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Thursday, 15 November 2018 09:29

Mid-range smartphones giving Apple a headache Featured

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As several recent reports have underlined, 2018 has been a challenging one for the global smartphone market. The latest unit sales tell a dismal story of declining sales and smack in the middle of the crosshairs lays Apple.

The last three quarters have seen successive declines in overall unit sales, with market leader Samsung continuing its decline, while Apple sales, despite the launch of its stunning iPhone XS range in September, remain flat and on the verge of a slow downward spiral.

However, of the two companies, Apple, which caters almost exclusively to the premium end of the market, is by far the more vulnerable.

While Samsung is a diverse and multi-faceted company, Apple, in the past 10 years, has become dangerously reliant on a single product, with more than 60% of its revenues and the bulk of its profits coming from the iPhone.

What’s more, growth in iPhone sales has stalled forcing Apple to raise prices across all its product lines in order to grow revenues and keep investors happy. However, if steak becomes too expensive then consumers cut it out of their diet and buy minced beef in order to get their protein.

As iPhone prices continue to rise, an increasing number of users are being excluded from the market. This is especially the case in places like the North and South Asian regions.

Budget conscious users looking to upgrade their ageing phones but not able to afford an Apple or Android flagship phone have cast their eyes into the far more affordable mid-range space to see what’s on offer. And what they’re finding is a pleasant surprise.

Excellent products such as the OPPO F9, vivo v11, Huawei Nova 3i, and various Xiaomi models, among many others, now offer most of the same high-end features as the premium phones at a fraction of the price. This has become a serious threat to the shares of both Apple and Samsung in the smartphone space.

Many of us would like to drive a Mercedes or BMW but for less than half the price of the low-end models of these brands, we can buy a Toyota with similar features. The Toyota isn’t as good but it does the job just as well.

All of the above is not just my personal assessment but also that of a growing number of analysts.

Despite the release of its excellent iPhone XS series and the “budget” XR model, iPhone sales have hit a wall. How do we know this? From Apple’s lower than expected sales forecasts for the holiday quarter in its latest earnings results, from last year’s relatively low unit sales, and most tellingly, the fact that several iPhone components suppliers have issued profit warnings.

Meanwhile, over the same period, three big mid-range brands OPPO, vivo and Xiaomi, had booming sales and together have captured 25% of the market – almost double Apple’s share.

Apple currently gets about 15% of its revenues from supplying services to its installed base such as iCloud and Apple music, and a key part of its strategy is to grow that business. However, without growth in iPhone sales, the strategy falls flat on its face.

As the threat to Apple’s future business prospects became apparent last month, the market has punished the iconic company’s stock savagely.  AAPL shares are down 20% from their high in early October. The company’s price to earnings ratio currently sits at 16.92, significantly lower than even IBM’s, which indicates the market is not expecting growth out of Apple anytime soon.

The question now for Apple is whether the company can find a way to rekindle its growth. Unfortunately this time however, there is no Steve Jobs to pull another rabbit out of a hat.

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Stan Beer

 

Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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