Apple used to have a fairly straightforward business plan - sell more iPhones. Since launch in 2007, the smartphone quickly became the firm’s headline product, selling 1.4m units in its first year and climbing to 231.2m by 2015.
But it’s been a different story since then. Unit sales have stalled over the past few years, as higher prices and seemingly less revolutionary improvements have failed to tempt consumers to the same degree. Figures from researchers BayStreet claim that iPhone owners in the US now wait almost 36 months to upgrade, up from 24 months in 2014.
So, investors in the tech behemoth will be buoyed by a couple of things in Apple’s quarterly update last night. First, despite iPhone sales dropping almost 10% year-on-year, boss Tim Cook said that these declines are slowing, even adding that he is ‘bullish’ on the prospects for the iPhone 11 going into the crucial fourth quarter.
Second, and probably more important over the long term, is Cook’s reference to the company’s other businesses which seem to be in rude health. Sales of wearables, including earphones and watches were up more than 50%, with the services division rising 18% year-on-year.
The result is a 2% business-wide lift in quarterly revenue to £49.6bn.
Cook is consciously trying to move the business away from relying on iPhone sales, and while investors have grown used to using these as a barometer for the company’s success, the market will eventually have to shift its focus to the performance of the likes of Apple Pay, the app store and Apple TV+.
Broader tech fortunes
Since iPhone sales first started to dip, it was clear the firm needed a wider set of robust revenue streams. But, replicating the success of the flagship product across other business areas is a daunting task. Herein lies the importance of diversification - predicting the next iPhone is fraught with difficulty.
In general, we tend to extrapolate the wrong things when we make predictions, and underestimate how new technology will change the form in which we work and play. Throw in the possible compound growth in areas like machine learning, 5G and artificial intelligence, and the big tech players need to their have fingers in many pies now, rather than clinging to one specific product.
It’s not uncommon to see market leadership change quickly, and often irreversibly, in the tech sector. Large companies can lose their market or become irrelevant overnight in the face of new tech - IBM’s control of the mainframe market is of such small economic significance in comparison with what it used to be.
So, today’s technology giants are investing heavily in experimental ventures, and have the capability to do so that is far beyond the leaders of yesterday. From an investor standpoint, this underscores the importance not just of knowing and researching underlying technologies, but of also gaining a full understanding of how companies are adapting to a world that isn’t even here yet.
The iPhone 11 might outperform expectations, and the iPhone 12 might even top those but investors across the sector need to be asking companies what they have up their sleeve to take the lead in tomorrow’s tech trends.
Source: Apple, Statista 2019
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