Has the iPhone lost its lus­tre?

The Irish Times - Business - - FRONT PAGE -

Asud­den dip in sales in China may be the big­gest fac­tor be­hind Ap­ple’s dras­tic rev­enue short­fall, but the deeper is­sues the warn­ing has raised about the iPhone will turn out to have a more last­ing im­pact on the com­pany.

That was the ver­dict of many Ap­ple-watch­ers af­ter the US per­sonal tech gi­ant is­sued a rare – and shock­ing – rev­enue warn­ing. The com­pany said sales in the lat­est quar­ter would fall as much as 10 per cent be­low a fore­cast it is­sued only two months ago. Signs of soft­en­ing de­mand for the lat­est iPhones, even out­side China, have been emerg­ing since Ap­ple is­sued a weaker-than-ex­pected fore­cast at the be­gin­ning of Novem­ber.

Sev­eral com­po­nent sup­pli­ers warned of a large smart­phone cus­tomer cut­ting or­ders. Ap­ple gave an un­usu­ally prom­i­nent pro­mo­tional push on its home­page to its trade-in pro­gramme, in the hopes of en­tic­ing ex­ist­ing iPhone own­ers to get a dis­count on the lat­est model by hand­ing back their ex­ist­ing de­vice. Its de­ci­sion to stop re­veal­ing iPhone unit sales fig­ures was also seen as a red flag. Yet un­til re­cently Ap­ple sought to counter the grow­ing scep­ti­cism about iPhone sales, sug­gest­ing it did not an­tic­i­pate the depth of the prob­lem. Just a month ago, Greg Joswiak, vice-pres­i­dent of prod­uct mar­ket­ing, gave an in­ter­view to tech news site CNET in­sist­ing that the new XR model had been “our most pop­u­lar iPhone each and ev­ery day since the day it be­came avail­able”.

Tim Cook, Ap­ple’s chief ex­ec­u­tive, placed the blame for the re­ver­sal on eco­nomic con­di­tions in China, as well as a num­ber of is­sues that he said led to fewer peo­ple than ex­pected up­grad­ing to newer mod­els of the iPhone in the de­vel­oped world.

Ex­pla­na­tions

How­ever, some of Mr Cook’s ex­pla­na­tions – in­clud­ing the end of car­rier hand­set sub­si­dies in the US and a cut-price bat­tery re­place­ment of­fer that had led more peo­ple than ex­pected to hang on to their cur­rent phones – were hardly new, and were brushed off by many an­a­lysts as dis­trac­tions from deeper is­sues the com­pany is fac­ing.

“I don’t think that rings true. All that stuff has been go­ing on for a year,” said Gene Mun­ster, an­a­lyst at Loup Ven­tures.

He and oth­ers pointed to more press­ing is­sues that ap­peared to re­veal a turn­ing point in the iPhone’s for­tunes, and sug­gested that sales would not bounce back quickly.

Many an­a­lysts pointed to the price in­creases pushed through last au­tumn as the main rea­son for the sales dis­ap­point­ment. The weighted av­er­age price of Ap­ple’s hand­sets was up 23 per cent, ac­cord­ing to Mr Mun­ster, as the com­pany switched from its old prac­tice of sell­ing older mod­els at lower prices to in­tro­duc­ing a new range of mod­els.

When you keep tight­en­ing the screws on your cus­tomers, you’ll even­tu­ally find their break­ing point

Ap­ple’s strat­egy of coun­ter­act­ing slower growth in the smart­phone mar­ket by rais­ing prices has worked un­til now. But while cus­tomers felt that the iPhone X pro­vided a tech­ni­cal leap for­ward that matched its pre­mium pric­ing, it was un­able to re­peat such a big jump in per­for­mance with the lat­est iPhone XS and XR mod­els.

“China, etc, are valid rea­sons, but we can’t ig­nore that, across the en­tire prod­uct line, there’s been a very com­mon theme for the last few years of pay­ing more and get­ting less,” said Marco Ar­ment, the vo­cal iPhone app de­vel­oper be­hind pod­cast player Over­cast, in a tweet.

“When you keep tight­en­ing the screws on your cus­tomers, you’ll even­tu­ally find their break­ing point.”

The lat­est price rises also came as a slow­ing econ­omy in China and else­where ate into con­sumer sen­ti­ment. “In hind­sight, it was the wrong thing to do, though it made per­fect sense at the time,” said Mr Mun­ster.

While the price in­creases may have made the sit­u­a­tion worse, some an­a­lysts said that the rev­enue down­turn showed that the iPhone was los­ing its al­lure. “Peo­ple are say­ing, I’m happy with the fea­tures I have,” said Carolina Mi­lanesi, an an­a­lyst at Cre­ative Strate­gies.

‘A big­ger prob­lem’

The iPhone news is “a big­ger prob­lem” for Ap­ple than the slow­down in China, she added, be­cause “it shows the re­place­ment cy­cle, driven by new fea­tures, is not as strong as it was”.

Smart­phones “are not as sexy as they used to be”, Ms Mi­lanesi said.

She es­ti­mated that the av­er­age iPhone user now up­grades to a new model ev­ery 30-36 months, com­pared to about 24 months in the past.

In his let­ter to in­vestors on Wed­nes­day, Mr Cook said Ap­ple was work­ing on new ways to en­cour­age iPhone users to up­grade, for in­stance by mak­ing it eas­ier to trans­fer their data to a new hand­set and pro­vid­ing fi­nanc­ing for the de­vices.

Fi­nanc­ing of­fers and other in­cen­tives such as these are likely to be­come much more com­mon this year as the smart­phone in­dus­try tries to prompt cus­tomers to buy a new gen­er­a­tion of 5G hand­sets, said Ge­off Blaber, an an­a­lyst at CCS In­sight.

Mean­while, the rev­enue prob­lems are set to bring in­tense scru­tiny of Ap­ple’s for­tunes in China. While it blamed macroe­co­nomic con­di­tions there for its short­fall, it did not men­tion the pres­sure it is feel­ing from ri­val smart­phone mak­ers in the world’s big­gest mo­bile mar­ket.

Ac­cord­ing to Coun­ter­point Re­search, Ap­ple’s share of the Chi­nese smart­phone mar­ket fell be­low 10 per cent in the sec­ond and third quar­ters of 2018, while shares of lo­cal com­peti­tors Huawei, Vivo and Oppo all climbed above 20 per cent at the same time – largely thanks to cheaper de­vices.

Huawei, de­spite na­tional se­cu­rity con­cerns keep­ing it largely locked out of the US mo­bile mar­ket, last sum­mer over­took Ap­ple to be­come the world’s sec­ond-largest smart­phone maker, be­hind Sam­sung. This is not the first time chang­ing for­tunes in China have weighed on Ap­ple’s per­for­mance. Sales sagged dur­ing 2016 af­ter the huge growth spurt brought by the larger-screened iPhone 6 and car­rier sup­port from China Mo­bile in the year ear­lier. Ap­ple’s re­turn to rev­enue growth in Greater China from mid-2017 on­wards has played a cru­cial role in its broader re­cov­ery – un­til now.

– Copy­right The Fi­nan­cial Times Lim­ited 2019

PHO­TO­GRAPH: SHAWN KOH/BLOOMBERG

Cus­tomers are seen ex­pe­ri­enc­ing and choos­ing prod­ucts in an Ap­ple store in Bei­jing, China yes­ter­day.

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