27 October 2016
About 60 percent of existing iPhone users are sticking with their 4-inch or smaller models. Photo: Bloomberg
About 60 percent of existing iPhone users are sticking with their 4-inch or smaller models. Photo: Bloomberg

What Apple can do to drive its growth momentum

Apple Inc.’s long winning streak appears to be coming to an end.

The US technology giant forecast a decline in revenue for the current fiscal quarter, citing weak sales of its best-selling gadget iPhone amid a dim outlook of the global economy.

The company’s stock has declined 20 percent over the past three months with the market speculating iPhone would see its first year-on-year sales decline in the previous quarter.

The actual figure is not that bad: Apple reported an 0.38 percent year-on-year increase in iPhone shipments for the three months to December 26, 2015. That’s 74.78 million units, compared with 74.5 million units for the same period a year earlier.

According to market research firm IDC, smartphone shipments for the fourth quarter rose 5.7 percent year on year to 377 million units.

However, Apple was the only one among the Top 5 players that reported flat shipment. Samsung, Huawei, Lenovo and Xiaomi all achieved double-digit shipment growth, as they produced more smartphones for the low-end market.

We can’t readily conclude that Apple is losing its growth momentum. The company is still the world’s second-largest smartphone player, selling more than 60 million phones each quarter.

But investors are looking at future trends rather than past figures.

Apple’s iPhone has been facing growing competition from peers at Google’s Android camp in the past few years.

With Apple reluctant to launch a big-screen handset, Samsung cemented its leading market position by coming out with a number of big-screen models.

In 2014, Apple boosted the screen size of two models to 4.7 inches and 5.5 inches, unleashing a huge demand from big-screen lovers. It sold a record 74 million units in the fourth quarter of 2014, the debut quarter of iPhone 6 and 6 Plus.

However, that extraordinarily high base made it difficult for Apple to have another round of record shipments in the same period last year.

That’s the reason why Apple chief executive Tim Cook was satisfied with a flat shipment last quarter.

While many industry watchers believe that bigger phone screens could help drive iPhone sales, such a view does not hold true for die-hard Apple fans.

Cook told a post-earnings conference call that 60 percent of existing iPhone users are sticking with their 4-inch or smaller models.

The smaller-sized iPhones, with the latest models being iPhone 5s and iPhone 5c, were launched in September 2013. Cook is saying that these users haven’t upgraded their iPhones for more than two years.

Why are these people not upgrading to a bigger-screen iPhone? It’s probably a matter of personal choice.

Many iPhone users love their device simply for its single-hand operation, meaning they can control the phone using only one thumb.

That’s also the reason why Apple founder Steve Jobs refused to launch a bigger screen iPhone when he was still at the helm before he died in 2011.

Apple needs to convince the 60 percent smaller iPhone users to purchase a new iPhone, so that the company can maintain its upward shipment trend.

There is market speculation that Apple is going to unveil a new iPhone with a four-inch screen in March, and reportedly equipped with the latest hardware specifications and design similar to the bigger iPhone 6, in a bid to encourage the 60 percent to upgrade.

Should Apple unveil the new phone next month, it is the latest evidence that Apple will no longer sell only one new model each year to compete with other brands.

The purported new iPhone could play an important role in boosting shipments in the first half of the calendar year, while the second half could be boosted by the new flagship model scheduled to be released in September.

Of course, Apple may need to do more to convince people to abandon their old iPhones and switch to new ones.

For some countries, it can promote the new devices with Apple Pay compatibility, which can provide a new mobile payment user experience by simply swiping their phone on a dedicated point-of-sale device.

In addition, the new device is expected to be equipped with Apple’s latest operating system, which will be another selling point for users.

To ensure a stable demand for new iPhone models every year, Apple has introduced a monthly installment plan in the United States to help users upgrade their phone by trading in their old units every year.

With such a plan, users can avoid being locked with a service contract and they just pay a small sum each month for the new phone.

Such a plan could drive iPhone sales if it is rolled out globally, especially in the virtually untapped India market.

In the short term, Apple may still need to rely on iPhones to maintain its valuation, but investors and users are waiting for the next “wow” products from the team led by Cook.

Will virtual reality be the next big thing Apple can bring? Stay tuned.

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EJ Insight writer

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