Apple and the smartphone era

It is official and by now, all the media and social networks have reported that for the first time since the iPhone was launched in 2007, its sales will go down in the next quarter! So is this the beginning of the end for both Apple and the smartphone in general?

Nowadays, everything goes fast, very fast and not only from a technological point of view. A product can be a success one day and then a few years later, a complete flop. Remember the Netbook, the computer that was supposed to change everything in the PC sector?

When Apple presented the iPhone in 2007 everyone, except for its aficionados, was very skeptical about how successful such a device could be. Of course, some big names in the tech sector had very stupid thoughts about it and today some of them have simply disappeared, as well as the companies they were running.

Once their competitors started to copy the iPhone, the smartphone quickly took off and reached amazing sales levels in 2015. According to IDC, more than 1.4 billion smartphones worldwide were sold last year. To put these sales into perspective, only 247 million televisions and 315 million computers were sold in 2014, as both sectors were down for a few years. The smartphone’s success wasn’t just huge, it was simply stratospheric.


Smartphone worldwide sales


This is the opposite of what happened when the Macintosh was first introduced in 1984 and then widely copied. Apple couldn’t sustain it and the company almost went bankrupt in 1997, as 90% of its revenues came from the Mac’s sales. The history of the iPod, iPhone and iPad was different and for some time Apple was the market leader, as a result of the amount of smartphones that were sold and the revenue this generated. According to IDC, Apple sold more smartphones in 2011 than any other company, taking over the number 1 position from Nokia. Since then, it has held second position, including in 2015 when it achieved a 16.2% market share (with 231 million devices). Meanwhile, Samsung has taken the lead with 22.7% (325 million devices).

Since 2007, year over year, every quarter has shown better smartphone sales overall and Q1 2015 (October to December 2015) was no different, even if the increase was very limited. However, after 35 quarters, this is coming to an end and the company has warned that for Q2 2015 (January to March 2016), sales should be around 50 to 53 million devices. Those numbers are 13% to 18% lower compared to Q2 2014, when the company shipped 61 million devices.


For 35 quarters, Apple never disappointed… it probably will for the 36th


I will not go into the financial details, as you’ll find lots of better information elsewhere, but overall this means that billions will be missing at the next financial quarter too, as the iPhone brings in roughly 60% of Apple’s revenue. I’m not even mentioning the currency effect, which shaved 5 billion dollars from the revenue. Exceptionally, Apple even disclosed an additional document called “Supplemental Material” to explain the problem, but the level of disappointment was too high and, as a result, the stock dropped by roughly 6% after the earnings announcement.

As the market is now close to saturation, Apple will no longer focus only on the high-end market. Its portfolio currently includes one flagship device (6s) and some older devices that are, from a technology and design perspective, almost 3-years-old (iPhone 5s). There are now rumors that Apple will launch a new smartphone in March that can outperform the iPhone 5c (introduced at the end of 2013 and targeted as the entry level for Apple). Warning: entry level for Apple doesn’t mean either poorly designed or filled with a low-cost chipset for a total sale price of $100! Right now and without contract, the last 6s costs $649 and the 5s $450. So, anything below $400 for this new “entry-level” iPhone, with no contract, would be a surprise.


Historical iPhone sales per year


That said, the device will only appear in April at best (which is Q3 for Apple), no matter what the price or the features it offers. Will this help the company to beat the 47.5 million iPhones it sold in Q3 2015? I doubt it, but the question is no longer relevant.

Even if smartphones are not going to disappear anytime soon, the fact that the market is getting saturated leaves everybody guessing what is the next “thing” will be. Will it be the Watch? Just for the records, the iPod accounted for almost 50% of Apple’s sales in 2008 and nobody worried when it took a dive in 2009 and iPhone sales went up instead. Will this story repeat itself with the Watch? Again, I don’t think so.

At the moment, it is only an extension of the iPhone, as you need an iPhone in order for it to work. So, even if something like 600 million iPhones are compatible with the Watch, most people already have the main, unavoidable device. Therefore, even if the preliminary numbers look good for Apple and the Watch, it is very unlikely that this device will compensate for a slowdown in iPhone sales.

Of course, both miniaturization and technology in general make for quick progress, but will the smartwatch totally replace the smartphone in 5 years, as Jean-Claude Biver, President of the LVMH Group’s Watches Division (Tag Heuer, Hublot, etc.), is predicting? I don’t believe so, as the smartwatch will always be a small form factor and therefore does not provide a nice user experience like reading an article or email, for example. Of course, technically it can do this, but will the user enjoy it as much as on a smartphone with a 4 or 5-inch screen?

When Apple introduced the Watch, many industry actors made fun of it. Does this attitude ring a bell? It is “déjà vu” and now some of them, like Jean-Claude Biver, are taking the challenge a bit more seriously and have already introduced some smartwatches. Even if the success is limited for now, with only around 80 thousand devices sold so far, it is still a step in the right direction for an industry that lacks innovation in the digital world.

No matter what the next big “thing” is, the smartwatch and smartphone will definitely play a role in our connected world. Is your company ready for this new era? Are your services and products already working on a smartwatch or smartphone?

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