Ding-dong, reality calling: iPhone slump is not Apple's doom

Pressure in a growth-obsessed climate

The sky is not falling. This is not as bad for Apple as 2003 or 1996. But neither does Apple walk on water.

For the first time in 13 years, Apple’s reported falling revenue – down 13 per in the last three months to $50.6bn.

Cruelly, it was the growth engine that was winding down: iPhone sales fell for the first time in the smartphone's relatively short history.

To many, this is will be inconceivable.

The iPhone not only "re-invented" the smartphone – putting the internet in people’s pockets – it also upended major incumbents Nokia, BlackBerry and even Microsoft.

How is it possible, even permissible, that the author and its creation should now be on the back foot?

For a millennial generation born and raised on nothing but good tech news and for a Wall St married to growth, growth, growth, this is a wake-up call. You could call this its coming of age. But what’s really called for is some perspective.

The second quarter for 2015 a year ago was, as they say in Wall St, “a tough comparable”.

Back in Q1 '15, Apple claimed “record” revenue from the iPhone – which accounts for 66 per cent of all Apple’s money – and also from Mac and the App Store.

Apple also closed 2015 on a big high: claiming record growth in China for Q4 thanks to new iPhones - up 71 per cent, with 40 per cent growth in iPhone sales.

But the flip side of staggering growth is not just tough comparable but market saturation.

In the past that hasn’t posed a problem for Apple as it has depended on people chucking their exiting iPhone for the latest model.

It’s that upgrade mentality that has turned Cupertino into a conveyor belt of new models.

However, Gartner earlier this month said the era of double-digit market share growth for smart phones is over. It’s pegged global 2016 growth at seven percent.

Consumers are also starting to hold onto their older phones for longer, Gartner said.

Another problem is China: 71 per cent growth in the fourth quarter of 2015 turned into an 11 per cent year-one-year decline in the second quarter.

Much has been said of China’s economic slow down – growth of 6.3 per cent rather than 6.9 – but other factors are also at play.

The fast-take up for iPhone 6, where it was reported Apple had run out of phones, has accounted for rapid saturation. Also, there’s the problem of competitors: Huawei and Xiaomi are growing and – combined with Lenovo – have denied Apple’s iPhone a small but decent chunk of China.

Big Trouble in little China

But China isn’t an Apple-only problem – it’s a factor for Samsung, the number-one smartphone maker on the planet who is using Google’s Android.

Samsung’s mobile unit in January – the period slap bang in the middle of Apple’s Q2 trading period – saw its revenue fall by 7.5 per cent.

But like your favourite aunt, this is relative. China is still a huge market, and while its growth has been downgraded to 6.3 per cent, it’s still double that of the global economy.

Further, if you think the smartphone makers have got it bad, spare a thought for those making and selling PCs – a market the iPhone helped beach.

2016 will see not growth but further reduced sales, down 1.5 per cent, according to Gartner.

For all that, this is not 1996 all over again for Apple.

Cupertino last year made $53bn revenue on goods and services – an Apple record. That’s a long way from 1996 when the sky really was falling, the year when Apple lost more than $1.5bn – before the 1997 $150m rescue investment from Microsoft that helped keep Apple alive along with a promise from Redmond to keep making its browser and its software for Macs.

Also: millennials and Wall-St growth addicts note: this is Apple’s first decline in revenue since 2003 – when revenue fell just one per cent.

2003 also ultimately turned into a big year for Apple, as it unveiled the 12- and 17-inch PowerBooks, revolutionary for their screens, Wi-Fi and underlit keyboards.

This was the year that then-CEO Steve Jobs called Apple’s “year of the notebook”. Apple went on to revive the Mac and revolutionise the notebook market, not for the first time whipping Microsoft and PC rivals into shape.

Get used to it

What you are likely now looking at now is the new normal: a post high-growth market. This is the resetting of that double-digit growth in smartphones for something more akin to business as usual - for everybody.

Not that Apple is accepting the hand it has been dealt.

While announcing Q2 on Tuesday, Apple chief executive Tim Cook sought to move investors quickly from looking at China to gazing upon India.

“The things that have held not only us back perhaps but some others as well is that the LTE rollout with India just really began this year, and so we'll begin to see some really good networks coming on in India. That will unleash the power and capability of the iPhone,” Cook told investors.

If India is indeed Apple’s new China, then expect plans for US-style Apple retail stores that had been planned to crack the Sino market – at least until that market crunched Apple.

Further, Apple is taking steps to choke off existing supply of iPhones already out there in order to regenerate demand. It plans a $2bn inventory reduction – it conducted a reduction 12 months ago, but that was a mere $800m.

Such actions won't satisfy those wedded to high growth and the pressure for the next-big growth vehicle and big idea will intensify. But for the iPhone, the new normal does look a lot like business in a post-growth market. ®


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