Office Hours #Q&A #WWDC #transcript
Recording and transcript of the June 9, 2026 Asymco One Office Hours, recorded the day after Apple's WWDC 2026 keynote. Horace Dediu shares his impressions of the event and takes questions from Asymco One subscribers.
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The Asahi Shimbun Interview Part 4
Horace Dediu / Takeshi Narabe & Dylan Weir / Asahi Shimbun Interview, April 2026
Takeshi Narabe • 22:44
Japanese companies always follow and concentrate on seeking additional functions so that is very in contrast to Apple so there is a growing concern that Apple might be falling into the same spec trap that runs parallel. Japanese firms you know focusing on incremental hardware improvements like you know iPhone's more thinner and thinner...
Horace Dediu • 23:34
It's true. But I will say to the defense of Apple, of course, they need to maintain some improvement. Otherwise, people may not consider buying it. They do think hard, though, about what needs to be improved. And many times they don't improve things that many people ask for. They'll say, "Oh, you need a refresh rate of hundreds of hertz." They don't bother with that. Or they [won't offer] more resolution, more than even the eye can see. They don't do that. But they'll do a lot with the camera.
And they'll probably do more. They do amazing things with audio. They do really, really interesting things as far as... Like face ID was something that was nobody asked for. But now it's a very, very useful thing. People recognize the value. So I do think there's a roadmap there that's kind of interesting.
But here's the bottom line, you know, Christensen said, that the trajectory of what performance people expect is not as steep as the trajectory that companies can deliver. And that's why you overshoot. What Apple has been able to do, at least through the lifespan of the iPhone so far, is to cause people's interest in more improvements to rise a little bit.
And so the theory basically says that there is a flat trajectory to the user demand of performance. But my [observation] is that eventually you do drag people up, just like with non-consumption. People don't ask for a better camera, but once you give it to them, they're like, oh, yeah, I really want an even better camera.
[The performance demand] it created... I mentioned the short video TikTok format, It was the phone's camera that allowed [average] people to suddenly become filmmakers. And it allowed people to become "vanity machinery"[1]. It became all about vanity, all about selfies. And [as a result] you have to have a front camera and a back camera and you have to have editing software and you have to have a more powerful processor and you need a huge amount of storage when you're dealing with video.
So suddenly, the phone needs more and more and more. But the demand for video editing on a phone was created essentially from nothing. It was created by the supply of camera. And so, yes, that is a theory that you have a problem if you overshoot. But I think in the old days, a consumer electronics company would add buttons.
I was at Nokia for a long time, and we had buttons and buttons and buttons. We had one phone with over 100 buttons on it.[2] That wasn't very useful. So the idea of Apple is that they remove buttons. They make it even cleaner in that design, and they make it easier. So face ID is an example, and privacy is important.
By the way, that's another thing that they sold to people. If you think about it, nobody asked for privacy because everybody was okay with sharing. But the fact is, it's like the automotive industry has safety, and nobody asked for safety either. But you should deliver safety, you should protect the passenger. [Today] it's considered hygiene. [If] you don't have it, it's bad, but if you have it, nobody cares. But in the case of Apple, they're pushing on privacy.
So yes, it is a concern that you overshoot. However, one more defense of Apple is that they introduce these wearables. So if you take the AirPods, for example, again, not a product anybody asked for. And when they were first introduced, they were made fun of because it was [so funny looking.]
The AirPods are a very clever new product, [they are] an extension of the iPhone. They're not the iPhone per se, but we have a wonderful must-have accessory. I feel like I'm naked without taking my AirPods with me. The same with the watch. Another product extension. Again, it's an option. You don't have to have it, but once you have it, it becomes addictive.
There are many things on the watch, which again, from health reasons, from managing information that I only need to look at for a few seconds, all of those things. (I'll give you a simple example. I never check the weather on my phone. I only check the weather on my watch because it's there with the temperature always on the home screen. And if I want to learn more, I tap on it. I don't even know how to do it on the phone anymore. You know, I have to find the weather app and then scroll and things like that. Never do that anymore.)
So there are things you do now with accessories that the phone has essentially been disrupted by. But it's still at the heart of the network of Apple. It used to be the Mac was at the center. Now it's the iPhone. So again, this is cleverness.
I was a student of Christensen, and Christensen always thought that Apple was not disruptive, and that Apple would be disrupted by the low end. [I was not so sure.] I was a bit sensing that there was a disturbance in the theory because in many ways Apple's behavior is so atypical to a normal company. And most companies would do the wrong thing, but somehow Apple managed to not step on those mines, not to fall into those traps.
Why? I'm not quite sure. And we continue to have the discussion. I really think it's culture. I really think that they've solved the Innovators Dilemma. Not by reading a book, not by taking a university class, but by always being extremely nervous, extremely careful and extremely passionate and extremely paranoid. All of these things.
Which points out the vulnerability of Apple. If that culture breaks, if the management, the next generation doesn't know how to do it, then suddenly it might fail. Because it's held together by such a force that it's hard to write it down. It's public information actually, that they have Apple University, which is meant to teach internally how things are done to the next generation of managers.
So this is something they are trying to codify and to preserve. And that's an experiment, I would say, because it's not easy. But again, that's a self-critique, an introspection, looking at yourself and asking, why am I good? How do I make sure we continue? Few companies do this. Founder-led companies might, because the founder is the company, in a sense. The founder is the culture. The founder's personality is more or less how everything is done. So those companies, to speak of, let's say, Meta with Zuckerberg, even Google, and those companies, or Amazon a little bit with Bezos, although he's mostly gone.
[But], that's not an answer, because the founder doesn't last 50 years in that job. And as we talked about one century, no way is it possible. It's beyond the human lifespan.
Next in series: Part 5: Succession, study of the firm vs. study of the person
Previous in series: Part 3: Low-end, Game consoles, Secondary Markets, Displays and AI
Interview as published: 聞 Asahi Shimbun on Apple & Innovation
The Asahi Shimbun Interview Part 3
Horace Dediu / Takeshi Narabe & Dylan Weir / Asahi Shimbun Interview, April 2026
Takeshi Narabe • 16:20
[Y]ou also mentioned about the Japanese companies, overshooting, performance oversupply was also one of the reason that Japanese electronics giants were outmaneuvered by Apple: the insistence on in-house component manufacturing and a critical absence of software and service-led business as you mentioned now.
Horace Dediu • 17:02
It's a tough one. I think I know what you're getting at, but I think the puzzle there is that you try to make things better and you think by making things better you're going to be more successful and that was another observation by Christensen that sometimes you if you listen to your customers they'll ask you to do things better because that's all [the customer] can imagine.
I think the canonical example for me would be the game consoles. [...]Every new generation was more powerful and the way [the platforms] would decide how to improve it would be by talking to their customers and who are the best customers?
They are those who spend the most on games and the most on consoles. and they would survey those [customers] and [the customers] would always say "we need more performance in terms of refresh rate or, I don't know, how many dimensions of performance there are in games--i'm not particularly a user.
So the problem is that it's not just Sony but Nintendo, Xbox, everyone in the gaming industry was listening to the gamers and the most prolific and demanding gamers were those who spent the most money.
But if you compare mobile gaming to console gaming, it was always worse on all those dimensions. But if you [instead] measure how much time people spend on on mobile games, initially it was quite small, but over time it grew and grew and the number of people using phones for gaming is in the billions. In contrast, the number of people using consoles saturated at most at 30 percent of households in the United States. I don't know what it is in every country and there are many still. That's an okay business but it's not measured in the billions of users and arguably those users are not the ones you want to listen to.
