For the first time since the launch of its iconic iPhone, Apple has recorded a fall in profits. Does this moment mark the beginning of the end for what remains the world’s biggest company?
Industry analysts’ estimates place year-on-year growth in iPhones at a shade over 1% for the first quarter of the 2016/16 financial year. By way of comparison in marking the slowdown, during the same period last year Apple were posting record 46% year-on-year growth.
The latest flagship model, the iPhones 6S bragged record weekend sales when it was launched in September last year, but Apple’s astronomical growth hasn’t lasted, and sales of iPhones have now started to wane.
Are Apple products still desirable?
For years now, Apple have operated in the ‘affordable luxury’ end of the consumer technology market which has seen buyers consistently return to the reassuringly-expensive iPhone.
Despite the financial pinch of the recession and countless, cheaper iPhone alternatives flooding the market, Apple have remained dogged in their pursuit of bloated profit margins, charging top dollar for premium products. Indeed Apple’s only previous misstep in the smartphone market was the 5C – its half-hearted attempt at a budget handset – which saw consumers turn their noses up at the plastic kitchness and cheaper price tag. Simply, if it wasn’t expensive, it wasn’t Apple.
Over the last decade, smartphones have become the most important product in people’s lives and Apple have tapped directly into consumers’ willingness to pay large amounts in order to feel they’re getting the best product. In this respect, Apple’s profits have remained largely untouched despite recession, cheaper copycats and shifting smartphone trends.
Despite the company’s attempts to spread their profits across a widening range of devices, Apple’s success remains inextricably linked to iPhones. Sales of the iconic smartphone make up 63% of the company’s total revenue, and it is this reliance on one product which makes investors jittery.
The bedrock of Apple’s business success has been repeat business. Apple are the industry kings of hooking in consumers and then upselling all manner of products and services. Apple customers very rarely ditch their iPhone and switch to Samsung’s eco-system for example – it tends to be ‘Apple for life’. But whilst this trend has continued, it’s Apple’s capacity to attract new customers and open up new markets which appears to be stuttering.
China is the key
Apple have saturated the Western market to the point where there really isn’t anybody left to whom they can sell; we all have iPhones in our pockets already. So just where does the biggest company in the world head when it has run out of customers?
China is seen as the land of opportunity for Apple and the company is betting big on a market which, until fairly recently, has not had a sniff of Apple’s offering, making do instead with cheap and nasty iPhone copycats.
It is this over-reliance on China and the economic instability currently dogging the world’s second largest economy which is fueling the market’s concern over Apple’s long-term growth.
So what next for the world’s biggest luxury tech brand when it appears to be running out of consumers wealthy enough to buy its products? Could it be time for Apple to revisit the budget end of the smartphone market, opening up India and Africa, but risking devaluing the brand? Is now the time for Apple to branch out into a whole new area – Apple cars, anyone?