How Tim Cook could win back investors' hearts and minds

January 10, 2019 13:21
Apple chief executive Tim Cook has been providing an upbeat assessment of the company's outlook since its shares plunged after a profit warning last week. Photo: AFP

After Apple's shares sank following a profit warning about worse-than-expected quarterly revenue last week, chief executive Tim Cook has been trying to put a positive spin to the company's outlook.

Cook told CNBC's Jim Cramer on Tuesday that despite iPhone's lackluster holiday sales, the company generated US$100 billion revenue that was not tied to the smartphone in the last fiscal year.

But just hours after that upbeat interview at an Apple Store in Palo Alto, California, Nikkei reported that the technology giant is planning to reduce its production volume for the January-March quarter by 10 percent, citing “sluggish” iPhone demand in China.

Actually, the news is simply a reiteration of Cook's earlier revelation that the company's torpid performance in the last quarter was due to weak demand in China.

Apple had sought to expand its share in the mass market with the launch of the iPhone XR, a cheaper version but with most of the hardware specifications of its flagship iPhone XS series.

It had thought that the iPhone XR would be a big hit in the emerging markets, especially China, its second largest revenue source.

However, the actual performance did not quite meet expectations. Sluggish sales in the last quarter were mainly due to the cool market response to the iPhone XR, sending Apple's market capitalization down from more than US$1 trillion to just around US$700 billion recently.

The dramatic plunge reflects investors' pessimism about Apple's near-term outlook, regardless of the management's pledge to pursue a prudent approach to both product development and financial management.

Cook remains upbeat about the iPhone XR. He told CNBC's Cramer: “Since we began shipping the iPhone XR, it has been the most popular iPhone every day. I mean, do I want to sell more? Of course, I do. And you know, we’re working on that.”

What Cook is actually saying that he is sticking with his strategy of launching a lower-tier smartphone to widen the company's market share. 

Cook insists that the iPhone XR is Apple's best-selling smartphone since its debut. But when you put his assertion next to the news about order reductions from the supply chain, you would be quite confused as to the actual performance of the iPhone XR.

If the iPhone XR is selling well, there should be no reason for Apple to cut the production volume.

But since Apple would not provide shipment numbers for the current fiscal quarter, investors find it hard to get a full picture of iPhone's performance.

While iPhone sales are likely to remain a major headache for Apple in the short to medium term, the company is also trying to convince investors that its wearable business, along with its service division, is a key growth engine.

Cook said wearable products, particularly the Apple Watch and AirPods wireless headphones, were doing well. “On a trailing basis, the revenue for wearables is already 50 percent more than iPod was at its peak,” he said.

He also said the Apple Watch and the AirPods have each generated between four and six times more sales than the iPod had generated during the same amount of time since its launch.

Both the Apple Watch and the AirPods are the latest products the company has launched since Cook took over from founder Steve Jobs.

Many observers have revived doubts about Cook's leadership, noting that he has failed to deliver the same amount and level of innovation that underpinned the company's surge when Jobs was at the helm.

However, comparing Cook to Jobs is unfair, if not a pointless exercise. The market changes all the time, and whoever is the leader of Apple needs to deal with the current situation and adapt to the change.

Sales of the Apple Watch and AirPods are not bad – in fact, they're encouraging. Their performance demonstrates that Cook has indeed found new routes to expand the company's ecosystem.

Apple should be commended for making a serious foray into the healthcare sector, as the Apple Watch is now hailed for its capability to prevent serious medical conditions through the regular measurement of the user's heart rate.

Cook, in fact, said there will be key announcements in connection with healthcare service later this year, implying that the Apple Watch is likely to bring in new revenue streams for the company.

Apple is also expected to launch a new AirPods this year, capitalizing on the initial success of its most popular accessory.

Still, the bottom line is what counts. The latest financial figures released by Apple are already historical data. Investors want to know the company's direction and its latest innovations.

Cook and his team must deliver on those goals to regain investors' trust.

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EJ Insight writer