The only exception was Nintendo with the Wii, which actually tried to expand to non-consumers, tried to expand to elderly people (so that they can do some movement) with the product or to young children. And that was a brief moment of success in the incumbents. But I think fundamentally, even that too gets passed to the phone.
So this is a classic example. How Apple plays in this game is a very tricky one because...
Next in series: Part 4: How not to over serve; The machinery of vanity
Previous in series: Part 2: The Story of Japanese Innovation
Interview as published: 聞 Asahi Shimbun on Apple & Innovation
The Asahi Shimbun Interview Part 2
Horace Dediu / Takeshi Narabe & Dylan Weir / Asahi Shimbun Interview, April 2026
Takeshi Narabe • 06:41
So you also compared [Apple] with the Japanese companies. Actually Japanese companies are very keen on marketing and doing some anchors many times. And I think [historically] they didn't know what consumers want. But you mentioned that is also […] their advantage […] because they only made what [management] wanted. But on the other hand, Apple exceeds the consumer's expectation or make a new market.
Horace Dediu • 07:37
The story of Japanese innovation is fascinating and I hope you give me a little bit of time to reflect upon this because I think it is also part of the story of Apple. I have a great admiration for the history of Japanese innovation. And it was something that, again, Professor Christensen taught me and made me appreciate.
Of course, during the 1970s, and maybe even earlier, but at least from the 70s onward, Japanese innovation was the world leader. It was in consumer electronics, it was in automotive, it was in many heavy industries, it was phenomenal. And the reason a lot of that happened was because Japan was constrained. Japan didn't have access to as much capital or as much land or as much resources as a lot of the industrial nations at the time. And those constraints taught it to be lean and efficient and how to think about "just in time", the Toyota production system, etc. And that wisdom came from a constraint.
As a result, Japan [began to] teach the world during the 90s and onward about how to do better manufacturing. And they taught Apple. Apple at the time was in awe. Steve Jobs was in awe of Japan. Nobody could come close. Also, Sony was a phenomenon. In fact, in interviews with executives; I was just watching an interview with [Jon] Rubinstein, who was at the time heading the iPod.… He said they were absolutely paralyzed with fear that Sony would beat them at this game. Even though [Apple] were by far the market leader, […] it wasn't Microsoft, it wasn't Motorola, it was Sony that was the worry.
Now, what happened? I think one of the things that Christiansen doesn't say--[which I do] because I come from a software engineering background--one thing that I think Japan didn't understand starting in the late 90s was the power of software. And I think it's a cultural problem. Software has a different culture fundamentally. The software engineers in general are like cats. You know, managers want to manage dogs because dogs are predictable and they tend to follow the instructions. People who do software tend to be very much more independent, but they need to be coordinated.
So it's a very difficult management problem, and it doesn't fit so well, perhaps, with corporate culture in Japan, at least at the time we're speaking of. And so one of the aspects, I think, that was critical in the late 90s was this, I would say, cultural crisis. By the way, it's also a problem in Europe. One of the reasons Europe did not succeed with software was precisely because of the cultural aspects as well.
But that's one element and I think it's not the only element but you address the question of customer understanding and this is very crucial as well. I think the Japanese were for many decades thinking that if you build good things, especially as they were better than what was in the market, then customers will buy. Simply focus on quality and the customer will decide eventually to switch.
That's a very logical decision, a very logical plan. And you don't have to worry too much about marketing and branding and all of these aspects, which are again, perhaps a cultural difference. Or you could hire someone to do that for you, but fundamentally the management inside Japan couldn't think in the same kind of marketing ways that American marketers would think.
But as far as the customer discovery problem, this is true. And it is something even American companies don't know how to do, or European companies don't know how to do. […] The way Apple suggested they do it (this is what they've told us,) is that they have to talk amongst themselves. They talk to each other as they did about the iPhone and said: "What do we dislike about our phones? How can we make them so more usable?"
And this fundamentally is because they always had this inquiry internally about why are things hard to use? Why can't we make things easy? Some of that is evident in Japan, but I think it wasn't thought of through the lens of interfaces. It was thought of more like being compact, being portable, being good [to the touch]. But it wasn't as much about how do you interact visually with something. A lot of things go into that. Obviously, you have to have a different sensibility about the two-dimensional display and so on. [1]
And so my point is that the Japanese weren't stepping back enough and asking these, what Christiansen would call, jobs-to-be-done questions. "What do people really want to accomplish with products", even if we haven't yet envisioned what they are? How do we work, how do we think about these design questions. Designers, by the way, say "we don't just make things look good. We think about how they are to be used". You know that philosophy of deeply understanding the user behaviors that is part of the Jony Ive philosophy. But it wasn't just him. It was before him and after him. [Apple designers] have been thinking the same way.
So it's a design philosophy. It's a real introspection, asking yourself, how should the world be? How should we improve the lives of people? And that's hard to really be very concise about. So I apologize, I'm [going on] so long about it. But it is part of the decision, part of the culture, again, of Apple, where they are looking at themselves.
Famously, by the way, this is another anecdote about Apple. It is that they don't do focus groups. They don't obtain that [product] knowledge by surveys. They don't obtain it by asking even indirectly what the customer wants or gathering loads and loads of market data. Lots of [research] companies will sell you market data and tell you all kinds of insights, cutting everything into demographics, into segmentations of various kinds.
The theory of jobs[to be done] is that usually you need to ask [only] five people. You don't need a large sample. You don't need to survey 10,000 people to find out that there's a desperate need for companionship. Should a machine be a companion? That's a very basic question.
A question which is, by the way, answered by AI. A lot of AIs are just hired as companions. But you don't discover this by surveying what people own today or what they're buying today, [or] what they ask for. You observe and you maybe do a little bit of inquisition on the spot and you just tease the customer's intentions.
I said many times, many of the best [product] ideas are taboo[2]. [For instance] People do things on social media which were once considered not just impolite, but sinful. You know, the idea of being vain is a sin. The idea of bragging and being boastful is considered sinful or [at least impolite]. And I used to say that all the social media can be segmented on the seven deadly sins that were part of the [moral] conversation centuries ago.
It was the church who would say these are bad things you shouldn't do them. Gluttony or covet thy neighbor. Every single social media is positioned precisely on [one] sin. Now, the discovery of this wasn't because Facebook surveyed what people do as sinful and provided it to them. Rather, they gave options and then the algorithm discovered it in a way. Apple [by the way] chose, I think [wisely], to stay out of there.
But you can see how the discovery of social media didn't come from a process of surveying people, asking them what would they like. They would have said "I want to have communications" or "I want to have cheap communications." They wouldn't say I want to send selfies, (which by the way didn't exist,) of myself doing everything all day long.[3]
Next in series: Part 3: Low-end, Game consoles, Secondary Markets, Displays and AI
Previous in series: Part 1: Integration, culture and market creation
Interview as published: 聞 Asahi Shimbun on Apple & Innovation
Horace speaks carefully and with knowledge about opinions, facts and fantasies, and shares what he thinks John Ternus’s most important job is.
Topics include:
Listen to Asymetric in your favorite podcast app.
The Asahi Shimbun Interview Part 1
Horace Dediu / Takeshi Narabe & Dylan Weir / Asahi Shimbun Interview, April 2026
Takeshi Narabe
On the secret of Apple's success, you have previously noted that the key to Apple's success was its ability to integrate hardware, software, and services to create products that are perfectly hired for a specific job to be done. You also highlighted how they moved beyond mere devices to lock customers into an ecosystem like iOS, iCloud and Apple stores. So this analysis is now very well known. So do you still think this is one of the biggest reasons of Apple's success?
