Yesterday, as Apple CEO Tim Cook informed investors that revenue will be lower than what was originally expected due to low iPhone sales, all hell broke loose. One expert analyst called it "the darkest day in the iPhone era" while Apple shares lost more than 60 billion dollars in value in a few hours.
Of course, challenges are nothing new to the wonder company founded by Steve Jobs. But since his second coming and the launch of the iMac in the late nineties, it had seemed that the only way for Apple was up. And way up.
Until now, that is. So, what is going wrong?
iPhone
You read it right. Apple’s biggest success is a boon that is becoming a bane. While the iMac was followed by iPod, then the iPhone, iPad and iWatch, for the last one decade, the company’s achievements in profits and market cap have all hinged on just iPhone’s performance. Even now, it makes up for more than 60% of the money the company makes. Naturally, any slowdown in the sales of the flagship device leads to a cascading effect on the whole company’s performance. Apple needs a saviour of an innovation, either a new device or some revolutionary new feature in the next iPhone. And pronto.
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India
China may be Apple’s biggest worry right now, but India has also had a big hand in the state of things. Since Cook took over, fast-growing India had figured prominently in Apple’s scheme of things, hoping it would counter the slowdown of sales in the west. While sales did increase after the introduction of a new form with the iPhone 6 in 2014, it has been nowhere near the dream figures expected by Cupertino. Reason? iPhone is horridly expensive by Indian standards, and the recent hike in prices has not helped (while the latest model iPhone cost around Rs 70,000 less than two years ago, now it costs Rs 1.10 lakh). Cost (and the new tech) savvy Indians haven’t taken to a phone that made you ‘captive’ and used older hardware, even if it remains an aspirational numero uno.
China
Apple had a spate of unsavoury news coming out of China, the least unpredictable being the lower-than-expected sales of iPhones, ostensibly the reason quoted by Cook in his letter to investors. The trade wars between US and China, as well as Chinese courts coming down hard on Apple in a string of directives, have also not helped. A good chunk of revenue it makes from keeping Google as its home page (Google’s parent company Alphabet pays Apple billions for this) is lost as Google is blocked in the People’s Republic. The massive deceleration of the Chinese economy which became visible last year, if not rectified, could have devastating effects on Apple’s bottom line. A strengthening dollar doesn’t help, either.
Services
Since the iPod, Apple’s strategy has been to keep a steady income coming in from its content services. Starting with the iTunes stores (where you can download songs, videos and podcasts for a charge that is shared between Apple and the copyright owners) and then the App stores. While this has paid good dividends in the past, recent efforts to scale up has not worked as well—iWatch has still not realised its potential while Apple TV has been a slow grower. And less said about Apple’s venture into future techs like foldable screens and driver-less cars, the better. Customers in emerging markets, especially India and China, also do not particularly cherish the fact that becoming an Apple user means becoming ‘captive’ to its services.
A smarter phone
Yes, the iPhone bowled us over when Jobs launched it in 2007 and soon crushed competition like BlackBerry. With its AppStore ecosystem and neat features like WhatsApp (initially promoted by Apple as a counter to the-then wildly popular BlackBerry Messenger) and Siri, it seemed like there was nothing this device couldn’t do.
But a decade down the line, the innovations have slowed while the price has shot up (shoring up the bottomline and keeping stockholders happy). Even before yesterday’s warning, analysts had started wondering how long Apple can sustain this profit model. To make matters worse, rivals, first Samsung and now those like Huawei and OnePlus, have stolen the thunder when it comes to new features, faster processors and the final frontier, cool-looking phones.
“Smartphone innovations have been weak over recent years and 5G phones will likely only be fully viable around 2020 at scale,” said Counterpoint Research’s analyst Maurice Klaehne after Apple’s last earnings call. “This all indicates that iPhones won’t be the growth driver that it used to in the past. Something has to change.”
