my God, is it the next iPhone? And becomes one in a constellation of wearables, one in that collection of things that you wear. Very small, miniaturized, limited by where they are and what they're used for, but still a great opportunity for apple and so in your ears on your wrist

absolutely that's that's part of the thing and presumably someday um feeding information into your eyes down the road so they were the things that you picked out um as kind of the areas of interest and i think that there is a lot of stuff there right which we can look at some of these things like where is apple going to go right china and india so i think that there is a lot of stuff there, right? Which we can look at some of these things like where is Apple going to go, right? China and India. So I think that especially for China, right? That they're going to, I think more than anything that says they're going to try their darndest to make an iPhone that looks different, right?

Because I think that they really want to make sure they get some of those sales back. India, I guess that they want to make sure that they continue to have a lot of iPhones to sell in all different price points, right? I think that that's a key thing for that. I think that there are key parts that inform Apple's decisions is they want to sell more iPhones.

Well, the markets that they're maturing is just going to continue to go as it's been going. And they want to sell more of them so they have to sell them to these countries. And I think that that continues to push where their business is going should talk about the ipad yeah sure feeling okay not really am i right that this is the a record worst quarter in unit sales i mean i was looking at some charts and it seems like everybody's charts don't have a lower unit sale quarter than this i think it's not a record low but it's their lowest in uh what six years something like that that's not good like let me look look look at ipad units ipad units you got your big yeah so

they sold they sold eight what 8.8 million iPads. The last time they sold fewer iPads was quarter two of 11, so six years ago. Okay. Six years ago, they sold 4.6. But that wasn't low then, though, was it, really? Just the first year of iPad sales, just to put this in perspective, the first year was 3.2, 4.1, 7.3. That was the holiday quarter. And 4.6 or 4.7, I guess.

And at that point, the third quarter of 11, it shot up to 9.2. It has not been down to that, down below 9 since then until now. So not in absolute terms, but I think that it would not be incorrect to call this the worst iPad sales quarter of all time because it's not the lowest number, but it's gotten to a point now where it hasn't been this low since there was one product and it had

just come out right yeah i mean i could argue that the worst quarters were ones where the year over year decline was huge but you could also just argue units and point at the units and say not since this product's first year of existence did it sell as few as it sold in the last three months all right so the downturn is not over um nope it's not over the situation is not improving there are some silver linings but like i think it's it's straws that we're clutching at this point well i had to had to laugh when Luca Maestri, the CFO, said about the 8.9 million units sold that it was ahead of expectations.

That made me laugh. I mean, you can keep saying that. I mean, why don't you tell us the expectations? Well, what it means is that Apple thought that it would be even worse. And they're like, oh, look, it wasn't quite as terrible as we thought. And despite supply constraints,

which is part of it too, right? Which also means that Apple didn't make as many as they could have perhaps sold. Now, the question there is, is that because Apple just doesn't want to make these iPads that aren't selling well, or does it mean that they're working on new iPads and they will be out there? My guess is it's the first one of those is that apple like didn't make too many ipads because they figured they wouldn't sell and then they ended up having some supply constraints i kind of don't take the supply constraints excuse well what it means

what i mean what it means is that there were there were cases where they didn't they didn't have them to sell but the reason they didn't have them to sell is because they thought that they weren't wouldn't sell right but like what would you have 8.95 like you know how many more honestly was it who who knows but the i think the point there is that they uh that apple apple lowballed the ipad 2 even apple didn't expect it to be particularly successful um and yeah i i also chuckled ruefully at Luca saying the iPad is very successful in the segment of market in which we compete $200 and up. And what he's basically saying there is, look, it's not just us.

