Relax Everyone: The iPhone Is Just a Phone, Apple Is Just a Company

by Steve Wildstrom   |   September 26th, 2012

iPhone 5 photoSeptember has been an unusually newsy month, and much of the news has centered on Apple’s introduction of the iPhone 5. The run-up to the announcement, the announcement itself on Sept. 12, and the first deliveries on Sept. 21 have sent the journalists, commentators, and analysts of make up the tech industry commentariat on a run of bipolar mood swings that have been a wonder to behold. Really, everybody, it’s time to take a deep breath and get a grip on ourselves.

The Run-up. The days before the announcement we were actually fairly calm. The rumors mostly sounded reasonable and as the 12th approached, mostly converged. By the time Tim Cook and Co. had finished their presentations in San Francisco, what we got was pretty much what the rumors had led us to expect. In fact, the last few Apple product announcements have all been well telegraphed, either because the company is managing expectations through strategic leaks or Apple’s supply chain has grown so long that and its pre-announcement production needs so great that it is impossible to maintain the secrecy of the past. Most likely, it’s some mixture of the two.

Announcement and disappointment. When Apple announced exactly what was expected, the immediate response in many quarters was crushing disappointment. It wasn’t quite clear what the iPhone lacked. The complaints seemed to mostly be that the new iPhone looked a lot like the old iPhone, even though iPhone design has been on an evolutionary course since 2007. The fact that the iPhone 5 was dramatically lighter and thinner with a much-improved display, seemed to count for little. What it really needed was a quad-core processor and near-field communications. The new Lightning connector was a disaster. The phone offered neither a hoverboard nor a jetpack.

The disappointed missed some highly significant change because it wasn’t apparent and because Apple, which generally doesn’t talk much about internals, didn’t mention it. It took chip guru Anand Lal Shimpi to find out that the A5 system-on-a-chip inside uses an Apple-designed processor in place of the modified Samsung designs used in the past. The custom chip, closely matched to Apple’s software, also a big boost in performance with what looks like a small decrease in power consumption. The result was that Apple was able to use a relatively small battery with no loss in running time. This has important implications for future designs of both the iPhone and iPad, but it went largely unremarked.

Order exhilaration  Despair turned to euphoria when Apple began taking preorders and promptly announce that it had a record 2 million orders in hand and had begun pushing out promised delivery times a couple of weeks. The always optimistic and often wrong Gene Munster of Piper Jaffray forecast first-weekend sales of 120 million units with a “worst-case scenario” of 6 million. After counting buyers standing in line at Apple Stores, Munster came down the middle with a forecast of  8 million.

Maps, oh my. Then iOS 6.0 shipped on Sept. 19 and all hell broke loose. there were complaints that Passbook, a new service for storing tickets, boarding passes, loyalty cards, and the like seemed half-baked (In fact, I have yet to get it working at all on my 4S.) But the real furore concerned the new Apple Maps application, which replaced Google Maps.

I think the Maps imbroglio is the one serious piece of all this back and forth. Apple, in most un-Apple-like fashion, shipped a new operating system with a core function that works, at best, somewhat erratically and is markedly inferior to the app it replaced. What we don’t know is why Apple made this move at this time, specifically, whether it was Apple or Google that forced the change. Chances are we never will know, not with any real certainty. But I think Apple could risk some real reputational damage if it cannot quickly improve an mapping app that cannot get me from my suburban Washington home to Dulles airport without climbing a fence and running onto a runway.

But still, the anguish over maps, like everything else in this sequence, was overdone. Some writers said they would swear off the iPhone because Maps had lost transit instructions, somehow forgetting that Google Maps, with transit directions, worked just fine in a browser, so nothing was lost. (The bigger problem is that third-party location-based apps must use Apple’s inferior maps.)

Shipping day. Except for the usual silly stories about people standing in line at Apple Stores, shipping day was a bit of an anticlimax. By then, everything about the iPhone was known. The only real new issue was that the aluminum case, which replaced the stainless steel band and much-reviled glass back of the iPhone 4 and $S, could scratch, especially along the finely chamfered bezel that surrounds the display. It remains to be seen how serious a problem this will be as the phones get used.

The 5-million phone catastrophe. Then came the Sept. 24 news that Apple had shipped 5 million phones on the first weekend of sales. Although this was a spectacular number by any standard, it was widely seen as a disaster, coming in, as at least one headline put it “50% below expectations.” 

It’s true that first-weekend iPhone sales were up only 25% over 4S sales for the comparable period, while 4S sales were roughly double sales of the iPhone 4. But it’s worth noting that a 25% growth rate is spectacular for a company of Apple’s size, and doubling could not have continued for long (see the wheat and chessboard problem.) Beyond that, we know very little about how sales are really going. Apple records a sale only when the phone is in the customer’s hands and we have no idea how many pre-orders are still in the pipeline. We have no idea the extent to which shipments were constrained by supply  (Bloomberg reported that Apple is facing a shortage of displays, but that’s based on a bunch of reports by analysts who may or may not know anything.) It will take some time to get a good idea of sales; there’s every indication they are strong and the question is just how strong.

