At the fiscal four quarter earnings call early this month, Apple announced that it will stop sharing unit sales of iPhones starting next quarter. The announcement raised questions whether iPhone sales are reaching a plateau despite increase in average selling price of these devices.
Two weeks later, Apple suppliers started reporting quarterly guidance with negative outlook, suggesting that iPhone sales might not be that great after all. Apple analyst Ming-Chi Kuo added that the Cupertino-based iPhone maker has slashed production of iPhone XR by 30 percent due to lower demand. While analysts and tech pundits have gotten Apple sales wrong in the past, this new report does seem to validate the global sentiment.
The rationale behind Apple not reporting unit sales of iPhone seems to be the shift in business. The company is projecting itself as a service business instead of hardware business but more than two third of its revenue comes from iPhone sales during the year. In order to increase services revenue, Apple aims to get more consumers onboard services such as iCloud, Apple Music, Apple News and is also planning a video streaming service as well.
But the decline in sales of iPhone raises questions whether Apple can bring enough new users onboard its services. The stagnating unit sales of the iPhone comes as Apple continues to raise the price. Apple is also facing stiff competition from Chinese smartphone makers like Xiaomi, Huawei, OnePlus.
Apple is mainly facing competition from Huawei in Europe and emerging markets. The Chinese smartphone maker has managed to dethrone Cupertino giant for two straight quarter, and is aggressively pushing forward with premium devices like the Mate series and P-series. At home, however, Apple is facing competition from OnePlus, which is a hardware company that is essentially the part of Oppo.
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Last month, OnePlus launched its newest flagship, the OnePlus 6T in partnership with T-Mobile. While Apple’s cheapest smartphone, the iPhone XR starts at $749, the OnePlus 6T starts at $549. “You can get a lot of phone for a lot less. The phone landscape is rapidly changing and I think manufacturers are missing a trick by going the $1,000 route,” Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel told Reuters.
According to IDC, except for fiscal 2015, Apple has not increased its market share. At the end of third quarter, IDC claims Apple had a market share of 13.2 percent, registering a modest growth of 0.5 percent over same period last year. While Huawei and Xiaomi saw 32.9 percent and 21.2 percent growth compared to previous year.
Apple’s struggle is also related to global decline in smartphone sales. IDC says smartphone shipments were down 6 percent during the third quarter of this year. In India, where the sales are growing significantly, Apple has little or no presence. The company’s strategy in India rivals that of leader Xiaomi, which offers entry-level and mid-range smartphones while Apple sells iPhone with six-digit price tags.
Apple has successfully navigated the industry by increasing price of iPhone and getting away from decline in sales. However, it might now be off its peak with sales declining and competition catching up real fast.