00:00 Josh Lipton
Let’s talk Apple here, Patrick, because they got their big software show that kicks off, of course, on Monday. Uh, the stock is down, Patrick, about 20% this year. The journal reminding us that is the worst run the shares have experienced ahead of the company’s WWDC event since at least, they say, 2010. What explains that, Patrick? And what does Apple need to do to turn this around?
00:41 Patrick Moorhead
Yeah, it’s been a bad year for Apple, and some of that it has been caused by Apple, and some of it has been caused by the market. Uh, the first thing is AI. Uh, Apple telegraphed a year ago that it would bring AI to the masses, and it missed its schedules, had to pull its advertising, and it was pretty much a, a disaster on, on all fronts. And then you had China, which, a lot of things going on in China. The first is they’re losing market share in China as brands like Huawei become more competitive, and there’s a sense of nationalism of, we should buy Chinese phones by the, by, by the Chinese. And then, of course, you have tariffs, where most of Apple’s iPhones historically had been made in China. Uh, I give them credit for moving 60% of the final assembly over to India by the end of the year, but it’s a little, uh, it’s too little, too late for them. So it’s really multiple issues that’s been, uh, dragging on the stock. And quite frankly, Josh, uh, what is exciting investors is AI and AI growth in the data center, and Apple is all not that. They are AI on the device, uh, at best.
02:55 Josh Lipton
On AI, Patrick, here’s what I hear. I, I hear some Apple Bulls make the following argument. I’m very curious to get your take. They say, Yeah. Apple is playing a different game. In other words, they’ll argue Apple is not spending billions and billions and billions of dollars on AI CapEx. That is the meta Microsoft, Google playbook. Apple, they’ll say, different strategy. What they’re doing is they’re going capital light and then charging a fee to model providers who want access to their many, many iOS users. And that, they’re trying to argue, hey, their argument is that is a smarter way to generate a compelling return. What do you make of that argument?
04:21 Patrick Moorhead
So it’s a little bit of a pass the buck argument. Uh, I think if Apple had a core competency in the cloud, uh, beyond, uh, downloading movies and, and backup, uh, and iTunes, uh, it, it would be a very different story. I, I think that, uh, Apple, because it doesn’t have the core competency in the cloud is much more focused on making the on-device experience better. A, and I give Apple, I, I, I like that strategy for device makers, but it, in reality, as we’ve seen with companies like Samsung, they’re leveraging, uh, on-device AI for themselves, uh, and then leveraging Google, uh, for, quite frankly, the user doesn’t care where it comes from. They just want a good experience, uh, that’s very, that’s very quick, and they don’t want to pay a lot for it. So I think it’s a pass the buck type of strategy.
06:07 Josh Lipton
What do you make of, of an argument I’ve heard, I heard it on today’s show, Patrick, from an Apple Bull who will say, listen, it comes down to the install base. They’ve got a lot of loyal fans all over the world. I think, yeah, close to 2.4 billion active devices. It’s a number it’s hard to even get your head around. And their point is, hey, that’s a lot of loyal, locked-in fans that buys Apple not just months, but they’ll tell me years, in their opinion, to get AI right.
07:04 Patrick Moorhead
Yeah, Josh, they’re absolutely correct. Apple has some of the most loyal customers out there, and we can debate whether loyalty is really just because they don’t open up iMessage, and they don’t want to be the green chat along with the blue chat folks and be looked at as, you know, what’s, what’s wrong with you, but, but they do have loyalty. And smartphones have as, in, in essence, have become a commodity, and the, the equation that goes through somebody’s head if they want to switch is really about, my gosh, this is going to be huge hassle. It’s like changing a bank, right? What a hassle, uh, to be able to do that. So 100% there’s a lot of stickiness, and I like to say that brands have half-life, okay? And I, I think Apple can continue to not deliver on AI and not do a tremendous amount of damage to their brand in the United States and Western Europe, but when it comes to Southeast Asia and China, and Japan, and South America, uh, it, it is becoming an issue here, and the longer that they’re looked at as, as uncompetitive.
