SAN FRANCISCO (Reuters) – A series of earnings warnings from Apple Inc. (AAPL.OThe suppliers this week have fueled the concerns of investors that iPhone sales, in terms of volume, have hit a wall that could mean trouble for the company's plans to make services the main pillar of growth.
PHOTO FILE: A customer compares the size of the new iPhone XS and iPhone XS Max at the Singapore Apple Store on September 21, 2018. REUTERS / Edgar Su / File Photo
For the past year, investors had largely been willing to overlook the stagnant unitary iPhone sales as average selling prices continued to grow. But now it faces fierce competition from mid-range handsets like Xiaomi Corp (1810.HK).
Apple has often declared its plan to increase its revenue from paid services, such as Apple Music and iCloud. This, at least in part, requires a growing base of device owners driven by its iPhone, which analysts represents about two-thirds of the 1.3 billion Apple devices in use around the world.
The Wall Street analysts have expressed concern that the slowdown in overall smartphone sales will make it harder for Apple to maintain its smartphone market share while people are postponing their generally more expensive phones. This, in turn, could hurt Apple's revenue growth, said Toni Sacconaghi of Bernstein.
Without growth in volumes in promising foreign markets like India, Brazil and Russia, the concern between analysts and investors is that Apple has erred some parts of its strategy with too much emphasis on its premium brand and the resulting high prices, more than $ 1,000 (£ 774,71 pounds) for its top models.
Hal Eddins, chief economist for Apple Capital Investment Counsel, said phones like OnePlus 6T are roughly comparable to Apple's high-end phones for nearly half the price. "You can have a lot of phone for a lot less," he said. "The phone landscape is changing rapidly and I think producers are missing a trick going on the $ 1,000 route."
Apple has declined to comment on its strategy, or the share moves between its suppliers.
The company executives have warned investors in the past not to fix data points spread across its broad supply chain. For over a decade, Apple has insisted that its gadgets should not be judged only on their specifications, an argument that sales data suggest that Apple has been successfully implemented.
The company also has customer satisfaction and loyalty rates that are unmatched in the mobile industry, said Ben Bajarin, an analyst at Creative Strategies.
However, a trio of Chinese smartphone makers – Xiaomi, Oppo and Vivo – accounted for about a quarter of the global market in the first half of 2018, according to IDC research firm data, compared to only 8.9% for all of 2014 and almost 20 percent last year.
Except for the 2015 fiscal year, Apple has not increased its market share. 13.6 percent of the world market in the first half of this year stood at 13.6 percent, although its share typically increases with results for the full year due to strong December sales.
The 1.3 billion iPhones, iPads and Macs used around the world represent the pool of potential customers for Apple services: a business that has reached $ 37.1 billion in revenue for the last fiscal year.
This accounted for 14% of Apple's total revenue, up from 8.5% in the 2015 fiscal year, when iPhone unit sales reached their all-time high.
But IDC expects the global smartphone market to grow only 2.4 percent on a 1.6 billion unit base by 2022, indicating a saturated market in which the company based in Cupertino, Calif., Will fight rivals for each customer.
Xiaomi, in particular, is rapidly gaining fans. In India, where Apple has only a minor presence, Xiaomi has somehow beaten Samsung Electronics Co Ltd (005930.KS) to become the first telephonic seller in the country and is also making progress in European markets such as Spain, IDC said in a report.
According to IDC data, Xiaomi was the first smartphone seller in India in the first and second quarter of 2018, with 30.3% and 29.7%, respectively, of the smartphone unit market.
"This is the case where it is very different in other parts of the world," said Ryan Reith, vice president of IDC's mobile device monitoring program, noting that most US consumers are unfamiliar with Xiaomi phones, Oppo and Vivo.
"Many of these brands do not play (in the United States), but they play in places where they have never played before", such as India and Europe, he said.
In the last earnings of this month, Apple shocked investors with forecasts of sale lower than expected for the Christmas shopping district and with the announcement that it would cease to report unit sales for its hardware products as is customary in the last 20 years.
Emphasizing the flattening of iPhone unit sales, he also said he sold 217.7 million iPhones in his most recent fiscal year, virtually unchanged from the previous year and well below a peak of 231 , 2 million in the 2015 fiscal year.
The price of its shares, hit at the time of the forecast, extended the losses after the profit notices of suppliers such as Japan Display Inc (6740.T), British chip manufacturer IQE Plc (IQE.L) and Lumentum Holdings Inc (LITE.O). The stock is now down about 8% from its November 1 earnings.
Apple's latest models, such as the iPhone XS and the iPhone XR, are proving popular with its most loyal fans in the richest economies. But they are priced up to $ 1,449 – out of reach of many consumers in less developed markets.
Apple's strategy is to attract those consumers to its ecosystem with older models at cheaper prices.
He also stressed that his phones are designed to last longer than the competition, expanded repair options and implemented its latest operating system update to accelerate older devices.
But Chinese smartphone makers have packed their phones with high-end chips and features like fingerprint sensors under the glass trying to attract consumers who might otherwise have a look at the Apple phones.
Those manufacturers are increasingly adopting Qualcomm Inc & # 39; s (QCOM.O) more powerful mobile chips, said Cristiano Amon, head of chip operations at the US chipmaker, which is stuck in a bitter dispute with Apple.
Those phones were initially sold in China but "we saw them also gaining quotas outside of China, especially in areas like India and Europe," Amon said.
Also on its territory, Apple is facing new challenges from at least one Chinese producer, OnePlus, which is insinuating itself in the traditionally high territory of the US company's prices. Although the iPhone 7 processor chip beats the OnePlus 6T in some speed tests published by the Geekbench chip tracking company, the OnePlus phone has a contemporary design with thin frames around the display, similar to the new iPhone models .
After years of availability in the United States through an online store and the development of a following among technology enthusiasts, OnePlus 6T is transported by T-Mobile US Inc (TMUS.O) Stores.
At $ 549, it is located between the iPhone 7 and the iPhone 8 in terms of prices. Kyle Kiang, North America's general manager for OnePlus, said sales on the first day of the new model were 86 percent higher in the United States than the previous OnePlus, although it did not reveal absolute unit figures. He said sales were higher due to the T-Mobile relationship.
Reporting by Stephen Nellis in San Francisco; Edwina Gibbs, Nick Zieminski and Matthew Lewis are editing