It has been among the most innovative companies in the world for decades, but Apple’s star has dimmed recently. It reported its first fall in sales since 2003 – before the iPhone even existed – and was overtaken as the world’s most valuable company again last week by Google’s parent Alphabet, after briefly surpassing it in February. Apple’s share price has fallen nearly 30 per cent since peaking in 2015.
Despite this, the world’s most successful investor, Warren Buffett, recently spent $1bn buying shares in Apple through his company Berkshire Hathaway. If he’s willing to put his weight behind it, maybe the best is yet to come.
Apple’s innovations – the Apple Mac, iPod, iPhone and then the iPad – each played a part in revolutionising society.
But its dominance in technology has come into question. The flagship iPhone still accounts for 66 per cent of sales. It launched to much acclaim in 2007, but hasn’t always offered cutting edge technology to compete with other brands. The camera on some models was poor, while it lacked extra features such as removable storage and a waterproof body. This has allowed a host of Android and Windows-operating competitors including Samsung, HTC, Nexus and Motorola to take market share.
Last September’s launch of the iPhone 6s has shown Apple is able to up its game. It’s a stronger device – but the smartphone market is reaching saturation in developed markets and the iPhone is too expensive for consumers in emerging countries. Some people have questioned whether Apple has passed “peak iPhone” – the point at which sales can’t grow any higher.
Price has also been a big issue. As smartphones have proliferated, pricetags have come down too and people expect more for less. Apple has retained a premium price, with the iPhone 6s starting at £539 off the shelf. It’s a princely sum, especially since a decent smartphone can be bought for under £250 these days. A change of tack came in March with the launch of a lower-cost handset called the iPhone SE which starts at £359. Time will tell if Apple can worm into the more cost-conscious part of the market.
Asia has also proven troublesome. The iPhone has struggled in countries where people write in characters, as being a fairly small device, it’s tricky to read characters and tap them out with a stylus. Cost-conscious Chinese are more impressed with local companies Xiaomi, Huawei and OnePlus which offer market-leading high specification devices at rock-bottom prices.
Meanwhile, Apple’s iBooks and iTunes movie service were shut down in China following a change to regulation. It was widely seen as an example of authorities giving home-grown companies an advantage at the expense of foreign competitors. China’s still Apple’s second-largest market though, and to help boost business in the country, it’s bought a $1bn stake in Chinese ride-hailing service Didi Chuxing.
Perhaps this is the inevitable fate that awaits a company that has consistently come out with game changing revolutions – grappling to remain relevant in a crowded marketplace. “The smartphone industry is starting to mature and Apple is trying to reinvent itself and come up with other ideas to generate revenue,” says Josh Spencer of T Rowe Price.
It’s working on an electric car and a virtual reality device is believed to be in the pipeline too. And supporters say Apple has plenty of mileage left. Although the iPhone accounts for over 60 per cent of Apple’s sales, they’re not the only product. The Mac brought in $5bn revenue between January and April, while the iPad made just over $4bn.
Moreover, one of the reasons phone sales have been slow lately is because a redesigned iPhone 7 is expected later this year. The iPad mini has been a success and even the Apple Watch is bringing in an estimated $1bn each quarter. These figures are astronomical.
Away from hardware, there’s an opportunity for Apple in services – a part of its business which offers real promise, says Thomas Fitzgerald of EdenTree Investment Management.
“Apple is making significant progress towards a higher recurring, subscription-led revenue model through the launch of internet and entertainment services, such as cloud storage, Apple Music and Apple TV. This could drive greater earnings visibility and potentially stronger profitability in future years,” he says.