Horace Dediu
Yes, we have to recognize Services has only been a story for the last 10 years. And arguably integration of software hasn't been really all that important before 1998 when Apple brought Steve [Jobs] back and with him came NextStep, which was [an] operating system based on Unix. And that was much more robust and much more focused around software engineering than the original MacOS. Or, what I would say [constituted] version 1 of Apple, which began in 1970s until the 1990s.
Most people tend to think of Apple as one continuous story for 50 years. [But] it's at least two major stories. I would say pre-98 and post-98. And post-98, it's been so different. And it's much more, I would say, something [that can be studied] as a theory.
I think in the first decades Apple was more, let's say, a story of people. There were people who were brilliant. There were people who were celebrated [as they are] now. But the second half of Apple is much more about building a business that has longevity, [that] can last a long time. It's an unusual priority.
I think for many companies in the world, they don't think about longevity. And that is why, even Tim Cook recognizes that it's the next 50 years that are more important [than the last 50 years]. So thinking about a century is really important and I think [that] is core to the current culture of Apple. Now, of course, this means, as you said, integration, and that is one of the key things. But fundamentally, beneath all that, there's this point about culture.
Takeshi Narabe
Culture?
Horace Dediu
Culture in the sense of what are the priorities? What do we concentrate on and to what degree do we need to focus? They [management] repeat these things all the time. Focus, focus. What means this? It means saying no to many things, but it also means saying yes to the things where you can bring great things to bear. It's where Apple has a unique advantage. And that means saying no to a lot of things.
We know about the car business that they eventually rejected even though they worked on it for many years. I think ultimately that decision was based on a realization that they couldn't bring enough contribution. And that's not just an economic decision. Of course they could have made money. There are even phone companies in China that make cars today. But it isn't what they thought of as important.
Takeshi Narabe
All right, thank you. So you also mentioned to what extent do you attribute Apple's dominance to the ability to tap into non-consumption addressing latent demands that consumers themselves hadn't yet realized.
Horace Dediu
So this is also one of the keys indeed. i learned about this by listening to my professor Clayton Christensen, who observed that great companies not only compete effectively, but they also create their own markets. They create their own demand.
[It's an] Extraordinary idea. And when you look at Apple, you do see that they use a different language. They talk about customers not asking for the product. But they also fundamentally build something that compels the user to buy it. When it was something that wasn't conceivable. Steve Jobs famously said, the customer hires us to find out what they want. So this is a fundamental thing.
And there are many examples. And I think one of the struggles today, for example, is Vision Pro, a product that is very difficult to find how it's going to solve problems. But at the same time, it's an extraordinary product. I think the jury is still out on the Vision Pro, but there are many other examples where I think initially they thought things would go in one direction and they went in another direction.
But even the iPhone, I like to repeat the fact that when the iPhone was introduced, Steve Jobs said it was three things. That it was a widescreen iPod, that it was an internet communicator, and it was a phone. But I point out that these days, those three jobs of being a music player, being a telephone, and being a browser, are not among the most popular things people do with it.
So it's fascinating how they introduced it as a blank slate. [It was] software, written by third parties [that discovered the compelling uses], and it developed in its own ecosystem. That is also a very interesting lesson there.
But it is fundamentally about really being humble. I think, again, it's a cultural trait, being humble and saying, maybe we don't know fully what to do, but to concentrate on quality and concentrate on doing at least something useful for people. And then later, new things will appear.
—
This is the first part of a series of excerpts from an interview with Asahi Shimbun newspaper on Apple & Innovation.
Next in series: Part 2: The Story of Japanese Innovation
Interview as published: 聞 Asahi Shimbun on Apple & Innovation
Office Hours #2026FQ2 #presentation #transcript · 2 comments
A transcript of the May 1, 2026 Asymco One Office Hours, recorded one day after Apple's Fiscal Q2 2026 earnings call. Horace Dediu presents his analysis of the quarter and takes questions from Asymco One subscribers. Hosted by Horace Dediu and Farshad Nayeri.
Horace Dediu: So I'll do a short presentation, and then we're going to open it up for questions. We are speaking approximately one day after Fiscal Second Quarter 2026 earnings call. Let's dig into it and see if we can understand it even better.
First, I think that there was a comfortable beat from already a highly elevated expectation.
So we had a range of estimates— I collected those from Yahoo and TipRanks, each one had about 30 [analysts], probably a lot of overlap between them. So we had a range of about 105 to 115 in terms of revenues in billion, and then we had EPS in a range of about 1.6 to about 2.15.
And not only did it beat the consensus, but also you can see what happened a year earlier, which is the circle at the bottom of the graph. So the beat was from already a pretty high growth rate expected from the year before.
So we have a measure of how each of us, myself included, performed relative to the actual results.
I was about 1.8% under revenues delivered, and 1.6% on EPS. And then you can see red is Yahoo and blue is TipRanks.
So speaking for myself, I was perhaps a little bit too conservative on my revenues, and I was a little bit more accurate, relatively speaking, on EPS. Roughly speaking, again, I think these are not big errors, 1% to 2%. Worst case, 3% on the consensus basis.
Now, on the segments, these are the actual growth that we ended up with, iPhone almost 22%, 16% on services, 8% on the iPad, which is impressive. 5.7 on the Mac, we'll talk about that a little bit, and 5% on wearables and growth.
Segment level, again, the worst case, you're looking at an 8% overestimation on the Mac. The Mac— I think a lot of people, once they saw the Neo come out, once they heard about the Mac mini stockouts, when they heard about the Claude bots, you know, everybody buying up all these Macs, there was an expectation of a big boom in the Mac, but those all happened fairly late in the quarter. My expectation was a little bit over, but not as much. I was off about 3% on that estimate. So although we saw 5.7% growth, some people expected double digits. Also, the pros had the same fault there.
Overall, though, I think these are pretty impressive. I didn't break out the geographic segments. China grew extremely well. Rest of the world, that grew very well. Management also pointed out that they're doing very well in developing markets. So overall, regionally, there were some extraordinary performances. But as we see here, just the iPhone was incredible, 22%. Very similar to performance in the previous holiday quarter, where, again, unprecedented growth, or at least in the near history of the product.
And we'll get into some reasoning why that is. People talk about super cycles, people talk about the assumption that we have these giant surges once in a while. Well, here's how to look at it.
There are two graphs here. The bottom graph shows in green the net sales, but trailing 12 months, so it's smoothed out, so we don't see the spikes on the holidays. That's the green line. Above that, we have the EPS line. Now you'll see how they tracked very similarly for a while, and then they began to diverge. That occurred around COVID. It also occurred during the surge in services, especially subscriptions and services. But still, there's a similar pulse, if you will, a cyclicality to it.
I mean, part of that has to do with the introduction of a new form factor. This has been true all the way back since 2012. When a new iPhone comes, especially a new, distinctive-looking iPhone, people will go out, especially in China, buy it for showing off that they have the latest, which there's nothing wrong with that. But then the second year usually is not the same, the phone is not new, it's the same form factor. That has to do a lot with tooling. That's a long, old story, that the tooling is depreciated on a two-year schedule, so you're going to produce roughly the same look a couple of years in a row, and then by the next cycle, you'll see people upgrading or replacing their older phones. So you're going to have this— I guess what they used to call a super cycle.
