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I really thought the iPhone rental program Apple and the carriers came out with would spur sales but apparently not. Truthfully I have not upgraded my iPhone6 to an iPhone6s+ like I had planned. I will probably wait for the iPhone7 like everyone one else it seems.
An analysis from SeekingAlpha adding a little more color to the slowing smartphone market. I particularly liked these observations:
"once a market reaches the saturation point, future growth becomes nearly completely dependent on refresh rates and lifecycle"
"people clearly aren't good at estimating how long they plan to keep a device" (meaning they tend to keep them longer than they expect)
"As people start to do more and more with their smartphones, the amount of information on those devices is increasingly tremendous. That, in turn, makes the actual upgrade process from your existing phone to a new one much more complicated than it used to be. Instead of just having to transfer over your names and numbers, you now have photos, music, videos, applications, settings and much more."
Sales of Apple's iPhone have grown steadily since the product first launched in 2007. The company benefits from yearly innovation, an expanding global smartphone market, and switchers from other mobile platforms. But a recent research note from Morgan Stanley states that this perennial growth will come to an end in 2016, with sales hindered by smartphone saturation in developed markets and rising iPhone costs in international and emerging markets.
While there are plenty of factors that could slow iPhone sales, there are several working in Apple's favor that make Morgan Stanley's estimated ~3% decline in iPhone sales for 2016 less certain. Here are three reasons Apple may succeed in staving off a sales decline:
Apple is working to shorten the upgrade cycle. Apple's iPhone Upgrade Program was made to make off-contract ownership of an iPhone affordable for more consumers. The program charges users a monthly fee and also incentivizes them to upgrade their devices after one year. If Apple can speed the upgrade cycle down from its traditional two- to three-year cycle, it may be able to convert those enormous sales numbers from the iPhone 6 and 6s launches into carry-over customers who will upgrade with each new release.
There's still an enormous untapped consumer base that has yet to try Apple products. And although iOS and Android see similarly high loyalty levels, iOS sees a significant bump in switchers from Android and Windows in the weeks and months following the launch of a new iPhone product. iOS' monthly loyalty rate jumped from 1.1% to 4.5% in the months following a new model release. Switcher rates for Android and Microsoft users to iOS doubled during that period, according to Ericsson (see charts, below).
Although Apple has yet to be widely adopted in emerging markets because of the cost-prohibitive nature of its premium smartphones, rumors indicate that it may release a smaller, more affordable iPhone in 2016 to target this segment. While this would be an unprecedented move for Apple, especially considering the lackluster sales performance from its budget 5c model, dropping prices for legacy iPhone models could help catalyze iOS sales in emerging markets.
Does it really matter? I mean, 2016 or 2020, the real problem here is that a company simply cannot rely on a single product success (Iphone makes 70% of the whole Apple revenue), otherwise, sooner or later, it will fall/fail.
True, but they're not exactly sitting on their iPhone successes. They keep trying different directions (TV, car, mHealth, etc). None tremendously successful so far, but I'm betting sooner or later they will find another winner.
Actually the guys who really have to watch out are the next tier down in the smartphone value chain. We've see plenty of examples - QCOM for the AP in the Galaxy, Cirrus on and off for audio, Dialog (see above). Then there's one you probably haven't even heard of - Baylin/Galtronics for the antenna in Galaxy. They went public on the strength of a design-in in the S6, then were designed out in the following model, at which point their stock plummeted and they've been trying to make their way back ever since. A win in a smartphone looks good and is temporarily great for valuation but never lasts.
Does it really matter? I mean, 2016 or 2020, the real problem here is that a company simply cannot rely on a single product success (Iphone makes 70% of the whole Apple revenue), otherwise, sooner or later, it will fall/fail.
I expect iPhone sales for fiscal 2016 to post y/y growth, especially as a result of the all-new iPhone 7 to be introduced next fall. I expect Apple to maintain its lead in hardware and processor design, as well as mobile operating systems. The source of AAPL's growth is fundamentally its technical leadership. Not brand image, not coolness, or any other ephemeral property. I continue to regard Apple as a buy, especially when a lack of confidence depresses the stock price.
Actually in some ways upgrading a phone is easier than ever despite the increasing amount of stuff we all keep on them. People used to dread re-entering their address book back in the day of flip phones. I personally held off getting a new phone as long as possible back then. Now with cloud back-up, it is a pretty quick operation. As an Android user I can say that once you set up a new phone, almost everything you had, including email login info, will come over/back fairly easily. I had to swap phones in May because of a hardware issue. It was pretty painless.
Good point Tom. Complexity of upgrades may no longer be a significant factor. But something is still slowing upgrades. Perhaps just that the bloom has gone off phones - not to the point we don't want to upgrade, but we just don't seem to have the enthusiasm we once had to upgrade on every new release.
LGNF) | Seeking Alpha