It's the whole tablet market and the part of the tablet market that we compete in. We own, which is all true. own which is all true but again if you're if the whole market is is falling apart then congratulations on owning it i don't know well it's another market that apple owns is the watch right they own uh the watch market the smart watch market but nobody is calling the smart watch market or attempting to call that the future of computing right and so it's like all right great you own that market but it's not a big one right now so you know if 8.9 million units is owning that market for you that's very small compared to some of the other markets that you're attempting to play in because you know the mac sells 4.2 or whatever but apple's not walking

around claiming to own the the computer market right but anyway well but apple's percentage of the tablet market is vastly vastly vastly higher than yeah no i the pc market i i i agree that that's true i'm sure that it's true but like at a certain point these are just things they can just keep saying as a way to try and hide the fact that things are continuing to decline right these are all facts i believe that but like at a certain point you have to say something different there was one different thing this time is that ipad sales grew year over year in the u.s quarter over quarter and that apparently large ipad sales grew year over year in the US, quarter over quarter. And that apparently large iPad sales grew year over year. This is some stuff that came out. I don't really know what large iPad means.

Like, does that mean the 12.9? Does it mean from 9.7 up? Like, what does that mean? It's a weird thing to say. I mean, so there is something there, right? That there are some markets where it's growing, but it continues to not. I mean, what have I got to say at this point?

Release new models and see what happens? I don't know. I think the idea is they need to do new models and new updates to iOS that help drive the pro side of the business and they need to go through a holiday quarter with that new 329 iPad and then we'll see. I think they could be, I think just off the top of my head here, I think that given the 329 iPad and given the changes that they may make with iOS 11 and new models, let's say in the fall,

that it's possible that the holiday quarter 2017 will be a huge iPad success. Oh, Jason, don't do this to me. Now, well, here's the thing. Is an iPad success a success? Or by putting iPad in front of it, have I just lowered the bar so low that it's like, is it still alive? Yay, it's a success. I don't know. But I'm just saying, I think 329 iPads will be a much better product for the holidays. I think it'll be a better product for the education selling season two for them. And so I think that'll all be good. And that if they have new iPad Pro models as well that come out in the fall, then they're refreshing that along with the iOS updates. That will also potentially spur some sales because those products presumably, especially if there's that rumored high resolution iPad Pro

that's in that 10.5 area with reduced bezels perhaps that we've been talking about for ages now and still doesn't exist. You know, I think Apple is on the road to figuring out how to properly sell iPad models and differentiate them, but the market will have to, like, actually judge them. And they're not there yet. They're just not there yet. But I think they're doing some stuff.

Like that 329 iPad, I really do believe will pay off for them come the fall but you know again to what to what level our guess about what the what the turnaround of the ipad looks like our our expectations continue to be diminished right like declaring victory now is way easier than it would have been two years ago, right? Or a year and a half ago or a year ago, because we keep drawing a lot. You know, the bar keeps being lowered and we keep hoping that the iPad will clear it. And it has still failed to clear it. Makes me sad.

Yeah, me too. I love my iPad Pro and I, um, I use it all the time and I don't love the fact that it as a product category seems to not be doing well. Right? Like I, you start to have those thoughts about, I mean, I don't want to say this,

but at some point I think it might be worth having the conversation. Not today, but I'm just going to put it out there. Like if you're Apple, at some point, do you say, okay, it didn't work. Let's just update the Mac to be more iPad-like. At some point, do you do that? I think there are lots of arguments. It's a huge argument. And I think there are lots of arguments against it. But at some point, do you have to look at the sales numbers for the iPad and say, people don't want this?

I don't know. I don't know. That's, that's where I'm feeling right now is that as a user of it, I'm starting to get that little, that, that little tingle in the back of my head. That's like,

Oh no. What if I love a product that is doomed? I still feel like we're far away from that. Yeah, we're not close yet. But if I'm Apple and I'm looking out a few years, you got to have contingency plans, right? Do you, at some point, do you have to make, at least make the argument internally?

