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Global smartphone sales are declining, so where does Apple’s future lie?
We take a look at how Apple plans to bounce back from its disappointing iphone sales
Since 2016, sales of smartphones across the world have declined dramatically. In 2018 there was approximately a decline of six per cent. Samsung, the market leader with a 20 per cent share of global sales, saw a massive 13 per cent drop in sales last year – and Apple hasn’t been able to avoid a downturn in sales of its iconic iphone either. Apple has revised its financials for the current quarter, and the response has been typically over the top. On the surface, the $5-billion deficit is quite a talking point, but it’s far from doom and gloom. Even so, Apple’s shares slumped at the news, and Tim Cook had to write a letter to investors explaining the reasons for the financial shortfall.
To find the main reason you need to head to China, where the economy has suffered a huge decline. GDP growth during Q3 2018 was its second lowest in 25 years, and by November consumer spending had almost flat-lined. It’s not hard to see how this could impact Apple – China accounts for up to 18 per cent of Apple’s revenues. It’s virtually impossible to predict global economic downturns of this magnitude, as Cook noted in his letter to investors.
“While we anticipated some challenges in key emerging markets, we did not
foresee the magnitude of the economic deceleration, particularly in Greater China,” he wrote. “In fact, most of our revenue shortfall to our guidance, and over 100 per cent of our year-over-year worldwide revenue decline, occurred in Greater China across iphone, Mac and ipad.”
Rising trade difficulties between the two countries, sparked by US President Donald Trump, is also having a huge impact on Apple’s image in Greater China. It has fallen behind home-grown brand Huawei in the popularity stakes, and their new handsets have performed very well in Greater China. Huawei handsets are currently banned from sale in America because of spying threats. Tension like this is bound to have an impact.
Asiatic ambitions
“Despite these challenges, we believe that our business in China has a bright future,” Cook continued. “Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction. The IOS developer community in China is among the most innovative, creative and vibrant in the world. Our results in China include a new record for Services revenue, and our installed base of devices grew over the last year.”
This last sentence is the key to Apple’s long-term future. Apple Services, key pillars of the Apple ecosystem like the App Store, Apple Music and icloud, generated over $10.8 billion in revenue in the same quarter as the downfall in iphone sales. Apple is on track to achieve its goal of doubling this arm of its business from 2016 to 2020, setting new growth records in every geographic segment. Apple has been focusing on Services for the last few years, and its success in this market will keep shareholders and investors happy for years to come.
Rivalling Netflix
You only have to flick the page over to read about record-breaking App Store sales over the 2018 festive period, including the best day ever for sales on New Year’s Day. For everything you buy on the App Store, Apple takes a 30 per cent cut. Subscribers to Apple Music have now hit 50 million, the vast majority paying £9.99/$9.99 a month. The numbers add up, don’t they?
Apple stole the show at CES 2019 by partnering with Samsung to allow its itunes app on its rival’s smart TVS. Yet another new revenue stream. And the biggest Services win could yet be the much-rumoured Netflix-style TV and movie subscription service. Everything points to a release this year, and that is a potential game-changer.
Cook signed off his letter to investors in typically bullish terms. “We are confident and excited about our pipeline of future products and services,” he said. “Apple innovates like no other company on Earth, and we are not taking our foot off the gas. Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day. That has always been the Apple way, and it always will be.”
It won’t be long before Services overtake hardware as the most profitable part of Apple’s business. These Services entertain and inspire us on a daily basis, and as such, continued energy in improving them is an enticing proposition.