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Is Apple under threat?

James Henderson | Nov. 2, 2016
Apple’s addressable markets, and the company’s revenue and profits, are shrinking, points out an analyst

Apple experience

Delving deeper into the smartphone market, Narcotta believes that newer versions of Android are creating “viable threats” to the Apple experience, hampering iPhone revenue and profit growth as a result.

Narcotta said Google’s Android operating system, once considered to be a distant competitor to Apple’s iOS, has vastly improved over its last two major releases, Marshmallow (Version 6) and Nougat (Version 7).

Particularly by injecting a more consistent look and feel to the user interface, and in emerging input technologies such as voice-powered interaction and search,” he explained.

Currently, Narcotta said Android OEMs are designing mainstream smartphones that equal, or in some cases surpass, the technical specifications and features sets of the iPhone.

“Apple’s greatest obstacles to overcome in 2017 will be rekindling demand for the Apple experience, the mantra on which the company has built its branding, go-to-market strategies and value propositions,” Narcotta added.

“Apple will be able to mine its loyal existing customer base for iPhone revenue and profits, but stronger competition from Android OEMs, particularly from Huawei, means the iPhone segment overall is no longer in growth mode.”

Additionally, Narcotta said the lack of a compelling new device or service - Watch sales are retreating, and while usage of Pay and Music services is climbing they generate micro-revenue compared to hardware sales - is hampering efforts to ease the burden of the iPhone to generate revenue and profit.

Premium PC market

At the other end of the market, Narcotta believes that incumbent Windows OEMs are complicating Apple’s enterprise strategy, moving forward to claim greater share in the premium PC market.

“Bolstering growing, but smaller, segments such as the iPad, and restoring growth of flagging segments such Mac PCs, are typically secondary concerns for Apple given the rate at which the iPhone has usually generated gross and operating profits,” he added.

According to financials, Mac PC revenue declined 16.6 per cent year-to-year to $US5.7 billion during the third quarter as unit shipments fell 14.4 per cent year-to-year to 4.9 million.

Within this segment, iPad revenue was essentially flat year-to-year as the iPad Pro lifted overall iPad average selling price (ASP) 6.1 per cent year-to-year to $US459.

Even amid declines, Narcotta believes the substantial profits generated by the iPhone allow Apple to underwrite longer-term initiatives in enterprise computing - via its partnerships with IBM, Cisco and SAP, and in-house development of the iPad Pro - that have not yet become meaningful contributors to overall revenue and profit.

“Apple’s enterprise initiatives aim to curb slowing growth in its Mac PC segment, particularly as iterative, if not outright questionable updates such as removing USB ports that would ostensibly amplify the MacBook’s functionality and extend its peripherals support, hamper demand for the company’s latest PC models,” Narcotta added.


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