Mildly positive figures won’t arrest Apple’s downward spiral

Apple’s latest quarterly results, released on Tuesday night, lifted the American technology giant’s stock by 5 percent in after-hours trading as better-than-expected iPhone sales offset a sharp drop in underlying profits. The company said that profit fell by 22 percent in comparison with the same period last year; however sales of 31.2 million iPhones in the quarter ending in June – an increase of 20 per cent – beat market predictions and reassured investors that demand for Apple’s smartphones has not yet run dry.

In a nutshell, the figures weren’t as bad as many had feared. In recent times Apple has been dogged by suspicions that it no longer has the innovative potential of old, the Western smartphone market is saturated and it is losing ground in important emerging economies. Since September over 40% has been wiped off the value of its market capitalisation; last year it also ceded its crown as the world’s largest smartphone maker to Samsung. Against a backdrop of diminishing expectations solid iPhone sales figures were greeted largely favourably. US shipments grew by an impressive 51 percent.

It appears unlikely, however, that these mildly positive results will signal a reversal in Apple’s recent fortunes. Serious questions still remain about the company’s capability to produce exciting new models, having come up with nothing of the sort since the iPad in 2010. Strong performances by existing smartphone models in the US will not have much of an impact beyond the short-term given the general acceptance that growth potential in Western markets is slowing down. In China, where the smartphone market has yet to fill out to the same extent, Apple is losing out to Samsung and local competitors. Revenue from the Greater China area – which includes Hong Kong and Taiwan – slumped 43 percent from the previous quarter and is down 14 percent from last year. In the first quarter, Apple’s Chinese market share of 9.7 percent was well down on Samsung’s 17.7 percent. The general perception is that Samsung’s far greater variety of models and prices is better suited to the diverse Chinese market.

Beyond the iPhone, sales of Apple’s iPad underperformed market expectations. Year-on-year revenues fell 27 percent, hurt by a nine-month gap since the latest product launch. Although Apple still dominates the tablet computing market – CEO Tim Cook claimed that the iPad accounts for 84 percent of web traffic from tablets – increasing competition means that without engaging new models this side of the company’s business is also vulnerable to decline.

Cook has repeatedly insisted over the last few months that Apple has a raft of exciting new products in the pipeline. Recent trade mark applications suggest that these include a smartwatch, while there has also been speculation surrounding a foray into television and a cheaper iPhone, made of plastic rather than aluminium, to counter the company’s problems in emerging markets. It seems clear that the future technology battleground will be centred very much on China – here Apple has much ground to make up, having been outpaced by nimbler, more diverse competitors. Notwithstanding a better-than-expected quarterly report, expect the downward spiral of the former darling of the technology world to continue – unless its new launches catch the eye of consumers as the iPhone did.

Alex Rickets


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