And maybe they have and they've resolved this. But you got to make that argument. Like what if this just is a product category that is largely rejected by the market and it's got a niche audience that's great and we might as well keep it around because we got to update iOS anyway, but you can make some arguments about like, why are we investing in pro features or iOS? Instead, we should just put more work into macOS stuff. I have a hard time believing that myself. I kind of can't even say that with a straight face. But I look at the iPad Pro numbers, and it's just like, ouch.

Cheer up, Mike. Cheer up. There's only one thing that can cheer me up, and it's Ask Upgrade. But before we do that, let me take a quick moment to thank our final sponsor this week, our friends over at Blue Apron, the number one recipe delivery service that has the freshest ingredients. For less than $10 a meal, Blue Apron will deliver to you seasonal recipes that have fresh, high-quality ingredients that let you make delicious home-cooked meals. Each Blue Apron meal comes with a step-by-step, easy-to-follow recipe card

and pre-portioned ingredients that can be prepared in 40 minutes or less at home. So you get everything you need. You get all of the ingredients that you need, great stuff. You're going to get great food, you're going to get great ingredients that allow you to put these meals together. They source all of their food sustainably. They have great standards in place to make sure that they're delivering to you great food that you're going to feel good about, right? They want to create a community of home chefs. So they set high standards for their ingredients and make it all easy for you. The recipe cards that you get have great pictures on them. They're all explained really well. So you're going to know how to make the food.

And the pre-portioned ingredient stuff, that's my favorite part because the thought of not having to go out to the grocery store to pick up that one item that you've forgotten and then you have too much of that item sitting in your cupboard forever because you only needed just a dash of it. You don't have to worry about that with Blue Apron because they just give you what you need to make that food. You can choose from a variety of new recipes each week or you can let Blue Apron's culinary team surprise you. No recipes are repeated within a year and

you can give them all of your preferences so they'll know what they should and shouldn't be sending you. You'll be able to choose meals like beef teriyaki stir fry with sugar snack peas and lime rice, crispy salmon and roasted potato salad with pickled mustard seeds and creme fraiche sauce or maybe even three cheese and baby broccoli stromboli with tomato and oregano dipping sauce jason it is too close to dinner time here yeah i know i had the first one of those with uh with the snap peas and the beef and the rice it was really good that sounds so good that. In fact, I had the leftovers. My daughter wasn't here.

She was traveling for a school trip, so we had a four-person meal with only three of us, so I got to have her portion for lunch the next day. So good. I can't talk about this anymore. Blue Apron delivers to 99% of the continental U.S. There's no weekly commitment. You get deliveries when you want them,

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So go to blueapron.com slash upgrade and we thank them for their support of this show and RelayFM. Blue Apron, a better way to cook. Ask upgrade time. John would like to know, any magic tips, Jason, to get photos on my iPhone to use less storage? I already have optimized storage turned on,

and it's currently taking up 12 gigabytes of space. The way it works right now is it waits until your disk is full or like a 10 of capacity and then it starts deleting things so you kind of just have to keep pushing it right don't worry about it keep pushing it my question is, why do you want to do this? Because in theory, if you keep trying to add more things to your iPhone, it should then start deleting things from photos in order to optimize storage. I think the reality is that there may be some apps where you try to drag in a bunch of things from the Mac or you try to import something and then it says, oh, no, I can't. That's a huge file.

I don't have enough room. But I think the idea is anyway, that as you accumulate new data, it's waiting for it to go over that threshold. And when it does, it does a bunch of cleanup. And if you have more and more data, it does more cleanup. And it's supposed to keep it so that you've got sort of 10% free, which is the same thing on the Mac is how it's supposed to work. Now, I agree. It's really frustrating. And on the Mac, I've had it happen where I've tried to copy a big file and it said, Oh, no, this is too big. I've been told by Apple that that's a bug. And I actually haven't seen that recently in Sierra. I imagine the same sort of thing is going on in iOS. So, you know, I have no doubt that there

