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Is Apple under threat?

James Henderson | Nov. 2, 2016
Apple’s addressable markets, and the company’s revenue and profits, are shrinking, points out an analyst

In reporting its first decline in annual sales and profit in 15 years, the vultures are naturally circling around Cupertino.

With sales sliding eight per cent and profits plummeting 14 per cent, the arsenal of Apple products - spanning iPhone, iPad, Apple Watch and Mac computers - appears to have reached its peak audience.

While still posting profits a vendor could only dream of in $US45.7 billion in the twelve months just passed, the tech giant’s financials highlight its weakening influence on the devices market.

Yet this isn’t merely opportunistic media outlets chomping at the clickbait, rather a serious question of Apple’s standing within a technological world it once dominated.

“Apple has become a victim of its own success,”Technology Business Research senior analyst, Jack Narcotta, said.

According to Narcotta, Apple’s “largely iterative updates” to Mac PCs and the iPhone are due to the world’s most valuable company perceiving a lack of true competition in its target markets.

Consequently, this has provided competing mobile device vendors such as Huawei, Samsung, OPPO and vivo, and PC OEMs such as Asus, Dell and HP with opportunities to loosen Apple’s grip on the premium device segment, the most coveted as it generates greater profits.

“Apple’s addressable markets, and the company’s revenue and profits, are shrinking as sales of hundreds of millions of entry-level and midrange Android smartphones and resurgence in Windows premium consumer PC demand weaken Mac PC and iPhone demand,” Narcotta explained.

iPhone

For Narcotta, the iPhone remains “at the nexus of Apple’s current and future ambitions”, yet key challenges remain.

Presented by the hundreds of millions of iPhone customers keeping older iPhones longer, Narcotta believes such customer behaviour has subsequently stunted the one- to two-year upgrade cycle that drove most of Apple’s prior growth.

Apple CEO, Tim Cook, would argue however that iPhone revenue and profit volume still surpassed that of its competitors.

As outlined during TBR’s 2Q16 Devices and Platforms Benchmark, the iPhone alone accounted for 24.1 per cent and 41.8 per cent of the total device revenue and gross profit, respectively, generated by 17 vendors.

“As iPhone demand wanes, Apple prioritises pursuing growth in markets adjacent to the iPhone,” Narcotta added.

Specifically, the company’s Services segment revenue climbed 24.4 per cent year-to-year to $US6.3 billion, because of Apple’s commitment to greater monetisation of iPhone user engagement.

“The emergence of the iPad Pro as a “hero device” for the company’s iPad business, particularly in Apple’s underserved commercial PC markets, inform Apple’s post-iPhone direction,” Narcotta added.

“Sustaining revenue growth in these segments will emerge as a priority for Apple in 2017 as iPhone demand wanes, but the scale of the iPhone business will dictate Apple’s overall gains or, more likely through 2017, declines.”

 

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