And you see it also in the upper graph, where I try to separate out of sales just the phones. Now this is an estimate because we have no unit sales for the phones since 2018, so some of that is an estimate. But you'll see again, once you smooth out the cyclicality, you'll see these surges once in a while. Now, again, this is a valid observation, but I don't think it's the main driver. The oscillation isn't huge, it might be significant, but it's a blend of many things.
The bottom graph is particularly interesting. The gray areas are when the stock price fell. And the red line represents the derivative of EPS. And you'll see how, when that is about to dip, there's usually a stock price sale going on. I wouldn't say it's predictive, but it's an interesting pattern to go through.
So what's happening now? You'll see from the iPhone, there's a new surge happening. Now, when Tim has been asked this question, he says that, well, the iPhone 17's really nice, people really love it, and that's a good answer, but the fact is, it's a distinctive-looking product. Some say it's the orange color, but it's certainly attractive. So we're seeing this pattern, a nice surge.
We'll get into the guidance in a minute, and that actually demonstrates that we're in some kind of an acceleration. But here's the thing, underneath all that, services is just absolutely steady growth, compound growth, and as a result, it just lifts the whole story.
Here, services is at the bottom. Normally, in a graph like this, you want to put the oldest products at the bottom and the newer ones at the top, but I wanted to highlight the fact that services is foundational, in the sense of showing how it holds up everything else.
Most people put it the other way, they say the iPhone holds everything up, but services is looking more and more to be the thing that keeps people in the ecosystem. There's a lot of value there. There's a lot of things people depend on there, and I think it's one of the reasons people don't switch. So it's another one of these stories that people aren't appreciating enough. It's been years and years of pounding the table on services, but here you see it, just how important it is. It's the tide that lifts all the boats, and the boats being all the products.
So let's now talk a little bit about margins. Unbelievable, unbelievable margins. We just hit almost 50% on gross margins. Gross margin here is the blue line. And that's composed of two subcategories. We have services in red at the top, and we have products with the purple triangles.
And although products margins are exceptional— they're right around 40%— those services, again, are pulling the whole average up, and you can see that bend in the curve in the blue line, where we were very steady around 40%, but as services took more and more; it just pulled the whole curve up.
And we also see here operating and net margins, which also are going up, naturally. There is a little bit more operating expense. We'll get into that, which maybe decreases the slope of the bottom line. But this gross margin is absolutely incredible. We just haven't seen anything like this since 2010-11. We saw that surge back then, and then it sort of leveled out, and everybody was happy with 40%, and now we're flirting with 50. I just cannot believe it.
Just one more thing. I remember being an analyst decades ago, when I was looking at different companies in hardware and software, in phones and computers and so on, and everybody was really impressed by Microsoft, because Microsoft, had an 80% gross margin, because there was very little cost of sales. That's exceptional. An 80% margin business is a money printing machine. And everybody was impressed and jealous of Microsoft that they could pull that off. Of course, Microsoft, a software company, is going to have extraordinary margins, right?
And so for a phonemaker like Nokia, there was something to be jealous of. And here we are with Apple services, a significant component on the business, approaching also almost 80% right now. And it's still rising. I just can't get over how impressive this is.
A little bit about the difference between gross and net— you have to take out the operational expenses, and this is what we have here. It's interesting what's happened. Obviously, you see R&D overtaking on the absolute basis. So R&D overtook SG&A already in 2021. And now it's just [going] almost vertical.
By reading a little bit the guidance, I think it's going to taper a bit into the next quarter. But what we see is a significant R&D increase, also as a percent of sales, which you're seeing below in the graph below, but in a stacked fashion. In that sense, the two of them together are now approaching— haven't yet reached— a percentage of sales that was in evidence around 2007 and 8, when the iPhone was just emerging. But you'll see back then, R&D was tiny, SG&A was huge as a percent of sales. So much so that R&D—this is during Steve Jobs era, R&D was like 2% of sales. And now it's approaching 8%, which is extraordinary. Because that's an engineering company that's doing breakthrough work.
And that's something that Apple's not recognized for doing. There's a negative side of spending a lot on R&D. The positive, though, is that Apple is doing a lot of fundamental research now. This isn't fixing products, this isn't updating OS. This is engineering that is really driving what might be considered breakthrough. And that's something— and I've said this to the media when interviewed about Ternus and the succession— I said, the new CEO will need to be— this is before he was announced— I said [the CEO] would need to be someone who is acceptable to engineering, because Apple is an engineering company today. Fundamentally, culturally, operationally, it's an engineering company, and it is being now led by an engineer.
Steve Jobs was not an engineer. And none of the other CEOs were engineers. Tim Cook was an operations manager. He was excellent in a fundamental part of the business. And that is acceptable to engineers, culturally speaking. But the thing is that John is an engineer's engineer. He understands the culture of engineering and will understand how to motivate and retain talent, as well as to allocate capital effectively, not wasting it on pipe dreams. Engineers have a tendency to try to chase dreams, by the way, so you got to be harsh sometimes to shut things down. So, keep an eye on the R&D— it's a great story.
However overdoing it can be a problem. There are downsides to an engineering-led company where, again, it turns into kind of an engineering welfare state. Engineers tend to get projects and do a lot of navel-gazing, which needs to be managed carefully.
Now, let's just touch on ACTIVE. Active is the number of users, the fundamental measure of the value of the company. It's not counting iPhones. It's counting users, and these are the comments from management, just so we capture them. They come every quarter. Sometimes some products are mentioned, sometimes they're not.
So here's what we have exactly on the topic. Record upgraders and customers new to the Mac. They mentioned that Mac lifespans have been long, which is good and bad. They talk about the iPad, half the customers being— over half— new to the product. Same with the Apple Watch, this has been going on for a while.
So this is going to be important when we measure installed base, because if we see every quarter an estimate for the number of watches, or Macs, or iPads, you just take half of that and allocate it to the installed base, and the other half is growth of the installed base. So there's an interesting way to measure that, and I've been applying it. We're going to keep an eye on this.
And finally, there was a mention with respect to India during an answer to the question. The citation is that the iPhone, Mac, iPad, watch, all of these have a majority of customers that are new to the product in India. As you would expect, part of the developing market story. But this drum is still getting beaten. And that's a positive. Always want to look forward to that every quarter.
So let's jump in now to what I thought was the most unexpected comment during the call. I've pasted in here exact, verbatim the comments from the CFO. I need to point out a few things here, and I've highlighted these things in bold.
One is the dividend. The dividend number is 3.8. Last quarter was 3.9, so that's not a surprise. However, open market purchases were only $11 billion. Now, that is represented in the graph by the buyback, and that is this mustard color. And you'll notice it is extremely low. The previous quarter, we were over 25 on buyback, so we're less than half that. This is an anomaly. You'll see that it does not match the rest of the graph at all.
The blue area is dividends. The reddish area is net share repurchases, or settlements. And there's a pattern to both. Dividends has been growing in a predictable fashion, very steady. Buybacks have been somewhat steady, but up and down a little bit. During the last few periods, we've seen something unprecedented.
Now, you'll see that the 11 from last quarter was offset by a much higher number the previous quarter, but on balance, we're still down. And there's also these comments that say that they are abandoning the net cash neutral position. And I'm wondering if it's already started, because this $11 billion caught me by surprise.
I've highlighted that "our repurchase activity at any time can be affected by a number of factors that we take into account." So this was essentially explaining why sometimes there's a difference in the amount of purchases, right? And then in the middle of that commentary, he says, "as you're aware, we recently announced a CEO transition." Why does that comment fit in the middle of a paragraph, talking about the general theme?
