Keeping track of how Apple is doing as a company is hard. The stock price goes up, the stock price goes down – often without any apparent reason. We hear one set of marketshare numbers for smartphones, tablets and computers one day, and an entirely different set the next. Apple is doing well, says one group of analysts, while another says Apple is doomed. So how is Apple doing, really?
To get some sense of the company’s health, we asked four writers to dig into four different sets of numbers: the ones that Apple itself publishes every quarter, as part of its required financial reporting, regarding the sales of its four principal product lines – Macs, iPhones, iPads and (yes, still) iPods. We asked those writers to look at those numbers over as long a period as they could, to see if they could extract some long-term signals from those short-term trends.
The bottom line: Apple is doing just fine, thanks, but it is also facing some very definite – and very dangerous – threats in each of those four product lines. Those threats make this period – the spring and summer of 2013, when the company is announcing and ship new products in at least three of its lines – one of the most crucial in the company’s history.
The iPhone is not only Apple’s most prominent and iconic product at present, it’s also the most important to the company’s bottom line. But that significance also means that competitors have painted a big bull’s-eye on the iPhone’s back – and uneasy lies the head that wears the crown.
THE APPLE OF APPLE’S EYE
Right now, no arena is more contentious for Apple – with more and more competition – than the smartphone market. Although the company isn’t yet in the position of living or dying by the iPhone’s sales figures, it’s impossible to dispute that the iPhone is the crown jewel of Apple’s product line.
In 2012, Apple sold 125 million iPhones, which accounted for more than half of
the company’s revenue that year. Were the bottom to fall out of the smartphone market tomorrow, Apple wouldn’t necessarily be ruined, but neither would
the situation be copacetic. So, it’s hardly surprising that iPhone sales are the subject of intense scrutiny from analysts, tech pundits and even rank-and-file consumers.
So far, the company – and its customers and investors – have had little to worry about.
Even as Apple has found itself confronting numerous challengers in the smartphone market, the iPhone has remained a top performer in Apple’s line- up. The handset has maintained a steady
upward trend since its release in 2007, every year racking up better sales, pulling in more revenue and accounting for a higher percentage of the company’s total revenue than it did the year before.
Steve Jobs once described the iPhone as one leg of the three-legged stool that made up Apple’s business; the other two were the Mac and music (on its iPods). Over the past six years, the latter two legs have become shorter, while the ever-popular iPhone has picked up the slack.
CHALLENGE AND OPPORTUNITY
Though Apple certainly did upend the smartphone market, it didn’t by any stretch of the imagination enter it as the dominant player. In its early days, the iPhone was the upstart challenging the entrenched old guard of the BlackBerry and, to a
lesser extent, Windows Mobile. Even more challenging than its somewhat late arrival to the smartphone party was the
fact that smartphones in general had made only a relatively small dent in a market dominated by so-called feature phones – handsets occupying the tier of the market between basic mobile phones and high-end smartphones.
Striking that balance in the market has been Apple’s great challenge – and its opportunity – over the past few years.
It wasn’t until the second quarter of 2013 that smartphone sales finally exceeded sales of traditional feature phones. But even now, with feature phones accounting for just under half of the world’s mobile phone sales, the market still has plenty of room for smartphone sales – and Apple – to expand.
Overall, though, Apple’s share of the smartphone market has remained pretty steady. According to market research firm Gartner, the iPhone captured eight percent of the market in 2008, growing to 14 percent in 2009, 16 percent in 2010 and then holding steady at 19 percent of the market in 2011 and 2012.
Meanwhile, Google’s smartphone platform, Android, has skyrocketed from a mere four percent of the market in 2009 to an admittedly impressive 66 percent of the market in 2012.
But those gains are coming less at iOS’s expense than from the likes of BlackBerry, Symbian and other older platforms. That suggests that iOS’s segment of the market is actually pretty stable, and perhaps not as besieged as some people have feared.
Part of that is because of fragmentation in the smartphone market, and not just because of the much ballyhooed multitude of Android versions. iOS’s main rival in the smartphone market is Android, yes, but that doesn’t necessarily mean that Apple’s main rival is Android’s developer, Google.
In fact, Google makes relatively little money off of Android, since it gives the operating system away for free to its hardware partners. The only direct revenue it pulls in is from the phones that are made by its Motorola subsidiary.
Samsung, on the other hand, has risen from the scrum to become the primary purveyor of Android-powered smartphones, and the Korean company has positioned itself as the antithesis of Apple in the market, in patent battles and
in popular culture. At any given point in time, the company seems to offer half a dozen different phones, at a variety of screen sizes and price points.
Apple, for its part, still does very well when it comes to its balance sheet. While the company doesn’t break out profits across its individual lines, the company as a whole continues to make money hand over fist.
But the iPhone is maturing as a product, and that means a new set of challenges are arising. Where does Apple’s handset go from here?
It’ll be interesting to see what the new lower-priced iPhone 5c will do for Apple’s bottom line and market share. The thinking goes that an iPhone with a smaller price tag could help Apple compete at the low end of the market; of course, Apple is already trying to appeal to that segment by offering previous years’ phones at lower prices.
That strategy hasn’t yielded entirely positive results, though. In Apple’s third quarter of 2013, the average selling price of an iPhone dropped below the $600 mark for the first time since 2009. That drop has been attributed, in large part, to a greater proportion of the iPhones sold being those older, cheaper models.
A new model of iPhone, built from the ground up to be more affordable, could help reverse that trend.
APPLE HOLDS ITS CUSTOMER BASE
Conventional wisdom in the smartphone market is that Apple is losing its grip.
But reality doesn’t necessarily match conventional wisdom. A pitched battle is under way, but as in the operating system wars of the 1980s and 1990s, this isn’t necessarily a zero-sum game: Apple’s competitors don’t need to lose for Apple to win, and vice versa.
In fact, the success of the iPhone seems largely to mirror the success of Apple’s contender in that earlier fight: the Mac. The company has established a niche where it can appeal to consumers who value a high-quality product and are willing to pay a premium price. As such, Apple has maintained its customer base, even as competitors have flooded the market with cheaper alternatives. And even in a world where mobile devices are becoming more and more prominent, the Mac is still going strong, almost 30 years after it debuted.
Contrast that with the relatively short-lived, if meteoric, success of Apple’s other flagship product, the iPod. While it achieved great heights in its time, in recent years it has found itself superseded by the iPhone’s many and varied capabilities, and its sales and share of Apple’s revenues have declined accordingly.
In the long run, even more important than Apple just keeping up with the competition is that the company continues to do what it does best and offers compelling, innovative products that consumers are willing to pay for.