THE ECONOMIST

CRACKS IN THE GLASS January12th 2019

Apple succumbs to the smartphone malaise

Apple crossed market value of $1 Trillion first for any Western company. But Tim Cook the CEO of
Apple on the first week of January 2019, cut revenue forecasts (the amount of money a company
will receive from sales during a particular period) for the first time in a decade. This further dropped
its shares by 10% and pulling world’s stock market down with them. Mr Cook blamed the America
and China trade war which slowed down there sales in China, who plays a major role in the
generating sales i.e. 18% of total Apple’s sales. The revenue cut for the ended quarter raised many
questions on Apple products and the local Chinese consumers started to shift to local rivals such as
Huawei, whose pricey smart phones compete with the iPhone but recently Trump passed an order
for sales ban in USA of Huawei phones over suggestions that it’s telecommunications equipment
could be used to spy on Americans.

Cook in an interview told that Apple products have not been targeted by the Chinese government,
though some consumers may have decided not to buy iPhone or any other Apple products because
of trade war between the two countries. But some trade analysts questioned Apple for its own
actions of increasing the prices of its products which could be also the reason for its decreasing
sales.

But there are also simpler forces at work. Smartphones revolutionised everything from shopping to
politics and changing the world. But after a decade-long mega boom of these devices have become
slightly boring. Global smartphones sales fell in past four-five quarters and Apple too admits this fall
and how it is affecting the rest of the industry. Cook also cited slowing growth in emerging markets
such as Brazil, India and Russia for a lower than anticipated sales estimates for the company’s fiscal
first quarter.

While Apple is busy raising its prices, though, the opposite is happening in the android world, which
accounts for 85% of the smartphone users. Android users can choose many suppliers in every
segment of the market ranging from $50 to $1000 which has always made for fierce competition
between handset manufactures and results have been the edge to edge price war in the android
market. As with the smartphone, it was a market that Apple helped pioneer. But its strategy of
selling high priced phones and gears saw it relegated to the status and sustained the fan base of
creative types and hipsters. But the main and the ruthless competition comes from high quality
smartphones such as Xiaomi and Huawei which is much cheaper and cost just a fraction amount of
iPhone which runs of some Android version and operating system developed by Google.

Apple is heavily reliant on hardware sales. iPhone sales made up 59% of its $63 billion revenue in the
third quarter of 2018. Its growing services division accounted for 16% revenue and Cook wants to
double this by the end of 2020. Apple is trying hard to diversify further and may launch TV-streaming
service later in the year and iTunes would be coming pre-installed on it.