I read this as it suggests that already the CEO choice is deciding how much to allocate to capital returns. And it appears— and again, I could be wrong— but it appears that John is probably against the idea of huge returns to shareholders in capital form. So keep an eye on this. This was, I found, very, very strange and out of character in a way. Very out of character of a Tim Cook presentation. I'm not judging it, I'm just pointing out that it isn't normal.
So here's the bottom line. This is the graph representing what's happening with the entire cash position and return of capital. The debt has decreased slightly, and it has been decreasing. And that's a good thing. As interest rates go up, you don't want to hold debt. A lot of that is fixed rate, but they're not taking on more. It seems like they're paying it down.
Net cash, which is the blue dotted line, has now been increasing two quarters in a row. Now, it's increased in the past, but never for long. It's had only one tick, during the holiday period. Here, where we're seeing two ticks— holiday and the quarter after.
Now, if you'll notice here, I'm going to try to zoom in. Those red lines represent what I would say were the trajectories to get to net cash zero. So that blue line, since they announced it, they kept missing the target. You would see that, another year goes by, and there's a notch up. Overall, the trend is down, but they haven't kept that path down all the way to zero. And that is now completely abandoned.
Again, we'll have to figure out why. The buyback, as I mentioned, halved— at least more than halved— to 11. Net cash zero abandoned, $100 billion net cash reduction. You'll see that this blue dot line has gone down by about half. It was down even further than that until it came back a bit. So that is going from about $160 billion net cash to the current $62 billion, which is why we get to 100 reduction. And $1 trillion overall return, which is, again, something they mentioned. In fact, they're at $1.085 trillion. And still $100 billion will be allocated further. Whether they actually spend it is another matter, but that's been approved.
So now— is this good news or bad news? I don't think it matters. I think at the end of the day, the value of the company doesn't change because of this. The value might be captured in the share price, or it might be captured as a percentage of the company that has been increasing.
In fact, let me just pop into the next slide. What does this mean? Are we never going to reach what I call the halving? Well, we were at the maximum 26.5 billion shares. And now we've reduced that to about 14.6. Half would be 13.2. So we're still going down. But there's 1.4 billion shares to go before it's half of what the max was. Now, this is an arbitrary figure. I just thought it was an interesting target to have. And as you can see, it's getting asymptotic as the price goes up. It should be harder and harder to get there. But we have $100 billion allocated. $260 billion at the current share price would need to be spent to get to half. But probably we're not going to get there. I really don't— if I were a betting man, I would say we're probably going to see this taper.
Let's look a little bit at guidance. This is based on what management already communicated. So if you put in the numbers they gave us, you will get revenue growth of 16%, coming at about— well, they guided 14 to 17, so I'm estimating 16 conservatively right now. That gets you to $108.7 billion. If you put in the other numbers— the margin, the OI&E and the tax— and do something about this share reduction. (We're still going to probably see a share reduction.) We're going to look at EPS 1.92. Which is another 22% growth. This is what we had last quarter as well.
I'm putting gross margin at the top of the guidance. [Last quarter] they went over. They guided high, and even so they went over, so I'm going to assume they're going to still hit towards the upper end of the range. I'm exactly at the upper end of that range.
If those things are true, the iPhone almost necessarily has to grow about 19%. Now, here, I'm dialing the Mac way up to 18% growth, because I do think they're going to get a lot more Mac Neos into customers' hands. Now, that's a lower price point, but it will drive sales. So yeah, I could be a little bit high on this. If I am, then iPhone needs to go a little bit higher because I still think they're going to get the revenue there.
They did warn that iPad is facing a tough comp, so I'm putting iPad down 3%. Wearables and home, 4%. It was 5% last time, so maybe consistency there. And Services, just the same as before, 16%, could come in a little bit less. But if it does, again, it's going to be put into something else like the iPhone.
So overall revenue growth, I think 16% is very much being telegraphed. And as I always say, they already have April on their books. They're communicating exactly at the end of April. They're not going to lie to us and withhold data from April. They know about a third [of the quarter] already, so that's why this guidance is so useful.
And, as you saw with my error analysis, nowadays, people's estimates are very close. There's a lot of consistency. We're not off more than a couple percentage from each other. That's just because they're so accurate on their guidance.
And speaking of analysts, one more graph. This is just some of the latest price targets. I'm just trying to bring everything together that came out today. This is all very brand new. A lot of targets moved up. Not that it's all that important, but people are getting more and more excited. Almost all the targets from anybody who has a positive— effectively a buy rating— is now above $310 as a target. There's two who are negative, that are at 270 and below. This is Barclays and Rosenblatt. And then there's a few which have no ratings. So they're typically neutral.
But overall, all these numbers are higher than they used to be. Now, again, I don't use that very much, but it's worth keeping an eye on things just to get a sense of how the sentiment is out there. And it looks like the stock is responding positively today. Not by much— 3% or so, last I checked. But that's the story today.
So given that, this is my first take on the quarter. Love to take questions.
-- End of Presentation --
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Asymco Bulletin is a digest of all the work we have published for the week ending Apr 26, 2026.
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A part of Horace's interview with Asahi Shimbun on the 50th Anniversary of Apple's founding. The portion here discusses management succession and occurred on April 1. Apple announced the succession of Tim Cook as CEO to John Ternus last week. This analysis of Apple leadership decisions focuses on culture and attributes of the firm rather than attributes of the persons leading it. It may prove a more reliable predictor in future leadership changes.
…, the speculation is John Ternus is the next in line. I think that's a very plausible hypothesis. And one reason, by the way, is I always maintain if you study the company from a cultural point of view, you'll realize that there are people who cannot be CEO. You may not know who it's going to be, but I can tell you who won't be. Many people over the years suggested candidates, and I would say no, never. And here are examples. Johnny Ive would never be CEO. An external hire would never be CEO. Even a head of marketing would never be CEO. Many people think that Apple is a brilliant marketing company. No, it's an engineering company. It's a huge secret out there. →
Writing the story of John Ternus' tenure as Apple CEO from April 21, 2040. What changed and what didn't.
It’s been 15 years but John Ternus has finally stepped down as Apple CEO. Analysts described the transition as expected rather than disruptive, noting that investors had long anticipated Ternus’ eventual departure. Nevertheless, he leaves with many questions still unanswered about Apple’s long term strategy. Apple incoming CEO faces a defining challenge: Fixing the company’s Services dependence. It’s been a tumultuous tenure for Ternus but he is leaving with significant accomplishments: John grew Apple devices to 4.5 billion from 2.5 billion when he took over in 2026. Many have pointed out that he has been building on… →
In January this year Apple reported that there were 2.5 billion active Apple devices in use. This figure has been getting updated for years and I’ve been reporting its trajectory and other measures that are correlated to it. For instance the number of Apple subscriptions, Apple Services revenues and other historical indicators such as iCloud accounts and Apple Music.
Simplifying, I published the “ACTIVE” model which makes some basic projections of this total device count and it’s shown below” One element of the analysis that has eluded me was the more precise composition of this total “devices”. →
IDC: Apple Grows 33.3% in China as Market Declines 3.3% in Q1 2026 → CounterPoint reports a 4% YoY decline in China's Q1 2026 smartphone shipments, with Huawei and Apple holding nearly equal shares around 20% each, as memory shortages impact the market.
Both researchers say Apple share in China is about 19%, nearly tied with Huawei at 20%…
Some analysts are increasing their targets finally realizing that the memory supply crisis might be beneficial to Apple. This should have been noted already three months ago when Apple provided extraordinary guidance for the March quarter. →
MacBook Neo Sold Out Through April → Despite high demand and stockouts, Apple's strong brand and competitive pricing could turn challenges into opportunities for market expansion.
