RUSH: I got an email. “Rush, the week you came back from your two-week vacation you talked about Apple and the plunging stock price, and you never talked about it — and I’m curious what you think about Apple and the fact that 11 million people chose to replace their batteries in phones rather than get new phones.”
You know, this actually an instructive thing in and of itself. Apple was blindsided by this. Let me give you a brief history of what this was. Apple had begun throttling the processors — this is via software. You weren’t aware it was happening. They were throttling processors in phones that were 18 months old and older. The reason is battery degradation. Batteries wear out. They start to lose their efficiency and their power after a year. And in a year and a half, some of them seriously.
And people in that circumstance too often were encountering phones that would just temporarily shut down and restart or shut down permanently and require a manual restart all because the battery had lost enough power that it could not drive the processor as designed. So Apple was throttling the processor. Meaning they were slowing down the speeds of the central processing unit and other things so as not to cause the battery to shut down the phone.
Well, this led to people accusing Apple of doing this on purpose to make people think their phones were wearing out so that they would replace them and buy new ones. And they may have been, I don’t know. But that was such a bad PR hit, they couldn’t withstand that, that at the beginning of 2018 they announced a special one-time battery replacement program price of $29. Normally you replace a battery in an iPhone you’re gonna spend, depending on the phone from, say, 60 to 80 bucks. But they offered anybody who wanted to replace a phone battery, the opportunity to do it by December 31st, 2018, at 29 bucks.
So the year goes on, and apparently there’s not a very big increase in the number of people taking advantage of the program. The number of people that change their batteries in an Apple iPhone every year is between one and a half and two million. That’s the average. And people were not replacing batteries at anywhere near an increased rate over that. Then Apple announces their new phones, three new phones in September and October. And by the time November-December came around, 18 million additional or 17 million additional iPhone owners decided to switch batteries instead of buy a new phone.
Now, Apple had already issued their quarterly projection, their guess to what the Christmas quarter would be, and they didn’t see a whole lot of people taking advantage of the battery replacement program because it didn’t start ’til after their phones came out. So what essentially has happened is Apple got blindsided by this. The majority of the 11 million people who switched batteries waited until December to take advantage of it because the program expired at the end of December.
This is long after Apple had issued its next quarter guidance to Wall Street. Up until December only the usual one to two million people had replaced batteries during 2018. So the problem for Apple is twofold. Ten million or so people decided they didn’t like the new iPhones that were announced in September and October and didn’t buy them. Instead, they took advantage of the battery replacement program.
So rather than spend 750 to a thousand dollars on a new phone, they spent 29 bucks for a new battery, and guess what? The new battery turns 3-year, 4-year, 2-year-old phones into like brand-new. Which illustrates something else that is really fascinating to me. It’s a sign of how stagnant battery technology advancement is that 3-year-old iPhones can be made to perform like brand-new with a simple battery placement. Apple also is a participant in this because their new iOS 12 was written to be more efficient and to be faster on older phones.
So people had no reason to upgrade to new phones. All they had to do is 29 bucks, new battery, and they’ve got a 3-year-old phone, but it is wicked fast. It’s like brand-new. See, battery technology has maxed out. Lithium ion battery tech has maxed out. The smartest people in the world have not found, in over 15 years, how to improve battery life with battery tech.
Battery life improvements all come from hardware and chip advancements, which use less power to operate while becoming amazingly more powerful in performance. That’s where all of the real tech innovation is, is in the chips and the hardware. More and more powerful chips and performance components using less and less battery.
Now, battery tech has been improved in the lab. There’s all kinds of new components being used to test new battery technology. But they’re nowhere near scaling it to where it could be made at affordable prices to the tune of multiple millions of batteries every year. So we’re stuck with existing battery, while all tech in your phone or in your TV, tech has been innovating and advancing like never before, but battery technology is stagnant. So a 3-year-old phone can be made to operate in terms of speed and efficiency, like brand-new with a $29 or $79 new battery.
And Apple didn’t know, they had no way to factor that there were gonna be 11 million people that were gonna go for the new battery route rather than the new phone because it happened after the new phones came out. So people look at the new phones with a much more expensive average price, you know, $800 to a thousand dollars, said, “It doesn’t make any sense. If a new battery will make my 3-year-old phone act like a new phone, why do I need a new one?” And so they didn’t.
And Apple didn’t factor the 11 million hit to new phone sales into their quarterly projections, so that’s why they had to issue their revision. It’s not all due to the battery replacement. But it is still a fascinating thing here that — I don’t believe Apple was purposely making phones operate slowly so that they could sell more of ’em. I actually think they were acknowledging that battery tech is so bad that they had to downgrade the performance of those old phones so they weren’t shutting down on people all the time. You don’t want that.
Another way to look at this is that since 11 million iPhone owners opted to get new batteries instead of new phones, they’re still iPhone owners. They’re still using iPhone. Eleven million people did not leave, did not leave Apple, did not go to Android or some other competitor. Eleven million people stayed in the Apple ecosystem, universe. So it has an upside to it.
But that’s the short version of what I think about it and why they got caught short in missing their Christmas quarterly revenue estimate ’cause they simply didn’t factor ’cause they didn’t know. They had no evidence that 11 million people were gonna change to a new battery ’cause it didn’t happen ’til the last month of the year after their new phones had already come out.
Back after this.
RUSH: One more thing on this. If I were Apple, I would be so frustrated at the way all this panned out because the new iPhones this year, particularly the iPhone XS and the XS Max, are state-of-the-art pieces of technology. There is nothing like them. They are simply the best mobile computer devices that have been produced in the history of mobile computing devices, from the computational photography improvements to the battery life that they’ve done, the chips, the speed, the increased LTE download speeds, the improvements in the LTE cellular antennas, these phones are state-of-the-art.
But Apple priced them too high and they frightened people into buying ’em and so now people are out replacing batteries in 3-year-old phones. Which is fine. I mean, I totally understand. You have 3-year-old phone, you’ve got a lot of other things in your budget you have to spend money on. If you can make your phone operate brand-new and you don’t care about some of these new features ’cause you may not even know what they are, all you know is your phone’s operating brand-new for 29 bucks, why not do that?
But the same time, they have got the absolute best state-of-the-art, call ’em mobile phones, mobile computer devices. I mean, I’m dazzled by what you can do with these and how they operate. For the people that design this stuff at Apple, it’s gotta be one of the most frustrating years ever. The excellence of the product and the confluence of events resulting in them not selling as many as they have.