Consumer electronics slump, Apple saves itself? What is the future of shielding conductive and heat-conducting materials?

The market environment for consumer electronics may still be deteriorating. At the end of July, Apple officially launched a rare discount promotion in China, involving products such as smartphones, watches, headphones, etc.

This is widely believed by the outside world to be one of the necessary means of destocking, but Apple CEO Cook later denied it. Upon closer inspection, this discount not only has a relatively short duration, but also only covers a portion of Apple's products. In terms of volume and discounts, it is far inferior to big promotions like 618 and Double 11.

Apple has also raised doubts about its lack of sincerity as a result. You should know that Apple accounted for half of the phones sold during this year's 618 shopping festival. The problem is that it has only been less than two months since the 618 shopping festival, and there are also e-commerce and distributors involved in the e-commerce promotion. This time, Apple is the only one offering discounts, which still has a taste of testing the waters.

Proactively promoting during non major promotional periods is more worth exploring than the promotion itself. Apple's attitude towards price reduction has always been vague, even rejecting words related to discounts and promotions. A symbolic event is that Apple has not set up an official flagship store on Pinduoduo, which has the cheapest genuine iPhone.

The deteriorating external environment is also continuously stimulating Apple. According to research data from IDC, Canalys, and Omdia, the global decline in smartphone and PC shipments did not change in Q2 2022.

Strong as an apple, it's hard to be alone. According to IDC, in Q2 2022, Apple's smartphone shipments only increased by 0.5% year-on-year, tablet global shipments decreased by 2.9% year-on-year, and PC global shipments decreased by 22.5% year-on-year. Although compared to OPPO, the mobile phone business vivo、 Xiaomi and Apple have shown stronger shipment performance, but the weak growth rate is also visible to the naked eye.

However, compared to the unfavorable external environment, the real reason why Apple feels pressure and needs to make some changes is that there are too many areas where Apple needs money.

High expenditure pressure

As a consumer electronics giant, Apple has been relatively restrained in expanding its business, focusing more on consumer electronics hardware such as smartphones, computers, tablets, and wearables. Earlier, when it comes to autonomous driving, enterprise cloud computing, AR and VR, and even foldable phones, Apple's actions are obviously much slower compared to other tech giants such as Huawei, Xiaomi, Samsung, Meta, Tencent, etc.

Apple, which has not actively expanded its territory, may not seem to have a tight wallet, but the fact may be the opposite - Apple's thirst for money is constantly expanding.

Firstly, the acceleration of new business. Although the progress is significantly slower than its peers, this year Apple is focusing on VR AR、 There has been a significant acceleration in new businesses such as autonomous driving. On the one hand, due to the downturn of traditional consumer electronics businesses such as mobile phones and computers, Apple must seek more sources of monetization; On the other hand, new businesses have better profit prospects.

It is reported that Apple's first AR or VR device is expected to start mass production by the end of the year and be available as early as Q1 2023. In addition, Lamborghini executives have recently been rumored to have officially joined Apple's car manufacturing project.

In 2021, Meta spent $10 billion on the metaverse, and General Motors recently increased its investment budget for autonomous driving business from $27 billion to $35 billion by 2025. Whether it is the XR business entering the production period or the accelerated landing of car manufacturing projects, it will bring considerable financial pressure to Apple.

Secondly, complete the technical chart. In order to gain absolute control over core components, Apple has been adhering to its self-developed strategy for many years. From computer CPUs to mobile baseband chips, Apple's goal is to replace them with their own products. After the arrival of the 5G era, baseband chips have always been a pain point for Apple's self-developed technology.

Recently, media reported that Apple spent $445 million to acquire the HP campus, intending to accelerate the development of baseband chips to replace Qualcomm. Although Apple has a wealth of successful self-developed experience and technological reserves, the difficulty of baseband chips is high, and it is generally believed in the industry that it will take longer.