Microsoft’s cheapest laptop is three times more ex…
As I will argue in a further post perhaps this is one of those pivotal moments. →
Goldman forecasts fiscal second-quarter EPS of $2.00 → Goldman Sachs remains bullish on Apple, forecasting $2.00 EPS driven by strong iPhone and Services growth, dismissing overly pessimistic sentiment as the company consistently gains 100 million new customers annually.
My target of $1.98 seems amiss.…
What is always happening, the reaction that is always ongoing, is the creation of 100 million new customers every year. Accelerating this process is not a matter of just new products or change in sentiment with AI. Much of this rate is due to overall global economic and demographic change. →
What’s the consensus on $AAPL? → Apple's strong analyst backing with a 15:1 Buy:Sell ratio and $315 target contrasts its 39% year-to-date rise, overlooking potential future growth.
The consensus is positive though share price target does not consider significant share gains and service growth acceleration into 2027.
NB: The consensus is positive though share price target does not consider significant share gains and service growth acceleration into 2027. →
Apple 3.0: JP Morgan expects that Apple will beat its own guidance next week → Analyst Samik Chatterjee projects Apple's EPS to rise to $2.05 from $1.96, driven by strong iPhone and Mac demand, with a revenue boost to $112.7 billion, while I estimate a slightly lower 20.2% EPS growth, anticipating guidance will be met.
Read the original for a more detailed commentary from Chatterjee. He implies Apple will grow EPS 24%…
…My own estimate is about 20.2%. I look forward to a lively quarterly update. The primary source of growth must be the iPhone and I have that growing at 19% revenue growth. Last quarter the growth was 23%. Perhaps Chatterjee is assuming a similar growth rate into March quarter. That is not impossible but I am assuming guidance will be met rather than exceeded. →
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The Asahi Shimbun Interview Part 5
Horace Dediu / Takeshi Narabe & Dylan Weir / Asahi Shimbun Interview, April 1, 2026
Dylan Weir • 31:51
There's been some reports that Tim Cook is on the way out and some speculation about who might replace him. Is that your sense, that he will be leaving soon?
Horace Dediu • 32:06
One thing that hints in that [direction] is that the board members are actually limited to age 65 and he is on the board although they can extend that by vote. So one should imagine that there is an age limit. The hypothesis however is that he's too valuable. Not so much as the manager but as the negotiator and as the diplomat. Because we live in such difficult times from a geopolitical point of view he somehow has managed, i don't know how, nobody knows how, even Warren Buffett recently pointed out that he thinks that's one of his greatest skills: that everybody likes Tim Cook.
That includes China that includes Trump that includes Europe. Somehow he gets along with everyone. So his ability to be the diplomat, will it be perhaps valued further? One possibility would be that he actually becomes executive chairman as opposed to CEO. That he continues in that role without having to do day-to-day operations.
There are people who are very good at that. And who've been on the bench for a long time and who've been cultivated for a long time to step in his place. So in that sense, on these fundamental questions of biological life...
You know, I think one hypothesis that makes sense is that he might stay as long as there's a Trump administration, because again, he's able to navigate that world. But yes, I think ultimately, though, he will be gone. And there's no question. And when he joined, he knew he'd be gone some day. There's no naiveté about his need to hand things to the next generation. And I think that was part of the thinking under Steve as well: How do we hand this off? And they've been thinking about it ever since.
But anyway, the speculation is John Ternus is the next in line. I think that's a very plausible hypothesis. And one reason, by the way, is I always maintain if you study the company from a cultural point of view, you'll realize that there are people who cannot be CEO. You may not know who it's going to be, but I can tell you who won't be. Many people over the years suggested candidates, and I would say no, never. And here are examples. Johnny Ive would never be CEO. An external hire would never be CEO. Even a head of marketing would never be CEO. Many people think that Apple is a brilliant marketing company. No, it's an engineering company. It's a huge secret out there.
If you look at the headcount, if you divide the employees by their job functions, you'll see that engineering is by far, three to four times, bigger than the next category, which would be perhaps marketing or operations. So what does that mean from a cultural point of view? It means that the people who are engineers want to have a boss who can listen and understand them. And they don't think, if you know engineering culture, […] that someone who's from marketing is going to be able to understand them because they don't have the cultural and the educational background or the mentality around engineering.
And so the people who need to run Apple have to be competent with engineering. In the case of operations, it's one of those acceptables because they are at least covering engineering as one of their constituencies. So they have to bridge between manufacturing, distribution, and all these things. So engineers respect operations. Engineers respect manufacturing. So in that sense, when you look at the candidates, I do think John is one of those who fits the bill. Of course, there could be many others as well.
Dylan Weir • 36:36
That's fascinating. Thank you.
Horace Dediu • 36:41
I think if I may just summarize, I think it's very rare that any analysis--and I come from an engineering background and I did my work always in a lot of data, using a lot of data. But the more I study Apple, the more I think it needs to be analyzed culturally. And it's a very difficult thing to do because we have no data. We have only some anecdotes. But you have to, as an analyst, you have to be humble and see that the data, perhaps that [which is] most important, is not available.
When it's dark outside and you're searching around the lamp, well, that's the only area that you have light. but the truth could be in the darkness. And that area under the light, that's your data set. And the solution is somewhere else perhaps. And that's why you have to have this idea: what tools can we use other than looking at the light? Use all your senses. Use other perceptions.
And so that's why I think Apple is a peculiar thing. And by the way, the analysts out there who do try to stay out of the data [delve] more into psychology, they tend to really study the man or woman. They'll study the personality as an alternative [to the data]. So they'll say, well, the company's success depends on Zuckerberg. We have to know who he is. Or Tim Cook or Steve Jobs or Larry Ellison, whomever it is.
There are people who specialize in understanding that person but i don't think Apple is that. I think [personality is] important but you have to study the whole. The whole way they do things internally. They give us plenty of hints; they say all the time that it's a team effort. They'll always say "no it's not me, it's it's a group effort".
And and they always say "we" [not I].
You know, we have a lot of debates [but I believe] we have to take them at their word that it isn't just the individual.
Takeshi Narabe •
Thank you so much it's very you know insightful analysis thank you very much.
Horace Dediu • 38:57
i love your questions. You have great questions and that's always my my biggest thrill. And not that i'm not being asked what color is the next iPhone.
Previous in series: Part 4: How not to over serve; The machinery of vanity
Interview as published: 聞 Asahi Shimbun on Apple & Innovation
Asymco Bulletin is a digest of all the work we have published for the week ending Apr 19, 2026.
Revenues and growth rates for iPhone, Mac, iPad, Services, Wearables, plus Net Sales, Gross Margin, Operating Expense, Other Income and Expense, Tax Rate, Net Income, Share Count and EPS with a comparison to CFO guidance.
Ref. conference call's guidance, Kevan Parekh, Apple CFO: As we move ahead into March, I would like to review our outlook, […]. We expect our March total company revenue to grow by 13% to 16% year over year, which comprehends our best estimates of constrained iPhone supply during the quarter. We expect services revenue to grow at a year-over-year rate similar to what we reported in December. We expect →
In a recent interview Apple management was asked about AI, which is perceived as an area where Apple has been struggling. Greg Joswiak replied: We’ve been doing things with intelligence for many years, right? And gen AI allows us an opportunity to do that even more. So I’m excited about that, but boy, this is not a sprint. This is a marathon.
