iPhone Sales Could Be Slowing

In the runup to the release of Apple’s Q1 2016 earnings report Tuesday, one of the big unanswered questions was whether the iPhone could maintain its sales momentum.

Q1 2015 iPhone sales hit a record 74.5 million units, and it’s possible the latest quarter’s shipments may not equal — let alone exceed — that mark.

IDC has forecast of slowing sales industrywide for 2016. The smartphone market will see the first single-digit growth year ever.

The slowdown in China’s economy, weak demand for the iPhone 6s and 6s Plus, and sluggish Apple Watch sales are also of concern.

However, “we think sales are actually going to be up in volume this year compared to a year ago,” said Jeff Orr, a senior practice director atABI Research.

First, China is still a great opportunity despite the slowing down of its economy, and second, the iPhone 6s and 6s Plus were launched “a little later than iPhones used to be launched previously, so we aren’t sure whether or not they’ll hinder Apple’s quarter,” he told the E-Commerce Times.

Great Expectations

Apple historically has exceeded analysts’ expectations while playing down its performance prior to releasing its earnings reports.

FactSet StreetAccount estimated Apple sold 75.5 million iPhones in the quarter — surpassing the previous year’s record by about 1 million units, according to news reports.

FBR, which slashed its estimates for iPhone 6s sales in December, earlier this month predicted a huge uptick for the upcoming iPhone 7 and dismissed investors’ fears about slowing growth at Apple as being overblown, while acknowledging the company has been through a rough patch.

The market agrees — Apple shares were up by US$1.28 to $100.72 at the time of writing.

“Should we expect any company to keep setting records year over year? The answer is no,” Orr said. “The problem Apple has is that investors always expect it to show a meteoric performance. The question is, at what point do you become disgruntled because you don’t get meteoric performance out of the company?”

Leveraging Preowned Phones

Sales of refurbished smartphones are taking off, and Apple has ventured into this area.

Refurbished iPhones “can be sold in price-sensitive but growing markets without any brand dilution,” pointed out Andreas Scherer, managing partner atSalto Partners.

“It could be tempting to develop a cheaper product that’s being sold utilizing a different brand name in order to win in Africa, India and Indonesia, but the better strategy is to sell refurbished iPhones,” he told the E-Commerce Times.

Grabbing Market Share

In the future, the replacement business will outpace the new phone business, ABI’s Orr suggested.

“For Apple the issue no longer will be offering items good enough for first-time buyers to purchase an Apple product; it will be about getting Android or Microsoft phone users to switch,” he explained.

It’s “getting increasingly difficult to get that kind of differentiation, but that’s not just an Apple problem. It’s the same thing Samsung has been facing over the past two years and being hammered by investors over,” Orr said.

Where Apple Might Go

Apple “needs to continue to win in its core markets,” Scherer observed. That means “relentlessly focusing on replacing existing iPhones with newer versions” in markets such as the United States, and introducing upgrade incentive programs and incentives to buy additional phones as part of family plans through carriers.

Perhaps Apple could move away from its image as the largest manufacturer of smartphones, Orr said.

“We’re hearing talk about moving the audio jack and creating a new accessories market that’s exclusive and led by Apple — Beat headphones and other products using the Lightning connector or wireless interfaces,” he elaborated.

Other possibilities for Apple are wireless charging, improving battery life, wraparound screens, incorporating OLED technologies, and making iPhones “more user-proof and water-resistant,” Orr suggested.