The launch of iPhone 6 and iPhone 6 Plus in the second half of 2014 was a masterstroke for Apple Inc, as the products were a significant upgrade in screen size over predecessors. Sales of iPhones jumped 17% in 2014 and 12% in 2015, testament to strong demand. However, the latest models, iPhone 6S and iPhone 6s Plus were not compelling enough for Apple fans to upgrade. Euromonitor International estimates a paltry 7% growth for the Cupertino-based company in 2016.
Apple losing its Midas touch?
Sales of smartphones are projected to grow 7% in 2016 and exceed 1.3 billion units. However, the growth of smartphones is primarily driven by feature phone upgraders who will be buying lower priced models, not premium smartphones like iPhones. Apple’s projected 7% growth in 2016 is all the more impressive given Samsung’s struggle against the onslaught of low cost manufacturers like XiaoMi from China and Micromax from India.
The current iPhone 6S and iPhone 6S Plus are not significant upgrades, and sales are expected to be modest in the first half of 2016. The lacklustre sales will compel Apple to pull out all stops on the successor models in the second half of the year, with significant feature and hardware upgrades.
Low cost models dominate
Smartphones are hitting plateau in terms of technology and the move from quad-core to octa-core processors and from full HD to quad HD screens are essentially numerical superiority, on paper. In fact, the move to more powerful processors and higher resolution displays are putting a strain on the phone’s battery life. A basic (or mid) range processor can easily handle most tasks and will only struggle when running resource-intensive games. Consumers will not notice the difference in everyday applications.
Consumers in developed markets like the US are also moving from buying mobile phones (subsidised) as part of a mobile contract to phones without contract (at retail price). Mobile phones purchased without a mobile contract grew from 10% in 2007 to 24% in 2015. Price of smartphones which are more expensive than feature phones is becoming an important purchase criterion for consumers.
Samsung was the market leader in smartphones in 2015 but the company’s revenue and margins are under tremendous pressure. LG, HTC and Sony are struggling, both financially and in market presence, due to the onslaught of price-competitive models from Chinese manufacturers like Lenovo and XiaoMi. Apple is probably the only company that can continue to command its revenue and margins despite the trend of lower-priced smartphones dominating the market. iPhone is revered and remains an aspirational object for consumers in both developed and emerging markets.
The current iPhone models are not compelling upgrades over their predecessors, and may see a slowdown in demand until the newer models are launched in the second part of the year. iPhone sales are still expected to buck the trend of low-priced smartphones flooding the market and grow 7% in 2016.