A foldable iPhone: John Ternus’s first test as Apple CEO

0:00Good morning from the Financial Times. Today is Monday, September 7th, and this is your FT news briefing. Germany's far-right party surged in state elections, and can Apple sell a foldable iPhone? Plus, we look at how Europe is trying to deter Moscow's hybrid war. The fear amongst defense experts is that Russia will continue to use the gray area, if you like, and push what's acceptable. I'm Sonya Hudson in For Mark Filipino, and here's the news you need to start your day. It looks like the alternative for Germany party has come first in regional elections. That's according to partial results released yesterday. The AFD's projected victory in Saxony and Halt is a major breakthrough for the far-right party. Its federal program calls for tougher deportations, restoring ties with Russia, and Germany's

1:03exit from the Eurozone. But the initial result suggests that the AFD will not be able to take control of the state parliament. Still, the election is calling into question whether the continent's largest economy can keep a lid on the populist right. Apple is about to have a big week. It's set to unveil a new foldable iPhone on Wednesday for more than $2,000. It's the first product launch with its new CEO, John Ternis. The company is trying to reverse a decline in device sales, which makes the new launch particularly high stakes for him. Here to talk with me about it is the FT's San Francisco correspondent, Michael Acton. Hi, Michael. Hi, Sonya. So let's just start with the obvious. A foldable iPhone. Explain exactly what that involves. Well, they've been around for a while. Samsung launched first launched a foldable back in 2019.

2:03In China, Huawei has been producing them from about the same amount of time. This is a pretty vintage move from Apple. So they've been actively developing this device since at least as far back as 2018. It's probably going to be a book style, basically two iPhones side-by-side that clip together. But what they're doing here is a classic Apple strategy. So you don't launch something until one, you expect it to make a decent amount of money. And two, all the competitors have launched their own devices and made all the mistakes that might go with that. Samsung had some problems with his early devices, particularly with the crease on the screen. And Apple's not going to do that until it's got a product that it really feels works perfectly. Well, we will see if it works perfectly on Wednesday. But along with this flashy new announcement, we have John Ternis, who is not quite as flashy, he's basically unknown outside of Apple. What should we expect from him? I think realistically, not a huge amount.

3:04This is his second week in the job. Apple's minutely controlled every aspect of his transition. Tim Cook is still in the background as executive chair. So what is really going to come down to is, can he sell what problem the foldable is solving and really lean into what he's been teed up for coming in at this particular time, which is being a product guy. And most people would agree that Tim Cook was not someone who was focused on product. John Ternis is an engineer. Ternis knows these devices inside out. He's been the guy leading the hardware program within Apple for years. So it might bring a certain different flavor to the role. But it's really about just sort of getting a sense of who he is. He's been kept fairly quiet in the transition period. People just want to figure out who is John Ternis. So obviously by elevating someone from the hardware side of things to CEO, that's Apple saying this is a business area that's important to us. What have the company's financials been looking like and how important is this product launch

4:06to the direction that the company is going? So for the foldable just by itself, not that much. The foldable market is about 2% of the overall global smartphone market. But it does say something about the broader future of the company. That's this question around how do you get consumers excited about a product that's now 20 years old? We had the iPhone Air last year. This is the biggest design change in the iPhone. Pretty much in his history. So it's best to think of this as a sort of multi-year process of them offering new device categories or new iterations on devices that are a bit different from that annual cadence we've got used to of the iPhone. And why that's important is because products growth has slowed down for Apple. So if the iPhone market is looking sluggish, you start to try and find new levers you can pull to really bring people into stores and make them upgrade their iPhone 13 or whatever they're working on right now. Michael, what else should we be looking out for from Apple this week?

5:07Well, pricing. Because at the end of the day, the fundamentals for Apple are about selling more iPhones. You know, the foldable is going to be a fairly niche category. It's not going to make them sell them more overall. The real question here is there's this huge supply chain crunch right now in memory, which means that Apple is having to pay more for the memory chips that go into its devices. And it has to do this balancing act between, do you let it hit your lovely high margins or do you raise prices and lose sales volume? So there's an expectation that Apple is going to have to raise prices across the iPhone family. It already raised prices for the Mac and the iPad earlier this year. And this is the real challenge for turners in his first year. So for all he gets to sort of walk on stage and the celebrated for launching his first product, the thing lingering in the background and what all the investors are going to be looking at is how do they raise prices and how much is the price tag on the foldable, which is an expensive piece of equipment. Michael, acting covers Apple for the FT. Thanks, Michael.

