[oflannabhra]

I don't think this surprised Apple. In their September 2018 event [0], Lisa Jackson took the stage to say that Apple sees longer-lived devices as a goal of the company, from both a consumer and environmental standpoint. She specifically called out the renewed life that iOS 12 will bring to older devices. On top of that, at WWDC 2018 [1], Federighi heralded the new life customers will find when iOS 12 would be released to 5 year old phones.

I don't think that any of this has surprised Apple. I think they have long seen that peak iPhone (and a mature market) is coming, or even already arrived.

Apple is focusing on their install base, which is enormous (over 1.5 billion devices [2]), and is figuring out ways to leverage that advantage. They know that the upgrades will come, albeit more slowly, but in the meantime, they can provide services, accessories, and eventually new products that customers will be fully willing to pay for. I think it is obvious that there is a pretty big transition that the company is in the middle of, but I think they are clearly best positioned to take advantage of that position.

It would, frankly, be baffling for Apple to suddenly change course direction over a single quarter. I think they are setting this course (ie, longevity of devices) because they think it is the right thing to do for their customers, similar to how they uniquely ran the battery replacement program. [3]

[0] - http://live.arstechnica.com/apples-september-12-2018-gather-...

[1] - http://live.arstechnica.com/wwdc-2018/#post-1319367

[2] - http://www.asymco.com/2018/02/27/the-number/

[3] - “We did not consider in any way, shape, or form, what it would do to upgrade rates. We did it because we thought it was the right thing to do for our customers. And sitting here today, I don’t know what effect it will have. And again, it’s not and was not in our thought process of deciding to do what we’ve done.” - Tim Cook

[fauigerzigerk]

If all (or most of) the growth is in services as Apple claims, why hike hardware prices so much that it could over time erode their installed base?

I believe the answer is that Apple doesn't really believe that service revenue will grow fast enough to compensate for longer hardware replacement cycles.

And that belief is probably justified because their service offering doesn't seem very robust at this point.

[oflannabhra]

Apple didn't just raise prices, for the sake of raising prices. Their takeaway [0] from the iPhone X was that customers were willing to pay for more advanced and more expensive features. FaceID, OLED, stainless steel, etc. Apple is making more expensive products (not just raising prices), because people have shown that they want to pay more for more value.

Lots of people on HN, as well as elsewhere, will take issue with that philosophy. But that is what Apple thinks, and why they have the roadmap they do.

Inevitably, there is a limit to that price elasticity, but I don't think this quarter indicates that the devices are too expensive. Also, I think you are right about services. It is the only current growth story, but 1.5 billion devices is a lot, and they will upgrade at some point in the future, most likely to another iPhone. But you are correct that there is nothing that will replace the rocket ship that was iPhone.

[0] Tim Cook - "And I think that iPhone X shows that when you deliver a great, innovative product there's enough people there that would would like that and it can be a really good business." https://www.imore.com/apple-earnings-q3-2018

[ksec]

I am not sure where you get that 1.5 Billion number from, I don't see Horace mentioning it. But the latest number of Active Devices, as Tim Cook mentioned a 100M increase would equate to 1.4B Active Devices. ( Which is actually slower than previous momentum, as they were adding 150M / year between 2016 and 2017. )

[oflannabhra]

You are correct, the most recent confirmed number is 1.4 billion active devices. I misread the projection.

[fauigerzigerk]

>I don't think this quarter indicates that the devices are too expensive

I don't claim that it does. My point is that there is a trade-off between increasing the average selling price of hardware and broadening the user base so you can sell more services to more people.

Apple's market share is now dangerously low in some parts of the world, including some rich European countries. It makes features and services that are restricted to Apple devices completely useless or far less valuable.

[scarface74]

You can’t discount both the older generation phones that Apple still sells, the used market, and hand me down phones effect on the installed base.

Every phone that Apple has introduced since 2013 is still getting updates. The 2015 iPhone 6s still runs circles around midrange Android phones and is even faster than flagship Android phones in single core performance.

[fauigerzigerk]

I'm not discounting it. I'm a happy iPhone 6 user myself. But the trickle down effect you're talking about has to start with some people actually buying new iPhones at some point. I'm a bit worried that Apple is overplaying its hand.

A premium strategy is fine. A luxury strategy could be a disaster, especially if they intend to make money on services that require broad adoption.

[edmundsauto]

In non-US locales, aren't iPhones a major luxury item and status symbol? Increasing pricing to decrease the number of users feeds into this marketing strategy.

[scarface74]

In most industrialized countries, the iPhone market share is above 30%

https://deviceatlas.com/blog/android-v-ios-market-share

Definitely not a status symbol.