Are slow iPhone sales simply a blip or is Apple starting to struggle?

3 months, 18 days ago

The volatile marketplace in China, the urgency for a new product, and slumping telephone marketings are blending to create serious problems for the tech company

Self-made billionaire investor Carl Icahn is known for his very vocal endorsements and criticisms of the worlds biggest public companies, including Apple. Yet when he is available on CNBC on Thursday, he wasnt there to demand the company give stockholders dividends, as hed been doing for years.

Instead, he said he was out. Icahn said hed dumped every share he held in Apple, claiming he made a$ 2bn profit and was done with the company, quoting very concerned about how the Chinese government could block the company from that market. You worry a little bit, and maybe more than a little, about Chinas attitude, Icahn said, warning of a tsunami of trouble.

Watching the broadcast was Dan Nathan, who runs the influential marketplace analysis site Risk Reversal. The jig is up for Apple, Nathan said. The big moneys is common knowledge that for a while. But people love their iPhones so much, and the tech press are all fanboys, so people havent “was talkin about a” it.

Wednesday marked the end of an epoch in Cupertino as Apple reported its first ever fell in iPhone marketings, sending the companys stock down to about 30% off its all-time high in May 2015.

iPhone sales in China a crucial market for Apple to continue growing have plunged 26% as its economy stalls, with some reports indicating the Apple brand is losing prestige there. In the US, clients are upgrading their telephones more slowly as the differences between generations, like the iPhone 6 to 6s, become more incremental.

Those bullish on the company say that the slowdown is inevitable as the smartphone market ripens, and that Apple will find another game-changing product. In the meantime, the business is good: Apple pulled in $50.6 bn in revenue and $10.5 bn in profits this one-quarter. And its CEO has won a high-profile public battle against the FBI over telephone hacking, showing Silicon Valleys unprecedented power.

It was 30 years between the Macintosh and the iPhone, said Jean-Louis Gasse, once an engineering head at Apple who shepherded the early Macintosh and now watches the company closely. It takes time for these major waves.

But in Silicon Valley, where the motto seems to be innovate or succumb, growth is everything. And critics argue that Apple, famous for its internal culture of aggressivenes and privacy, has lost its innovative edge.

Analysts say the company has not had a distinct make product in recent years. The company tightly guards its Apple Watch sales figures, but researchers consider numbers slipping in favor of wearables that use Android software made by Apples arch-rival Google.

Reviews of the new Retina MacBook were tepid. Tech news site the Verge liked the beautiful machine but received it slower, impractical and costly, so the reviewer went back to his older Mac, while industry site The Loop described the companys Apple Music service as a consumer nightmare because of technical and design problems. Despite criticism, Apple Music, has grown to 13 million subscribers, a bright spot in Apples recent financial results.

The most important issue facing Apple, analysts say, is how it can expand internationally. In China, the companys most important new marketplace, the number of people who can stretch for an aspirational product such as an iPhone has topped out, Nathan said. The average iPhone, without wireless service contracts, cost $687 in the last one-quarter of 2014, according to ABI Research and the Wall Street Journal three times more expensive than an Android device, which typically selling off about $254 globally. But World Bank data from 2015 shows that in China the average income is $7,400 means that an iPhone would cost the average Chinese person more than 10% of their annual salary.

Its an expensive phone, Nathan said. And the high objective has become saturated. Nathan said the best bet would be to expand into the lower objective, which the company is doing somewhat with their new 4in iPhone SE. But a past endeavour at a bargain product, the colorful, plastic iPhone 5C, was widely seen as a flop. That was three years ago, though, Nathan said.

Tim Cook, who took over as CEO after the companys iconic founder Steve Jobs died in 2011, is a specialist in supplying chains rather than product design. Where Jobs was obsessed with the product specs, Cook is more focused on spending projections, according to a rare authorized profile in Bloomberg News that sought to prove the new CEO wasnt simply Jobss logical, icy sidekick.

On Wednesday, Cook said that broader market issues were causing the slow in growth, and recognizing that critics were worried about China, seemed to reference the idea that Apple was no longer Silicon Valleys starring.[ We] may not have the wind at our backs that we once did, Cook said of the companys efforts in China. But its a lot more stable than what I guess the common view of it is.

Ben Bajarin, an analyst at Creative Strategy technology market research firm, said there is little Apple could have done better given the broader smartphone market. The company is a victim of its own success, he argued. Theres contentment with customers at large who look at their phones and say, You know, this things pretty great, I dont know if I require a new one, Bajarin said. Youve got to give someone a reason to buy a new device.

Bajarin believes the market overreacted to the iPhone sales numbers, since the company sold as many telephones as it had said it would this quarter. It wasnt a astound. They came in simply above the bottom objective of their own guidance, Bajarin said. All of this now is just about managing Wall Street.

The company, with its $233 bn in money, has been been using that money to buy back its own stock and pay stockholder dividends to encourage investors. Apple has the ability to be patient because of that money, but everyone will say they also have the ability to be complacent, Bajarin said. But I dont think thats their plan.

Nobody believes theyll be like, yeah, thats it, we rode the smartphones and were done, he added. Theyre out looking for the next thing right now.

Others argue, though, that Apples culture has become uniquely problematic and is getting in the way of innovation. Tim Kuppler, who advises firms on better workplace environments through the firm Human Synergistics, is working on a study of 30 tech company cultures.

If youre at Apple, theres so much privacy, you cant bring your 100% because there are certain things you cant even talk about, Kuppler said. Its so difficult in that surrounding for people to live up to their potential. Youve get chains on; youre riding the brake. Thats very different now at places like Google that are more achievement oriented.

For Apple, issues with culture may be affecting recruitment and retention. The company lately lost the head of their electric car operation as well as a longtime decorator who worked closely with design squad chief Jony Ive.

There was an era in Silicon Valley when critics rarely voiced sentiments on the unassailable Cupertino powerhouse, where strong hierarchies and control are woven into the corporate culture. Now sentiment in Silicon Valley seems to be turning against the company. Even on the quiet streets of Palo Alto, Cook runs into trouble.

He was all by himself, and I dedicated him a 30 -second harangue about the App Store, said Gasse, who ran into Cook at a shopping mall earlier this year. Growth concealed a lot of shortcomings for Apple. When you grow fast you can be a little disheveled, dirty. Now Apple has to revisit what its lacking.

Gasse, who left the company in 1990 and has since become an investor, said Apples culture of tight hierarchies and aggressive administrators wasnt working for them in the new modern climate: The command and control that reigns at Apple is not necessarily working in its favor any more.

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