Apple sales figures shade iPhone challenges
Analysis of the latest Apple sales figures shows that tech giant remains a phenomenal company, but it needs to regain the magic spark that used to be its hallmark.
As usual, Apple’s performance is good on both the top and bottom lines. Revenue for the quarter jumped by almost 16 per cent, an impressive increase given last year’s strong results. Even more impressive was the 25.3 per cent leap in net income, an uplift that came despite a higher level of spending on research and development.
But as good as the headline numbers are, there are some less satisfactory nuances in the underlying dynamics driving them. Foremost among these are sales of the iPhone. On the surface, revenue from iPhone sales, which rose by 14 per cent, looks strong. However, this is mostly pushed up by higher average prices rather than volume. Indeed, in unit sales terms, the number of iPhones sold rose by just 3 per cent over the same period last year.
Given the high raw numbers that sit behind a 3 per cent unit uplift, such a criticism may seem petty. However, the second quarter last year was a weak one for the iPhone with sales down in both volume and value terms. As such, we would expect a much bigger uplift this time around. That this didn’t materialise, and that unit growth is well below the run rate for new phone launches, signals that the replacement cycle is slowing down. In essence, we maintain our view that Apple is struggling to persuade many consumers to update their phones.
Failure to wow
As I’ve have said before, this relative slowdown in iPhone sales is largely a function of Apple’s inability to come up with meaningful and valuable innovations that wow consumers. No matter how Apple tries to spin it, the iPhone X is essentially an incremental product that lacks the excitement and newness earlier models brought to the market.
The same logic applies to many other product lines, including iPads and Apple Watch. These are good, quality items, however they are simply not impressing the market and Apple is losing its lustre in terms of producing compelling products. Apple has moved from a position of ‘must have this and must have it now’ to ‘might buy this at some point in the future’.
Price increases may mitigate this but, ultimately, such a shift can only ever result in a softer sales performance.
Adding new products, such as HomePod, into the mix provides potential new sources of revenue.
However, with launches to date, Apple is not disrupting the market like it used to. HomePod is a case in point. Here, despite good technical specifications and design credentials, Apple was a latecomer to the smart speaker market. This crimped sales and puts Apple in direct competition with both Google and Amazon – against both of which it does not have a clear and compelling unique selling point. While we believe Apple can take a share of this market, we do not think it can win a decisive victory in the battle with other tech firms.
One area of relative success, at least in revenue terms, is services. However, this is an area where we think Apple needs to push harder. Amazon is successfully creating an ecosystem of services through Prime. Apple needs to do something similar by building on its Apple Music subscription and its App Store offering. Content is a big growth area and is becoming increasingly linked to devices. Apple needs to play more heavily in this space both to generate new opportunities but also to defend its own device business.
- Neil Saunders is MD of GlobalData Retail.