Apple's Latest Challenge: Topping Its Own Success
03 September 2015 - 8:14AM
Dow Jones News
By Daisuke Wakabayashi
As Apple Inc. prepares to introduce its latest iPhones next
week, the company's biggest challenge is one of its making: how to
top its own success.
Apple's bigger-screen iPhone 6 and iPhone 6 Plus, introduced a
year ago, reignited sales growth for Apple's smartphone, propelled
the company to record profits and solidified Apple's standing in
China. Apple has been gaining share versus rivals, despite its more
expensive offerings. IPhone unit sales grew more than 30% in each
of the past three quarters, compared with a year earlier.
Now, comes the hard part. Such growth rates are "mathematically
unsustainable," said Toni Sacconaghi, an analyst with Bernstein
Research. He forecasts iPhone sales to grow 3% to 237.6 million
units in the fiscal year starting October.
"It's highly debatable whether there will be any iPhone growth
next year, " said Mr. Sacconaghi. "The market realities will catch
up with Apple."
An Apple spokeswoman declined to comment.
One reason: The changes in the newest iPhones won't be as
dramatic as last year, when Apple offered larger-screen models for
the first time. Apple is expected to unveil the new phones at an
event Sept. 9 in San Francisco.
Apple tends to release new iPhones in a "ticktock" cycle--an
approach Intel Corp. also uses for its processors. In a "tick"
year, Apple introduces a major design change, such as last year's
bigger displays. In the following "tock" year, it refines the
design and sometimes makes more significant changes to the
software.
This is a tock year, when growth typically is more moderate. In
the first full quarter after Apple introduced the iPhone 5S in
September 2013, iPhone unit sales rose 7%--one of only two quarters
since the iPhone's introduction in 2007 when growth fell below
10%.
The new iPhones will have the same screen sizes as last year's
models, at 4.7 inches and 5.5 inches, according to people familiar
with the matter. Those people said Apple plans to introduce a
fourth color--a metallic pink--alongside gray, silver and gold.
The main improvements, according to the people familiar with the
matter, are under-the-hood changes such as a faster processor and a
sharper camera. They said the phones would feature Apple's Force
Touch technology that can distinguish between a light tap and deep
press, allowing users to control the device by how hard they push
on the screen. That feature is incorporated in Apple's watch and
the latest Mac computers.
The iPhone is Apple's most important product, accounting for
nearly two-thirds of its revenue, and closely watched by
investors.
The results of the past year set a high bar. IPhone revenue grew
at its fastest rate in two years, at a time when the rest of the
smartphone market was starting to slow.
Apple learned the price of missing outsize expectations in July,
when it said fiscal third-quarter iPhone sales rose 35% from the
prior year, short of some forecasts. Shares plunged, and are down
about 14% since that announcement. On Wednesday, the stock rose
4.3% to $112.34 in 4 p.m. trading.
At the time, Apple Chief Executive Tim Cook said the iPhone
still had ample room for growth. He said that only 27% of its
customer base had upgraded to the iPhone 6 and 6 Plus, while many
others were switching from Android phones.
"We think the phone has a lot of legs to it. I mean, many, many,
many years," said Mr. Cook on a July conference call with
analysts.
Some analysts agree. Carolina Milanesi of Kantar Worldpanel
wrote in a report Wednesday that U.S. smartphone users replace
their phones on average every 22 months, suggesting that the vast
majority haven't yet considered the larger iPhone 6 or 6 Plus.
For the same reason, Patrick Moorhead, principal analyst at Moor
Insights & Strategy, said many consumers will see even subtle
improvements as significant because they are upgrading from older
models such as the iPhone 5 or 5S.
"While the hype may not be as high, the sales opportunity is
just as high," he said.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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(END) Dow Jones Newswires
September 02, 2015 17:59 ET (21:59 GMT)
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