are cases where where bugs creep in, where apps are not looking in the right at the right way of handling storage, and that you get a your phone feels full when it's not. But the way it's supposed to work is that that optimized photo library should be deleted. Items from it will be deleted on the fly as you need the space. That's how it's supposed to work. And there is no UI for it. You can't delete those photos any other way. So you have to just trust that it's supposed to work. And there is no UI for it. You can't delete those

photos any other way. So you have to just trust it's doing it right. So I guess, John, if you're having problems, it's not doing it right. And there's nothing you can do about it, unfortunately, which sucks if that's the case. Todd asked, do you see a future where workouts recorded on the Apple Watch could appear somewhere like iCloud.com alongside notes and contacts and also do workouts sync anywhere other than between the one iphone watch so as far as i'm aware they do not sync anywhere else right and and you know people we always talk about this when we do our off i think now famed or like infamous i guess upgrade episodes where we we get our new devices and have myriads of problems. None of this workout data or health data syncs anywhere.

So it's possible to lose some of it during an upgrade process. I think I would like to see a world in which Apple works out a way to sync this data. I just don't think that they will do it in the near future, at least because of the the way that they try and worry about privacy and what they say about privacy and do about privacy yeah it's it's personal health data so they would need a way to do it but at the same time i see the value of it um so yeah yeah i would like to see them

be able to do something with it but I don't know if that'll happen. There are applications that allow you to export your health data. So you can like take your current all of the health data you have, export that to a cloud service and then import it back in again. Right. So when you're switching from phone to phone, you don't lose the data. So you can do that. But it's not necessarily the workout stuff specifically. So that is an option. And I'll put a link in the show notes to an article, again, on Mac Stories. Federico and John are getting a

bunch of links from us today. They do good work there. And so there are apps that can allow you to do that when you're kind of going through the upgrade cycle or if you just want a backup of it just in case um but it doesn't sync anywhere right now so uh steven asked i've always been nervous to use a password manager like lastpass or 1password because i don't want to get hacked any insight into this uh i mean you you're more likely to get hacked by using bad passwords than you are by using a service like this. There was a hack, I think, for LastPass at one point. I would say I know at least one password. You don't have to use their sync service.

You can put it on your own Dropbox or even not sync it, although it's a lot less convenient if you don't sync it because then you don't have access to it on your mobile devices. But you can sync. I sync my one password on Dropbox. So I am now just relying on Dropbox, which I, I trust. And that's just, you know, I made that decision because I want the convenience of having those passwords everywhere. Also, I don't, I don't know about the details of LastPass. I know one password, you know, even if you got to the data, it's an encrypted bundle. So it needs your, it needs your password in order to get to the encrypted files. So even if you broke into my Dropbox, you couldn't actually read my password file,

unless you also had my password for that encrypted bundle, or you could break the encryption, which I am pretty confident you can't. So you know what, if you're super paranoid, I get it, but I don't see how not using a password will ever be more secure because you're either going to have weak passwords or you're going to write them down. And then you've got written down passwords that could be stolen by somebody physically. So unless you're a hermit living far away and you keep your passwords on a piece of paper in a lockbox or something maybe um in a safe but i think in most scenarios you're safer off using a password manager because then you can use strong passwords and they're different everywhere and you don't have to remember them or write them down now i don't know if they still do but i believe that i know that they used to, but 1Password used to do Wi-Fi syncing.

Yeah, it still does. So you don't have to use any cloud service at all. They all just talk on your local network and share their data that way. Yeah, see, there you go. So there are options. You have options that are not putting your passwords even encrypted in a cloud service somewhere.

So it's worth checking that out. So you can sync your Mac or Windows PC of your iOS or Android devices. You have to use one of them as like it becomes the WLAN server. You can set that up and you can do that. So that is an option. I understand the idea of like having concern about using the online component of these services. I get that. And as you say, Jason, the encryption is so hard to break. Probably impossible. So I understand. You want to create the security.