In contrast to AI, Spatial Computing is being largely ignored. It is however making significant leaps in utilization, especially in verticals. →
Apple's potential to double its Mac user base through strategic budget expansion and memory supply tactics presents a promising growth trajectory.
260 million Mac users? Huge room for growth.
Two analysts, two stories. The Neo will move the needle and the supply crunch will hamper competition…
Nevertheless, a doubling of the Mac user base is certainly a worthy and achievable goal over the next decade. →
At just $3,000, the Studio Display XDR democratizes medical imaging, undercutting specialized monitors by up to 90% and revolutionizing healthcare accessibility.
The Studio Display XDR is priced at $2,899 with a VESA mount, and it is more affordable than many specialized medical imaging monitors.
It allows a new set of people to do what previously required only specialists to do and allows specialists to do more than they used to do. →
Despite optimistic predictions for Mac growth, persistent skepticism argues Apple faces inevitable doom due to supply issues and product flaws.
As honored as I am to be the recipient of an antlers tip, I must respectfully disagree…
The only thing you could be sure of is that Apple is doomed. →
Bertrand Serlet, a pivotal yet understated architect behind Apple's OS X, exemplifies the profound impact of tech's quiet innovators.
Pay attention to the quiet ones
This is one in a series on Apple’s quieter heroes.…
That this interview only has 6000 views after three years shows how much untold history exists. →
BofA slightly ups Apple's price target to $325, forecasting $113B revenue and $2.00 EPS for Q2, driven by strong iPhone sales and Services growth, slightly above my estimates of $110B and $2.00.
Q2 forecast update
My own estimates for Q2 revenues and EPS are $110B…
More to follow as we get closer to the earnings release date but this is a good preview. →
Apple's Mac shipments grew 5.4% to capture 11% market share in Q1 2026, driven by MacBook Air and Neo sales, with revenue estimates slightly differing from unit projections.
Apple growing at double market rate.
Omidia estimates that Apple reached a market shar…
…e of 11% with shipments growing 5.4% due to solid MacBook Air sales performance and the initial sell-in of the MacBook Neo.. This means 5.4% growth for Apple y/y. As I noted in my Office Hour yesterday, I adjusted my Mac growth from 0% to 6% based on the new products launched. This is an estimate of revenues not units but it might be pretty close. Omidia estimates 7,112 million units whereas I’m a little above 6 million. We seem to disagree on ASP. →
Amazon's acquisition of Globalstar boosts its satellite internet ambitions and strengthens ties with Apple, while highlighting the limited reach of space-based networks compared to terrestrial ones.
I assume Apple has wanted to steer clear of Starlink but it’s not clear that was a primary consideration in choosing Globalstar.
Starlink, considered the dominant player, serves about 11 million users. I would note that 11 million is 0.1% of the number of cellular subscriptions worldwide. →
iPhone users boast nearly quadruple the loyalty of Android counterparts, with actual annual switching rates favoring Apple slightly, despite inflated survey intentions.
I did a deep dive into the data and came up with graph above. The original report shows intention numbers which seem quite high. For instance, the net switching rate between iOS and Android is 10% in favor of Apple. This would imply that the entire user base would flip in 10 years. It would also imply…
I think actual net churn is 1.7% of the base each year. That’s still 100 million a year. For now it seems Apple is happy to maintain that rate. →
Asymco Office Hours, April 8, 2026
Hosts: Horace Dediu and Gene Munster
This episode of Asymco Office Hours covers a wide range of topics related to Apple, including geopolitical risks, financial performance, AI developments, and business strategy. The discussion is led by Horace Dediu and Gene Munster, with insights from industry experts.
In this Asymmetric Podcast episode, Horace muses on buying flowers, highlights Apple's distinguishing product, and teases his new research. →
Asymco One gives you full access to our research, analysis, and commentary. Subscribe with code BULLETIN for a discount.
Feedback: Have questions or comments? Reach out to us at contact@asymco.com. We’d love to hear from you.
As you know, as we crossed into 2001, the great crash occurred.
Ben Thompson • 25:05
Yep. And suddenly a job offer from a big phone company sounds pretty great.
Horace Dediu • 25:09
Yeah, but the crash occurred and it impacted my startup because I couldn't raise money anymore. And that's why I'm throwing in the towel. I'll take this idea to Nokia and build it inside of this company. So for the first year, I worked out of the U.S. and then they invited me to come to Finland. And I fell in love with it, not to mention finding someone to fall in love with. Yeah, I'm still here.
So we created an internal venture called media distribution. And it struggled for a couple of years. We partnered with a publishing company here in Finland that is the biggest newspaper and magazine company. And we worked with them. 9-11 happened. We worked with them throughout that period to test this idea of distributing content on phones. That's how I met my wife. She was working for the publishing firm. Remember when Apple News launched? I forget how many years ago it was already. It was five, six years ago. [My wife] texted me during the keynote. She goes, "you realize that's what we were working on together in 2001?"
It was called Project Melissa. Project Melissa was this idea of Apple News today. And that was [our project] 20 years earlier. That just goes to show you the story of my life. I was doing search 10 years before Google existed. I was doing e-books 10 years before Amazon launched the Kindle. I was doing smartphones and media distribution on smartphones 20 years before Apple showed how it's done.
So my problem has been that I see things happening or see where things are going, but way too early. And that's why one of the theses I have over time is the idea that the difference between a futurist and a billionaire is knowing when one thing happens. So it's not about knowing what's going to happen. A lot of people are very good at that.
Ben Thompson • 27:31
Including Nokia, to your point.
Horace Dediu • 27:33
Nokia, science fiction writers, Elon Musk, a lot of people predict this. But getting the timing right is where the money is made. And so that was one of those lessons I learned.
Ben Thompson • 27:45
Well, when you talk about the publishing and Nokia and the reading and all those sorts of things, what it makes me think of is when the iPhone comes along in 2007, And I'm very curious to get your perspective on what that was like inside Nokia when the iPhone launches.
Horace Dediu • 27:59
I'll tell you exactly.
Ben Thompson • 28:00
But before I get there, but to this publishing point specifically, the key bit was the Internet was permissionless in terms of producing content. Like, it's great that you met your wife, but the fact that you needed to be in a situation where you could meet your wife was actually the reason why it wasn't going to happen. Because if you have to make a deal to do everything, it's just never going to get there. Whereas if you can just surf the Internet, the real Internet, and no one needs to do anything to adapt to it, suddenly you get it all for free. And then you get the virtual cycle going where they're making stuff for you. And that was sort of the, that's the timing bit is like the, the external structure around what you're doing.
Horace Dediu • 28:41
Yeah, it's, it's, it's complex and it's multi-causal and you're right. It's multiple, the reasons why things happen the way they are. And it's just not foreseeable. The internet was, and by the way, the thing that really caused the project to fail and be abandoned--this media distribution side note-- it was the fixation on DRM.
DRM actually killed a lot of great businesses with content ideas back in the day, whether it was music or video or textual. It was people just obsessed about protecting it before they obsessed about distributing it and making it great. And this is why when iTunes came along, even though there were some circumstances there with being on a Mac and not on the PC, that the publishers finally said, why don't we go ahead with this?
So long story there. But as far as what Nokia was doing, after four years of doing this startup inside of Nokia that did not work out, I got into the job of strategy analysis and competitive analysis. So they asked me to do Microsoft.
Microsoft was the biggest worry for everyone because they had intentions of being in the phone business. They made no secret about it. They had prototypes. They were working with competitors to Nokia. [Intending to] give them the operating system so that [for instance] Samsung running Microsoft [Mobile]. That was the effort.
