Has the iPhone Bubble Burst?

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Has the ubiquitous iPhone had its day?

The groundbreaking iPhone almost single-handedly changed the way we use our phones. Introduced just 12 years ago in June 2007, it put the internet in our pocket and combined a host of individual devices, such as a camera and music player, into a single, indispensable unit. The smartphone was born, and since then, it has never looked back, at least until now.

The iPhone was slow to get going, with just six million first generation phones sold in the first year and a quarter, but it soon took hold. By the end of 2010, 73.5 million iPhones had sold, and by the start of 2014, Apple sold 51 million phones per quarter. For a long time, the iPhone has seemed unstoppable, but high prices, difficult overseas trading, and potential consumer saturation have seen sales start to drop in recent months. So, has the iPhone bubble burst or is this only the perfect storm of circumstances?

Sales Struggle Overseas

Sales of the iPhone dropped by record numbers in the first quarter of 2019, down by 17 percent on the previous year, forcing Apple to issue its first profit warning for many years. A CNN report said that “lackluster smartphone sales were dragging down Apple’s business,” and investors responded with a significant sell-off, which took the company share price down by as much as 20 percent at one point. Some of this drop was domestic. However, the biggest drop was overseas, as the dollar strengthened, making the expensive new phones even more pricey, and especially in China where the China-U.S. trade war also started to take its toll. As a result, iPhone sales in China were down 21 percent, which is significant when you consider that the Greater China region accounts for almost 20 percent of Apple’s global revenue.

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Pricing Problems

For many years, Apple has got away with steadily rising prices, but it seems that customers may have finally had enough. Four-figure price tags for the top models, combined with far fewer subsidized deals, put many off from upgrading to the latest model despite Tim Cook describing the newest phones as “by far the best iPhones we’ve ever shipped.” Many customers chose not to upgrade this time around, instead of taking advantage of Apple’s $29 battery replacement program to prolong the life of their existing phone rather than spending hundreds more for a whole new phone.

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Tim Cook sought to reassure investors after the recent iPhone sales slump.

“I do think the price is a factor,” admitted Apple CEO Tim Cook during a conference call with investors and analysts. In fact, Apple has reduced iPhone prices in emerging markets to counter the effects of the strong dollar and the lack of network subsidies. And it seems to have worked, with Chinese sales recovering a little toward the end of the last quarter.

Stronger Services

It’s not all bad news for Apple, as its digital services business looks particularly strong. One of the strengths of the iPhone and iPad has always been the vast number of apps, from games like Angry Birds to social media like Snapchat, from iPhone sat-navs to iPad slots, and many of these are serious moneymakers for the company. Apple Pay, Apple Music, and similar options generated no less than $11.5 billion for the company in the first quarter, up more than 16 percent, making services more valuable than the Mac or iPad sales. Nonetheless, this cannot make up for the disappointing iPhone sales, which have meant Apple has lost its crown as the world’s largest company once again.

Is this the end of the road?

With 1.4 billion active installed iPhone users worldwide, the iPhone may have well reached the saturation point. Although the new phones are generally improvements on previous models, many customers are more than happy with their existing iPhone, and fewer of them seem prepared to pay out to upgrade, especially when these upgrades are no longer subsidized by the networks. Add in ever-increasing prices, which even Tim Cook admits may be a problem, and the future does not look as clear for Apple as it has been in the past.

That said, this is Apple we’re talking about, and they are notoriously hard to predict. With imagination and innovation like no other company, they may well have the next big thing waiting in the wings. After all, only 12 years ago, there was no smartphone market to talk about, so in 12 years’ time, we could see Apple’s sales figures on a device we haven’t even thought of yet!

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