Apple: bigger than big
Developing markets other than China may be the way to remain smartphone top dog
Apple is cursed with making the world’s most successful item of consumer electronics. The iPhone has sold 220m units at $650 apiece over the past year. Nice trick; how on earth to repeat it?
It will not be easy. Assume the iPhone replacement cycle is two years, that a cheery 95 per cent of buyers from two years ago recommit to the brand, and that prices are steady. For Apple to hit analysts’ revenue growth targets over the next 12 months, it must sell something like 80m iPhones to first-time customers. That is the population of Germany. This model is crude; it ignores how product releases delay demand (or pull it forward), but it points to the scale of the challenge.
This, naturally, makes investors nervous. So does the fact that trends shift rapidly in handsets. BlackBerry’s hardware revenues peaked at $16bn in 2012 and fell to $7bn two years later. So shareholders will be watching closely on Wednesday, when Apple is expected to unveil the latest iteration of the iPhone. At this point in the cycle Apple usually makes improvements rather than a brand new handset. It is placing bets on other devices too, including the watch and a TV box, and experimenting with cars. But it needs to keep growing the iPhone in order to keep its share price up.
The meat of recent iPhone growth has come from China. When, in 2011, Apple started splitting out results for “Greater China”, revenues were 9 per cent of the whole. Now they are well over 20 per cent and climbing. Yet there are other big markets. Buried invisibly within the “Europe” line on Apple’s results is India, a market of more than 1bn people.
In China, the iPhone accounted for 13.5 per cent of smartphone sales in the first half of the year, according to Gartner. The corresponding statistic in India is 1.8 per cent. Indians favour Samsung and homegrown brands such as Micromax. Persuading more of them to switch would give Apple a bit more diversity to soothe the worrywarts.