6:08Thanks. The US and Ukraine held high level talks yesterday about how to end the war with Russia. President Donald Trump's envoys Steve Whitcoff and Jared Kushner spoke with Ukrainian president Volodymyr Zelensky in Kiev. It was a day after the envoys met Russian leader Vladimir Putin. Whitcoff and Kushner presented what Trump called a proposal to end the war. Well familiar with the talks told the FT that the Americans brought updated versions of earlier documents, but that they didn't come with many new ideas. Whitcoff said the two sides held, quote, substantive and important discussions. Now, the talks happened at a time when defense and intelligence officials are warning that Europe is failing to deter Russia's hybrid war against the continent. They say Europe needs to quickly develop new ways to combat it. If it doesn't, that could escalate tensions with the Kremlin.

7:11Joining me now to discuss is the FT's Brussels Bureau Chief Henry Foye. Hi, Henry. Hey, Senator. So what does Russia's hybrid war against the European continent look like? So hybrid war is, by definition, very hard to define, but what we've seen over the last few years are this covert war of aggression, of nuisance, of destabilization on European soil. These are things not conducted by the Russian armed forces, not as obvious as an invasion or an attack, deniable acts of sometimes just nuisance, but also deadly bombings or arson attacks, attacks on politicians homes, for example. And these are on purpose things that are below NATO's Article 5, threshold Article 5, of course, the mutual assistance clause of NATO, which is when there's an attack on a state, all the other states come to the aid of that country to repel the attack. And so the point of this whole thing is that Russia is making sure that all of these acts are deniable and below the level that would trigger a full NATO response.

8:12What exactly is Russia's goal here? The reason why Russia is doing this is to punish European countries that are supporting Ukraine. It wants to convince societies that supporting Ukraine is a bad thing, that it could lead to a wider European conflict. And the second is to test NATO's unity. Russia's been looking for cracks inside the alliance. And so there is a feeling that this hybrid war, this constant kind of fear and worry inside societies is a way to try and pull NATO members apart from each other. And why are defence and intelligence officials warning that Europe is failing to deter this type of hybrid warfare? So over the last three years we've seen cyber attacks, we've seen attacks on warehouses, but last month there was a foiled attack on Leapsig Airport where a drone carrying military grade explosives that if hadn't been stopped could have blown up aeroplanes or disrupted the airport in a really serious way. That last week was blamed on Russia and intelligence and defence officials are saying, look, we need to draw a line in the sand here.

9:12This was a really serious planned attack that we were very lucky to have foiled. And it shows that Russia is getting increasingly reckless and it's not taking seriously our deterrent so far. This could get a lot, lot worse unless we find a way to say enough is enough. We should say that Russia has denied involvement in this attack, which is typical for this type of warfare, as you mentioned. What does Europe need to do to start successfully combating this? There's not complete convergence amongst defence and intelligence officials as to what should be done, but they all agree on one thing at least and that is we need to start calling out Russia as the perpetrator and much more firmly and much sooner. It took the Germans, for example, four weeks to conduct an investigation into, put the blame for the Leapsick attack on Russia. The second is to find ways that there is a collective NATO response below Article 5. So something that is not a full, of course, military strike on Russia in retaliation, but ways in which NATO can use sanctions perhaps or use other tools that they're disposal to

10:15punish Russia for these attacks, which are slowly raising, if you like, the tolerance in European societies for these kind of attacks and leading to a constant fear inside European capitals of the next potential attack. Well, what happens if Europe can't get a handle on these Russian attacks? Well, the fear amongst defence experts is that Russia will continue to use the grey area, if you like, and push what's acceptable. If the definition between what's an attack and what isn't an attack, what should have retaliation, what should not is fuzzy, and Europe continues to kind of turn a blind eye, if you like, to the lower level attacks. There is this concern that Russia will keep escalating and seeing where the line is, and that could, in theory, push up to something where they're taking out power stations or critical infrastructure with cyber attacks, things like that. And so European planners are saying, look, when you just say this is completely unacceptable, so that Russia doesn't continue to push the boundary until it's too late. Henry Foy is the FT's Brussels Bureau Chief.

11:16Thanks, Henry. Thank you so much. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news.