Bye, bye iPhone?

And, please, take Apple, Inc. with you! Okay, it is not that serious yet; only that for the first time in 13 years, Apple recorded a 13% decrease in revenue this past year, an unheard-off for the company which for the past several years has been the most capitalized in the world, with still over […]

And, please, take Apple, Inc. with you! Okay, it is not that serious yet; only that for the first time in 13 years, Apple recorded a 13% decrease in revenue this past year, an unheard-off for the company which for the past several years has been the most capitalized in the world, with still over $233 billion cash in the bank. This announcement came last week Tuesday.
Apple’s sales for last year were a mere $50.6 billion, with iPhone being the main bread-and-butter of the company. Net income fell 22 percent to $10.5 billion, or $1.90 a share. Wall Street reacted, of course, causing the shares to go down by 8 percent in after-hours trading. This wiped out about $47 billion in Apple’s stock market value – a reminder that most of these worth is paper money anyway!
It might actually not be a joking matter, as I personally feel that Apple’s struggles might have just started, with some industry experts also bearish on the company. “There’s no question that Apple’s best days are behind it,” said Toni Sacconaghi, an analyst at the Bernstein brokerage firm. “The company grew at astronomical rates, and it’s now so big that its ability to grow at those rates doesn’t exist anymore.” As companies grow into giants, it naturally becomes harder and harder to keep up the momentum. The proverbial “everything-that-goes-up-must-come-down” becomes the operating mantra.
Apple’s chief executive, Timothy Cook, tried to play down the decline, describing it as a “pause,” rather than a fundamental change in the company’s business. I don’t buy that; neither are Apple’s investors. The reduced business in “greater China” – 26% drop compared to the previous year, accounted for a significant part of the loss. Sales in the mainland itself fell 11%. After the U.S., China is the second largest iPhone market. (Greater China refers to China mainland plus Taiwan, Hong Kong, and Macau.)
Why are iPhone sales falling? There is a multitude of reasons, which include the saturation in phone demand, the strong dollar, the lack of really new features in new iPhone models, the lineup of competitors in China, improving quality of phones in China – which are also cheaper, long slump in personal computer sales, the high price of iPhone vis-à-vis the economic downturn in China, and the lack of another hot product from Apple. The fact that one can do more with Android phones also contributes to iPhone’s problems.
The growing number of Apple competitors in China has contributed to Apple’s reduced share in that country. In greater China, where, for years, iPhone has been regarded as a status symbol, the emergence of local competitors that are trying to beat Apple at its game in terms of quality, aesthetics, and sleekness, coupled with the de facto technical prowess of Android phones, has taken a great toll on the company’s market share. Moreover, the phones from these competitors are cheaper. The lineup of the Chinese competitors is long: Huawei, Meizu, Xiaomi, Oppo, ZTE, and One Plus.
Some feel that iPhone’s weaker sales are also a reflection of the broader slowdown in the growth of China’s enormous smartphone market. A Shanghai, China, analyst estimates that Chinese smartphone market will grow at only 4.7 percent in 2016, compared to a 50% annual growth rate in 2013. This is obviously a combination of demand saturation and the weak economy in China. With so many people out of job, buying luxury items will take a back seat.
The beginning of Apple’s glory appears to coincide with the launch of iTunes/iPod. Then came iPhone and iPad, both of which were phenomena products when they were released. The history of performance of these products could have provided the confidence displayed by Apple CEO in thinking that Apple would recover from the “temporary” loss in China. After all, there has been a precedent for an Apple recovery. In 2012 and 2013, the company’s sales growth in China slowed as competitors like Samsung offered phones with larger screens, which are very popular in China. When Apple finally released, in 2014, iPhone 6 Plus, which has a similar screen size, its market share went through the roof.
As one tech journalist points out, “In many ways, the company is in a similar position today. Samsung’s Edge phones stand out with screens that have rounded edges on one side, and many in China say the camera on Huawei’s flagship model is better than Apple’s camera.” The question now though is whether or not Apple still has what it takes to develop revolutionary products. At any rate, going forward, the going is to be rough for Apple, if only for the Chinese government’s crackdown last week of the company’s iBooks Stores and iTunes Movies services in China, as the country increases its efforts to crack down on western values.