Nonetheless, Apple’s stock dropped 3% after the “disappointment.” This is still odd, since Apple is not priced like investors expect 100%, or even 25% growth.  It’s price-earnings ratio is just 16, about a point higher than IBM, a company that can thrill investors with 5% growth.

Something about Apple just seems to inspire mass craziness. Much of this dates back to the days when the late Steve Jobs could seemingly pull miraculous products out of his hat and by the astonishing recent growth int he company’s sales, profits, and stock price. But it’s time for everyone to sit back, take a deep breath, and remember that Apple is a very big and very successful company. If it releases a revolutionary product every few years–I’ll argue the last was the iPad in 2010–it’s innovating better than just about anyone else on the planet. If it grows at just 15% a year, it is growing much faster than any other company its size. It operates the most successful retail stores anywhere. And it can be very successful for a very long time.

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • Uday Varma

    Great article Steve.The line about Gene Munster was absolutely hilarious.

    A few points to add -
    1. Because Apple inspires such craziness , the media knows that every Apple article is read over and commented adding to pageviews
    2. The trolls seem to be out in force with writers having to bend over backwards to appease this audience. those who don’t are quickly derided as apple shills. Negative coverage works much better and tends to echo a lot more in the blogosphere
    3. Analysts seem to have swung from always underestimating Apple to overestimating them. I am guessing the days of Apple smashing analyst expectations are gone

  • http://www.facebook.com/THExREALxTACO Jeremy Taco Patterson

    A great read, indeed.

    I completely echo your sentiments: just what exactly do they expect Apple to do? They have never added features “just because” (NFC, for example, that the Droid Herd seems to think is a HUGE deal. I still haven’t seen an opportunity to utilize it in any form. Could be because I’m in Alabama though. We did just get indoor plumbing, after all) or followed “MUST BE HUGE!!!” trends (also a sticking point with Androiders who seem to think if you can’t signal deep space with a 3lb phone, you are OMG BehindTheTimes!!!), yet the VAST majority of tech and gadget writers seems to think they need to write that Apple is “falling behind”.

    • Rich

      No doubt most cellphone manufacturers would kill for the kind of attention Apple gets.

  • mhikl

    The times they are a changing and we’ll soon see free energy, flying saucers, hydrating water at every watering hole, weed extract cancer cures and the return of a tempestuous planet overhead, but in the meantime, Apple chugs along doing its magic in full view and every Tom, Dick and Harriet awakens from their glass sleeping chamber amazed at the progress Apple continues to spring upon us. In the land of reality the sure footed tortoise really does win to the delight of small children and mature adults.
    Meantime we’ll leave the loony ponderation to the hyper-teenage mind of miff ‘n rancour with the assured understanding that the smart ones do mature, eventually finding their token to pledge at the Apple troth.

    • benbajarin

      “Approve”

  • Grwisher

    Regarding: ‘Maps, oh my.”

    After reading countless articles about how horrible iOS6 maps were, I decided to see for myself what the problems were. In my use of maps (point A to point B usage) I found them to be entirely adequate. Only one search, for “Balboa Hotel and Resort” in Newport Beach CA, was not accurate. This gave me an opportunity to try the problem reporting feature of iOS maps. It was very easy to report the problem to Apple. It doesn’t seem that the iOS6 maps are going to be a catastrophe for everyone, at least not for users like me.

    Another nugget I discovered about the maps application is that the maps app is not one that Google created and maintained. The map app was created and maintained by Apple. Therefore Apple is further along in this project than I, and probably others think. Now, Apple has a lot to do especially in correcting their maps data base, but over time it can be done. And when it is enhanced sufficiently, it will benefit Apple users more than being at the mercy of an arch rival. As others have pointed out – this “end of the world” problem will be much like Flash. It may be dicey at first, but in the end it will be best for the consumer.

    Regarding: “The 5-million phone catastrophe.”

    I think all of us were fooled in thinking that the high estimates were right because they were based on the initial preorders. The other component that validated this prophesy was that the number of countries and carriers were to be far greater for the 5 this year compared to the 4S last year. Why would Apple launch in so many more countries and carriers if Apple thinks it will have a substantial supply problem? The logical answer is that Apple would not do so and that Apple is confident that the supply will be there. I am a dreamer, and I might be wrong, but I think we are going to be pleasantly surprised by the sales of this product.

  • zim star

    Apple does a new body 3G, 4, and 5. They then do an enternal upgrade the next year of the processor, ram etc, 3GS, 4S, and probably iphone 5s .