Against the backdrop of many technology companies taking the lead in laying out 6G, Apple must accelerate the layout and commercialization of related core technologies, establish its core competitive advantage in the 5G era faster, and fully approach the self-developed ecosystem.

Thirdly, the expenditure on subscription services has increased. In order to improve the monetization ability of content subscription services, Apple's spending on the content side is accelerating. In June, Apple signed a ten-year streaming partnership with Major League Soccer in the United States.

The Q2 financial report shows that the total number of Apple's various paid subscription users has reached 860 million, an increase of 160 million in the past 12 months. The layout of content related to sports events and movies is becoming an important means for Apple to increase the number of paid subscription users. Apple is striving to catch up with content giants such as Disney and Netflix, and its subsequent content spending speed will only be fast and not slow.

Fourthly, new lawsuits continue to arise. Developers from France, Spain, Portugal, and other regions have recently filed lawsuits against Apple due to excessive commission rates; Due to monopoly, Apple is also facing lawsuits from relevant agencies in Germany, Russia, and other places; Due to keyboard issues, Apple has recently paid tens of millions in settlement fees.

From past cases, it can be seen that large companies like Apple ultimately have to settle various lawsuits at a considerable cost. To some extent, these are legal risks brought about by their business models, and Apple may be troubled by them for a long time, paying a higher monetary price.

In addition, the plan to slow down recruitment also indirectly reflects that Apple's funds have become more tight.

Thinning profit cushion

In addition to discount promotions, Apple is also trying its best to increase revenue, such as selling refurbished machines and launching flash delivery services. Because Apple has realized a more realistic problem, that is, due to various unfavorable factors, the previously thick profit cushion is becoming thinner.

Firstly, the hardware's ability to generate revenue has declined. In terms of gross profit and gross profit margin, the financial report shows that the comprehensive gross profit margin of the hardware business in Q4 2021, Q1 2022, and Q2 2022 were 38.4%, 36.4%, and 34.5%, respectively; The gross profits were 40.12 billion US dollars, 28.17 billion US dollars, and 21.87 billion US dollars, respectively.

There are force majeure reasons, such as exchange rates, the strengthening of the US dollar is not conducive to Apple's overseas business, and there are also operational strategy adjustments, such as promotional discounts and the launch of more low-priced phone models.

Secondly, the driving force for service revenue has declined. According to the financial report, the revenue of Apple's service business in Q1 and Q2 2022 was 19.82 billion US dollars and 19.6 billion US dollars respectively, with year-on-year growth rates of 17.3% and 12.1%, respectively; The gross profit was 14.39 billion US dollars and 14.02 billion US dollars respectively, with year-on-year growth rates of 21.5% and 14.8%. From a month on month perspective, the revenue, gross profit, and gross profit margin of the service business have all decreased in Q2 2022.

From Apple's previous strategy, the growth momentum of the service business mainly comes from two aspects. Firstly, subscription promotion activities, such as the "10 yuan free listening for 3 months" promotion previously launched by Apple Music; Secondly, the increase in new hardware users. During the Q2 earnings call, Apple executives mentioned several data points: over half of iPad installations are new users, and nearly half of Mac purchases are new users.

However, there are also hidden dangers in the service business. Firstly, the digital advertising business is weak due to the overall environment. Secondly, the growth rate of paid subscription users may peak. In the five quarters from Q2 2021 to Q2 2022, the total number of paid subscription users for Apple was 700 million, 745 million, 785 million, 825 million, and 860 million respectively, with a downward trend in quarterly new additions.

For Apple, it may not be very realistic to make money lying down. The hardware business, as the main source of Apple's profits, has been in a passive state of rising costs for quite some time. Although the gross profit margin of software services is high, the driving effect is weakening. During the Q2 conference call, Apple's expected comprehensive gross profit margin for Q3 is 41.5% to 42.5%, which is lower than Q2 and means that Apple's profit margin is still under pressure.