They were pushing on all fronts. Nokia was holding out and saying "we've got our own operating system" and so on. So they gave me this job because every other competitor was hardware. All the analysts were covering hardware. I was the only guy who was covering a software company.
And in doing that, I was also sort of nibbling at Apple a little bit because the iPod had come out. The iPod was doing amazing, but it wasn't a phone product. And I was kind of looking at it a little bit.
Now Christensen comes back in the picture, because his book had taken off. He had already written the second book, which is The Innovator Solution. And I was like, hang on a second, a lot of stuff that I read in the book, and I remember back from my days at school, applies to Apple here because they're doing a lot of interesting things with being disruptive as the case may be.
Nokia itself had been disruptive in its early years. But I'm focused on Microsoft. And my point was that we can fight this battle and win, but we got to be very careful. And there's a lot of twists and turns there, but I took it upon myself also to understand what's going to happen with this media product from Apple.
And then I began to write a few internal notes because nobody was covering Apple. This is interesting and important. Imagine you have a team of a dozen analysts, you could put them on multiple jobs, assign people to multiple problems. No one thought that Apple was a problem to be looked at, even part time. No, there was nothing interesting about it.
And part of that had to do with the fact that [Nokia perceived that Apple had been] one foot in the grave already in the 90s. And now they were this little toy media company. They didn't really have scale. Phones were on the orders of billions of users already. And this iPod was in the tens of millions, maybe a hundred million. So it was orders of magnitude. There was no real worry there.
But I was really annoyed at this thing. And I started building a model. I remember distinctly opening a spreadsheet, looking at research reports and thinking to myself, let's look at the history of the iPod, how it's growing. And I started to match that to the Razr, which was the most viral product at the time, the Motorola Razr.
Even Nokia was jealous about this thing. At that time, [Motorola] had cumulative sales of 50 million, which was considered way too scary. (And BlackBerry was another one, by the way.) So I'm doing this and I'm like, hang on a second, what if they do a phone and it's a combination of the Razr and the iPod, could that resonate? And I just put it out there. I said, it's possible. And there was a rumor of the iPhone coming out.
Ben Thompson • 33:31
So Apple did do a Motorola Razr with iTunes functionality. Did that actually end up, because that was a flop. And did that actually make people not as like more relaxed?
Horace Dediu • 33:46
Because we knew that it didn't run an operating system. It didn't have a developer API, there was nothing, no hooks in it. It was just an appliance. And as such, it was like a feature phone. And that was not interesting. We had been talking and pounding the table on smartphones already since 2001. Remember, when I joined, we had a communicator. We had Symbian, Series 60. We had the interfaces. We had all picture phones, music, etc.
Ben Thompson • 34:20
I was a user as well.
Horace Dediu • 34:22
And I had done the numbers, and by 2005, people were burned out on smartphones. Because the projection was like this, but it was more like this. It wasn't growing as much as you thought it would. And so a lot of people said, especially the top management was like, "you guys are very enthusiastic about the software stuff, but it's just not working out. We're going to double down on hardware."
So there was a lot of burnout. So, but I kept looking at the phone at Apple and I suggested, hey, what if this thing scaled anyway? Like I said "what if they could sell as many as 50 million?" That was my provocation. And people were like, dude... I was essentially taken aside and told, tone it down. First of all, you're not doing yourself any favors by being so provocative. You're just going to lose credibility. My boss, who's a great guy he just took me aside and said, just don't do that. You know, it's bad for you.
Ben Thompson • 35:22
And this is like 2005, 2006, around then?
Horace Dediu • 35:25
Well, already 2006, because the iPhone was rumored. It wasn't out, but it was like, if you're going to have iPod success and you're going to do this crap phone with Motorola, you're probably thinking, maybe they're going to do something interesting beyond that, because we knew they could, in theory, do something.
We didn't see the touch interface, but we saw maybe like a scroll wheel or something. You know, Tony Fadell was running the thing. So, bottom line is, when it finally came out, it was January 2007. It came out and was not for sale, but it was on stage. And I was so excited. And I said, this is unbelievable.
I remember running into the office the next day. Usually you socialize at lunch hour, sitting in the cafeteria, talking to your friends and asking them what do they think about this? And most people just said, oh, it doesn't look that interesting. aspects of it were copied. There were copies from here and there. There are other people that do touch. You know, a stylus has been around for a long time with BlackBerry also doing amazing things with keyboard and so on and so on.
So there was a lot of cynicism and sort of not really interesting. I said, man, it's running OS X, it was running a full operating system. And I said, this is going to get developers working on it. But again, the other thing, the other head fake from Apple was that Steve Jobs said they're not going to put any apps on this thing unless Apple write them. I was anticipating far more than even was being talked about. And for that reason, it was just super frustrating. Anyway, I left in 2009. But by then, Nokia were still not following Apple.
Ben Thompson • 37:13
How is that possible? Like even two years on, this device is out there.
Horace Dediu • 37:19
Because it still didn't have distribution. And this is the thing that consumed everyone following the iPhone in the beginning. It's like they had one launch partner. It was initially Cingular, became AT&T. Don't forget that the old AT&T had nothing to do with this AT&T. It was just a rebrand of Cingular, which was a crappy, small, not very small, it was maybe second tier [operator.]
Ben Thompson • 37:47
Verizon didn't want to do it. Apple did this again and again. Verizon was number one.
Horace Dediu • 37:50
Verizon was number one. Absolutely. But Verizon was in CDMA. But the thing is that it was a crappy network and they didn't have a lot of points to sale. They didn't have distribution. and everybody said this, you need 500 network operators to saturate the global market, right?
And how fast are you going to be able to obtain distribution was the question. And so they're so cantankerous. You know, Apple is known as being "my way or the highway."
Verizon said no for years. Nokia was like, this is not going to fly. These guys are, if anything, they're naive. Don't forget, by the way, there's a separate story on how BlackBerry dealt with the iPhone. There's a movie about it, by the way. Everybody should watch it. But basically, everyone had the similar responses: that this is not kosher.
This is not the way things are done in this business. It's all about relationships with operators. It's about getting shelf space. It's about getting salesmen in the store who are bribed effectively with a commission to tell you what to buy, effectively yank the phone out of your hands and give you another one. So this was a very dirty business at the street level.
Ben Thompson • 39:19
So do you know what was the first what was the first article of mine that I think you ever linked to? It was about precisely. No, no, you don't need to know. I know because it was very formative to me. That's what I'm going to tell you. It was basically about talking about this was how distribution worked.
And what Apple changed about the whole thing was that customers actually switched networks for the iPhone. And it was doing just sort of a traditional sort of business school analysis of and pointing out the power shifted to instead of distribution to the buyers. Basically, what I ended up writing about for 13 years now is demand mattering more than sort of the supply bit. But it was the exact same thing. That's why you linked to it. You are you are already on board with it.
Horace Dediu • 40:04
But it was also the thing that resonated for me personally. Not that I knew something about the phone. Mostly I knew how big it could get. I knew that there were billions of people, many more billions than used PCs, which was by far the most dominant influence in technology.
Most people oriented themselves, like even Gruber and others who were Mac first and then all these accessories. But I knew the phone would be a couple of zeros more. That was number one.
Number two, there was this problem of the incumbency, which were all the phone makers, who were so far from understanding what the software dynamics of platforms were. By the way, platform theory was developed by Microsoft. They pretty much invented the whole idea.
