APPLE FATIGUE
Have we passed peak iPhone?
It is one of the world’s most powerful brands and since its launch 11 years ago has won over more than a billion consumers, from Beijing to Barcelona and Buenos Aires to Bloemfontein.
But the iPhone’s failure to win over consumers in one key country — India, which within four years is due to exceed China as the world’s most populous country — is contributing to growing evidence that its global popularity is waning.
It’s been quite a ride. For a decade, the iPhone has been the bellwether of a booming smartphone market. In 2007, the year the device was launched, Apple shifted just over a million iPhones. By 2015, that number exceeded 230-million.
Apple has now sold over a billion iPhones in total. For years it was the second most popular smartphone worldwide after Korea’s Samsung.
In SA, according to GlobalStats’s statcounter, just under 14% of smartphone users have iPhones.
But after years of brisk growth, Apple’s core Western markets are saturated as consumers balk at the high prices. Increasingly, they are opting to hang on to their devices for longer, less impressed by incremental annual upgrades.
The evidence of stagnation is growing and, in a seismic shift for the smartphone industry, sales are now falling as consumers hit “peak iPhone”.
In the few big developing markets that remain where it can find the room to grow, Apple is sputtering. The number of smartphone users in India is estimated to grow to 442-million by 2022. But, so far, the US giant has failed to win over consumers in big enough numbers to sustain growth.
“Apple’s strategy [in India] has gone a bit wayward,” says Neil Shah, a Mumbaibased analyst at Counterpoint Research.
Apple’s huge profit margins — 64% on some phones in 2017 — simply don’t cut it in a market where the average per capita income is $2,000 (R29,000) a year and consumers tend to plump for cheaper brands.
“Its pricing is addressable to only 1% of the Indian smartphone market,” Shah says. “More than half of smartphones sold are below $150.”
The low margins and cost of entry have not made India an attractive market for Apple, despite CEO Tim Cook’s claims on the company’s last earnings call he is a “big believer” in its potential. Apple is believed to be revamping its India strategy with the appointment of a new executive, Nokia’s Ashish Chowdhary.
Cheaper Chinese rivals, meanwhile, have flooded these markets with bargain phones. Xiaomi, for instance, has committed to never making more than 5% profit on its phones. Huawei recently took Apple’s spot as the No 2 smartphone vendor worldwide on the back of developing-market sales.
India is a relatively new smartphone market. While in the UK, for instance, many consumers still remember the first true smartphones as the first iPhones, this doesn’t hold for millions of Indians buying a smartphone for the first time.
“If Apple continues to lose its grip on the Indian market it will be difficult to attract a smartphone user on their third or fourth Android phone,” Shah says.
Apple also managed to dent its chances in India in 2016, when its government rejected Apple plans to stock old — or “refurbished” — smartphones in the market rather than its latest models. Since then, Apple has not managed to open one of its own Apple Stores in India, still waiting for government approval. Under President Narendra Modi, Apple has been on the receiving end of creeping tariffs for not moving its manufacturing to the country.
It’s not just India where Apple has been losing momentum. China, too, has long been an anaemic market for Apple. The latest reports are not flattering. According to Goldman Sachs, searches for iPhones on Baidu, China’s equivalent of Google, have fallen off a cliff.
While Apple had made inroads by 2015 — the year of the hugely popular iPhone 5 — these have now fallen away. In 2015 it made $60-billion, but by 2017 this had fallen to $45-billion.
If Apple is failing to increase its share of the world’s only growing smartphone market, its sales slowdown in more established markets is due to more universal factors. The rate at which consumers replace their smartphone has increased from 25 months on average in 2016 to 32 months in 2017, according to research from trend analysts NPD.
Apple iPhones have just become so powerful that they don’t need constant upgrading.
So what about when users do decide to upgrade? It turns out Apple’s Chinese competitors are now facing it down in the UK and Europe, as well as in China and India.
One rival, Beijing-based Xiaomi, has just announced its first bright orange UK “Mi Store”. Like an orange rip-off of an Apple Store, Mi Stores include a host of Xiaomi phones and other gadgets in its product range.
“We are confident that our model can work with honest pricing,” says Xiang Wang, Xiaomi’s head of international markets ahead of the opening.
“It has worked in countries like China and India. We feel we have this very different business model.”
And yet, while it is facing downward pressure from the shrinking market and failing to break through in the only areas of growth, the fact is Apple may not need the 2-billion-plus consumers in India and China.
Says CCS Insight analyst Ben Wood: “The remarkable thing they have achieved is to drive ongoing revenue from iPhones that are many years old.”
Even if sales continue to taper off, Apple’s revenue from services like Apple Music, iCloud and the App Store is growing fast — up to $10bn for the last quarter.
And the falling market will be hitting its rivals in equal measure.
“The way people measure performance of mobile phone manufacturers has changed,” Wood says.
Take Xiaomi. Despite selling 92-million phones in 2017, it has firmly positioned itself as an “internet company”, selling services, apps and other items like connected scooters. Yet investors valued Xiaomi at under $50bn at its float earlier this year (compared to Apple’s $920bn value).
Of course, such sentiment may not ease concerns for investors at iPhone parts suppliers like IQE or Lumentum.
But for Apple shareholders, the company has led the way in building up services and other revenue streams in anticipation of the slowdown of smartphone demand.
Apple still returned $14bn in its last quarterly results. While Apple still has room to grow in developing markets, the fact is it may simply not need to.
BUT THE FACT IS APPLE MAY SIMPLY NOT NEED TO GROW IN NEW MARKETS