Apple iPhone. Image courtesy Apple Inc.
Apple iPhone. Image courtesy Apple Inc.

What’s wrong with Apple?

By Sorab Ghaswalla

Mumbai, January 26, 2013

For those of you who do not follow a company’s fortunes or are more interested in the particular product or service that it sells, this news around Apple Inc. may come as a huge surprise, although the stories have been hitting the headlines regularly for the last few days.

To begin with, Apple’s iPhone appeal is fading, to quote The Guardian’s headline today. Shocked? Better believe it. And because of this, Apple seems to be actively looking at China as a primary market. Even more shocked? Well, if Chinese companies can sell their products in the USA, why not the other way round, right?
Anyway, Apple released its quarterly results earlier this week, but I am not here to bore you with `the financials’. Hidden somewhere in that Excel sheet though was the fact that Apple products, especially the iPhone 5, are really not pulling in the big bucks anymore. Maybe that’s overstating it but it is a fact that many of the Apple products sales have dropped, or to put it in another way, the heart-pounding growth rate that once was associated with Apple seems to be over. Period.
Some analysts blame it on the overall downturn of the economy of the past few years, others say the products themselves no longer retain the exclusivity tag they once sported. The first hypothesis does not fly in the face of smartphone sales booming for all other major players, so also the Android operating system created by Google, vis-à-vis Apple’s iOS.
Apple reported no rise in profits and slightly missed revenue estimates, confirming Wall Street
fears that its period of hyper-growth may be nearing the end. As against an anticipated sale of 50 million iPhones, Apple sold 47.8 million over the Christmas quarter, a period which is dominated by festivities and shopping. What’s more, even its revenue growth was at 18 per cent, year-on-year, against below market expectation, and profits were flat as compared to the previous year’s, at US $13.1 billion. Even Mac machines this Christmas sold 18 per cent less than the 2011 Christmas.
Except for the US markets, Apple seems to be taking a hit every place else – Europe, Asia, Middle East. Guess who is eating into its market share? No guesses for that – Samsung. The one market where Apple did perform well – China, where sales increased 67 per cent to US $6.8bn.
Besides the fact that the results pushed Apple shares down, almost every analyst is of the opinion that the company needs to do something drastic to get back its impetus.
From here, where?
Apple needs to do two things straightaway. Launch an entirely new series of products, which can trump the ones by competitors like Samsung; the other is start selling even more competitively in China.
The post launch buzz around the iPhone 5 is missing (you must have read one of my earlier columns on this website itself where I had predicted it not doing as well as its predecessors). The iPad, though doing well, (sales were nearly 23m, up on 15.4m) is facing some serious competition from other makers, and even the cheap Chinese ones. Everybody wants a cheap Tablet, and the iPad does not fall in that category.
Apple seems to have already started initiating a corrective course. The first was to introduce the iPad Mini to meet the cheap tablet competition, headon. Unfortunately, it has got the pricing wrong on that one. In India, it costs approx. Rs 22,000, and that’s not cheap if you compare it to others which sell at even sub-10,000 levels.
The other thing is Apple has quickly realised that China, with the highest number of Internet and smartphone users, provides it with just the market for its products.
Last week, in an interview to a Chinese news site, Sina Apple CEO Tim Cook had acknowledged this when he had said he expected China to overtake the US as the iPhone’s biggest market. Tim’s interview was in turn reported in the prestigious Financial Times of London.
But wait. The problem in China, for Apple that is, is that there are many local manufacturers, not to mention top brands like Lenovo and Huawei, which are already doing very well. Apple products, with their steep price tags, do not stand much of a chance in the long run, especially given the fact that the Chinese love buying the local, cheap stuff.
Like I said, something is cooking at Apple. Will it be a course correction in its products pricing, or the products themselves, remains to be seen.
Previous columns by Sorab Ghaswalla

See News Videos