US based IT giant, the darling of Wall Street and the first company in the history of business to reach the $1 trillion market value – Apple Inc., stunned Wall Street and investors alike after it issued a raft of profit warnings about possible reduced forecast for the festive season sale for its iPhones primarily because of a slowdown in demand in the emerging market. Following suit, a number of major suppliers of the iPhone maker issued profit warnings for the year which prompted analysts to conclude a softening of demand for iPhones.
This has also raised concerns about the strategy of Apple of increasing revenues from its services business and transforming it into its main pillar of growth. But this strategy is dependent on the company creating an ecosystem of its own to grow its services such as Apple Music and iCloud. And for that Apple needs to increase the volume of sale of its devices which is critically driven by iPhones. .
But now analysts worry that at least a part of its new strategy has gone wrong because the company is falling back in the critical emerging markets of India, Brazil and Russia because the company potentially depended on the aura of its brand and neglected the high prices of its devices.
According to data from research firm IDC, compared to just 8.9 percent for all of 2014, in the first half of 2018, three Chinese smartphone makers – Xiaomi, Oppo and Vivo – accounted for about one forth of the global market.
But Apple has not been able to increase its market share except in fiscal 2015. In the first half of this year, the iPhone maker had 13.6 percent of the global market compared to 14.8 percent for 2014. However, its shares typically see an uptick after it announces its full-year results driven by strong sales in December.
Apple has also created a potential pool of customers for its services with a current active installed base of 1.3 billion iPhones, iPads and Macs. These sale of these devices hit revenues of $37.1 billion in the most recent fiscal year which accounts for about 14 percent of the total revenues of the company. This share of the segment was 8.5 percent in fiscal 2015 during the period when the sale of such devices from Apple was at their peak.
But the global smartphone market is expected to record a compound annual growth rate of 2.4 per cent till 2022 to reach 1.6 billion units yearly. Hence, such as saturated market would make it harder for the Cupertino, California-based company to acquire new customers.
Great progress in growth is being made in particular by Xiaomi. The Chinese company has in some quarters even beat Samsung Electronics to become the largest smartphone seller in the Indian market where Apple has a very minuscule presence. Xiaomi is also doing well in the European markets where it is opening retail stores.
“This is the case where it’s much different in other parts of the world,” said Ryan Reith, program vice president for IDC’s mobile device tracking program.
“Many of those brands don’t play (in the United States), but they’re playing in places where they never played before.”
A part of the strategy of Apple to add new devices to its ecosystem it has also focused on reducing price for its older models.
But even that strategy has been partly usurped by Chinese smartphone makers as their phones are getting packed with higher-end chips and features such as fingerprint and face sensors to lure consumers at prices equivalent or lower to the lower priced Apple phones.
Apple is also facing competition in the US from another new Chinese entrant OnePlus which is making inroads in the traditional pricing territory of Apple.
Hence, Apple Inc. has a tough time ahead.
(Adapted from Reuters.com)