27 October 2016
With iPhone now a mature product, Apple may be able to generate more income from sales of accessories like Airpods. Photo: Apple
With iPhone now a mature product, Apple may be able to generate more income from sales of accessories like Airpods. Photo: Apple

Apple’s iPhone 7 doesn’t wow, but does that matter so much?

Apple’s iPhone 7 is somewhat disappointing, proving once again that the smartphone industry has entered an era where we can’t expect new products to offer breathtaking upgrades from older versions.

In fact, the market has been debating whether Apple’s latest offering should be named iPhone 7 or just iPhone 6SE, given that the upgraded model is aesthetically similar to iPhone 6s and 6s Plus.

Some of the enhancements include a better camera, a faster processor and improved battery life.

Most notable of all is the powerful “dual-lens” camera at the back, one for wide angles and the other for telephotos.

Taking a nice shot then sharing it with friends has become one of the main functions of smartphones today.

Thus, the camera could be the biggest draw for users to switch to iPhone 7.

One controversial change is the removal of the headphone jack, which may leave users with little choice but to use Apple’s lightning adapter or its wireless Airpods.

Apple says its Lightning and Airpods offer far more functions than 3.5mm earphones, such as matching several devices, infrared sensor and better sound quality.

However, all these incremental upgrades failed to create the “wow” effect, and this has been the case since the launch of iPhone 6 in September 2014.

It’s not Apple’s fault but more a reflection of the natural evolution of all products.

The first generation of iPhone kicked off the era of smartphones, and Apple made substantial upgrades in the second and third generations.

After the launch of the almost-perfect iPhone 4, Apple has apparently found it hard to make noticeable improvements. The same has happened in the personal computer industry.

But investors need not be excessively worried about Apple’s profit outlook.

Although iPhone 7 may not lure a large number of iPhone 6 or 6s users to spend at least HK$5,588 on the new iPhone, Apple can still tap into the huge market of China and India where many people still don’t have an iPhone.

In that case, there is still growth potential in the short term.

Apple has increasingly reduced its dependence on new iPhone sales in recent years.

Instead, by-products and software have started to generate more revenue. For example, the newly-launched Airpods are sold at HK$1,288 per pair.

That means the product has higher profit margin than the new iPhone.

Apple also revealed that Apple Watch has already become the world’s second best-selling watch brand after Rolex, beating rivals ike Omega, Cartier, Citizen, Seiko and Casio.

Software and services including App Store, Apple Pay and iTunes have generated US$6 billion in the third quarter, up 19 percent from the year before.

That already exceeded the hardware sales revenue of Mac at US$5.2 billion and iPad at US$4.9 in the same period.

As long as Apple can keep its 500 million users happy, there is still a lot of money to be made.

With Apple’s price earnings ratio of just 12 times, investors have every reason to feel comfortable with their holdings.

This article appeared in the Hong Kong Economic Journal on Sept. 9.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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