Why would you create an account with them? So I keep my stuff. I do actually use, we use 1Password for Teams, and I'm happy with that. But other than that, I use Dropbox for my personal stuff. But if you're really security conscious, like super security conscious, you should use something like a password manager

that allows you to create these super strong passwords, right? Because otherwise, you're already security conscious, have strong passwords, different ones in different places. Just use Wi-Fi syncing, and you'll be good to go. In theory. I don't want to say that for definite. Chris asked, do you think that we'll see a new Magic Trackpad this

year? What new features would you expect to see, if any? I mean, new features, Magic Trackpad, I guess, like, bigger, right? Isn't the one on the MacBook Pro bigger than this? I don't think so. Magic Trackpad, it's not like, bigger, right? Like, isn't the one on the MacBook Pro bigger than this? Than the current Magic Trackpad? It's not? I don't think so, no. Well, I guess it's the only thing you could do. I can't think of features

that would go into the Magic Trackpad. Well, I mean, Touch ID? You think I'd go into the Magic Trackpad? I guess. Yeah, maybe. I always figured keyboard for that, but yeah, I'd prefer it on the Trackpad because I don't want to use Apple Keyboard because I like the like the economic keyboard that i have so that might be kind of nice i don't know i i would i wouldn't put money on it because i think it's more likely and not that

than not that they just won't but i do i am intrigued by the idea of touch id coming to apple input devices for other apple devices and um yes part of it is me wanting i would rather buy a new magic trackpad with touch id than use a new apple keyboard with touch id because i like my keyboard and i don't want to use a different keyboard but i would i would upgrade my trackpad to touch id so that's what i'm going to hang my hopes on. But I don't think it's... I think it's not likely only because Apple updates their input devices outside of integrated input devices

in computers very rarely. And let's just say before people write in, we don't think the touch bar is going to go onto the trackpad, right? It would have to be a completely different orientation, which would seem kind of wacky. I love the idea of the touch bar on the trackpad i think that that would be a great place for it but the touch bar is so wide that this would be a completely you'd have to have

like a separate layout for this device versus that and i have a hard time seeing apple breaking the touch bar platform you know in two and having everybody have to optimize twice for touch bar i can't see it and finally today oplay has asked uh any recommended shipping track map app that will work with multiple carriers deliveries by june cloud that's the i use deliveries yep iphone ipad mac you can yep go have a lot of fun with that application. I use it. It's great. It's the one to use. I actually don't even know of any others because I've used deliveries for so long. That's the one to go for. It's on

all the great platforms. They even have a watch app. All the great platforms. All the great platforms. If you want to submit some questions for AskUpgrade, just tweet with the hashtag AskUpgrade and we can try our best to help you out or provide insight into the thing that you're thinking of. If you have a Snell Talk question for me to ask Jason at the top of the show, just to find out what's going on in Jason's life, just send a tweet with the hashtag Snell Talk, and we'll do our best to answer those questions for you.

Well, I'll ask them. Jason will answer them. Thanks again to our sponsors this week, Blue Apron, Encapsula, and Mack Weldon. If you want to find Jason online, he's over at sixcolors.com. He's at jsnl on Twitter, jsnlel, and he is the host of the brand new show on Real AFM called

Download, which you should go and check out. You upgrade, start your week, download, finish it. We tee it up, download, brings you down to getting everything you need to know about what's happened in the week of technology. We're not going to brings you down to the to the getting everything you need to know about what's happened in the we're not going to bring it down though you're going to be happy you're going to be happy not sad i'm trying to find up and down you know yeah i get it it's t up and then i don't know it's going to take lots of great information and download it

right into your brain and that's how you end your week funnily enough you're much better at pitching your show than i am i am at i mike i am yke uh this show is over at relay fm you can go to relay.fm upgrade slash 140 to find out everything you need to know about this week's episode including a bunch of links to all the stuff that we have discussed upgradians out there thank you for listening we'll be back next time until then say goodbye mr snell goodbye lord amazon has left the building Say goodbye, Mr. Snell. Goodbye. Lord Amazon has left the building.