Apple (NASDAQ:AAPL) has built a reputation for designing class-leading hardware and historically, it has been able to charge a premium for its products based on that. With smartphone sales softening globally, AAPL’s hardware revenue growth lately has been fueled largely by the company getting away with hiking prices to make up for slowing unit sales. To reduce the hit Apple stock took from declining iPhone sales, the company simply raised the price — and for a few quarters at least, that strategy saw iPhone revenue increase, despite fewer actual sales.
However, over the past several years a number of issues have called Apple’s design and quality chops into question, across all its divisions. The danger is that if AAPL continues in this direction, those premium prices it charges for iPhones, MacBooks and iPad Pros and other hardware will not longer be sustainable. And that would spell trouble for revenue and Apple stock.
The first example here is a classic: batterygate. Last year Apple admitted to intentionally slowing the processors in older iPhones, a move made in secret to help make the devices more stable as their batteries depleted.
The problem was consumers were suspicious that AAPL was throttling iPhones in order to reduce performance to encourage upgrading to a new iPhone. In an attempt to reduce the PR black eye it received over the issue, Apple offered significantly reduced battery replacements to iPhone owners. The move is estimated to have cost the company $8 billion in forgone iPhone purchases — plus the $50 a pop the company ate on 11 million battery replacements.
Cancelled AirPower Wireless Charger
No product in recent memory has made Apple look more foolish, or hurt its reputation for engineering more than one that was never released: the AirPower wireless charge mat.
Apple announced the AirPower alongside the iPhone X in 2017 — perfect timing as key Apple products including the iPhone and Apple Watch supported wireless charging. However, the AirPower’s release date slipped to “coming in 2018” and then after the 2018 iPhone event it was scrubbed from Apple’s website. At the start of April, the company officially cancelled it, citing an inability to meet its quality standards.
The AirPower was trying to do more than most wireless chargers, but the fact remains that with hundreds of competing wireless chargers already on the market, AAPL’s hardware design reputation took a big hit when the company gave up on the AirPower.
MacBook Keyboard Lawsuits
Apple is notoriously obsessed with making its products thinner. When it released a new MacBook laptop in 2015, the company introduced a new “butterfly” keyboard that was thinner, but largely hated by consumers.
Despite the outcry over the butterfly keyboard, Apple doubled down and put it in the MacBook Pro lineup and then the new MacBook Air. Meanwhile the issue escalated. Instead of hating it just because it lacked tactile response, Apple laptop owners began to discover the butterfly keyboards had high failure rates and mere specks of dust could render their laptop unusable.
Apple’s reputation has taken a big hit over the butterfly keyboard. There’s a perception the company emphasized thinner design at the cost of usability, then its engineers were unable to fix the keyboard’s design flaws — despite being on the third revision. At this point, Apple is trying to deal with the growing crisis by promising 24-hour turnaround on MacBook keyboard repairs.
The iPhone camera was considered the gold standard for many years. There was a reason photos shot with an iPhone dominated online photo sharing sites like Flickr.
That’s no longer the case, though. Alphabet’s (NASDAQ:GOOG, NASAQ:GOOGL) Google Pixel smartphones use AI to blow away the iPhone’s low light capabilities. Samsung, Huawei and other manufacturers are popularizing smartphones with three or more cameras for more effective wide range and telephoto shots.
The iPhone camera is still decent, but Apple is no longer seen as a pioneer and no-one is going to buy an iPhone because it has the best camera.
Falling Behind on 5G
Apple stock has been under pressure from softening iPhone sales, so the last thing AAPL needed was the possibility of being years behind its rivals in adopting the new ultra high-speed 5G cellular standard.
But that’s exactly what’s happened. Feuding with Qualcomm (NASDAQ:QCOM), Apple turned to Intel (NASDAQ:INTC) as its iPhone modem supplier. But Intel fell behind and then threw in the towel on 5G. Apple was forced to quickly settle with Qualcomm (paying an estimated $6 billion) in order to get 5G capability for the 2020 iPhones. But it’s probably too late for this year’s release.
Bendable iPad Pros
Apple has had problems with bending products before. That’s a downside to going thin… The iPhone 6 had issues with bending that rendered phones inoperable and blew up into “bendgate” complete with bad PR, lawsuits, and a repair program.
More recently, issues with bending have hit the iPad Pro. Not only have YouTubers been posting video of themselves literally bending iPad Pros in half, but AAPL admitted some new 2018 iPad Pros actually shipped slightly bent. The company claimed this was “normal” and its hardware reputation took another hit.
Stuttering iPad Pro Displays
As is bending wasn’t a big enough problem, Apple is now dealing with reports of 2017 and 2018 iPad Pros suffering from stuttering displays. In addition, the affected iPads have issues responding to touch input.
Considering the iPad Pro starts at $799 and Apple has spent considerable time touting its Liquid Retina display as being “the most advanced on the planet,” this issue is far from good news.
Killing the Headphone Jack
The iPhone 7 was a well regarded iPhone, especially the new dual camera system on the iPhone 7 Plus (probably the last time an iPhone camera was considered an industry leader).
But AAPL earned the ire of many potential buyers by eliminating the headphone jack. The company claimed the move was the cost of improved water resistance, but other companies like Samsung have been able to waterproof their smartphones and still keep the headphone jack.
There are two popular theories for why Apple killed the headphone jack. Either Apple’s hardware chops aren’t on the same level as Samsung, or the company killed that jack to boost sales of accessories like its wildly popular AirPods. AAPL comes out looking bad either way…
Sealed Hard Drives in New iMacs
The iMac is Apple’s primary desktop computer, and something of a design showcase for the company. Earlier this year, Apple refreshed the iMac line with new Intel CPUs.
However, it was soon discovered that the $1300, 21.5-inch iMac still comes with a 5400 rpm hard drive for storage, an option that was first available in 2007. That’s embarrassing on multiple levels.
First, SSDs or at least hybrid drives are pretty much industry standard at this point, especially in premium PCs. And the hard drive Apple is shipping isn’t even a fast one, it’s a slow version. That hard drive will be significantly slowing the iMac’s performance, despite its speedy new processor. Hard drives also have much higher failure rates than SSDs, and the iMac is a completely sealed unit — so when that hard drive fails (and it will), the owner faces a very expensive repair that involves lugging the computer to an Apple Store where the display will need to be removed to access the dead drive.
Swelling Apple Watch Batteries
The Apple Watch has turned into a success story for Apple. That’s good news as the company turns to wearables to take the pressure off iPhone revenue and to provide future Apple stock growth.
However there is some bad news in there as well. The company is now dealing with a class action lawsuit over a hardware issue with the Series 2 and Series 3 Apple Watch. There have been numerous reports of swelling batteries popping off the Apple Watch display or even cracking it. Either way, the owner is left with a repair so costly they often choose simply to buy a new one instead.
With the Apple Watch being touted as a crucial product that could also be key to AAPL’s entry to the lucrative healthcare market, this is not the kind of headlines the company — or its investors — want to see.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.