Despite its meteoric share price rise in recent years, Apple was the worst performing stock in the Dow Jones Industrial Average over the past twelve months. What’s more, emerging threats and so-called ‘unsustainable growth’ coupled with a decline in iPhone sales and its first revenue drop in 13 years could potentially derail its market dominance.
However, this may only be a short-term blip for the world’s biggest tech player, as leading financial firm IG believes Apple must look at the wider picture, which includes an expanding services division.
Apple’s reliance on a product ecosystem
Even though Apple has managed to propel its way to the top of the tech market by manufacturing incredibly attractive, yet accomplished, products at a time when the digital revolution took hold, much of the Cupertino-based company’s success is based on an established ecosystem.
This relies on the thinking that that when one consumer buys one Apple product, they will be more inclined to purchase another, which includes upgrading phones and tablets. But in the opinion of David Hsu, management professor at the Wharton University of Pennsylvania, lower-priced competitors and more flexible technology platforms like Android are testing Apple’s ecosystem.
“The bet is that once you get users on one part of the ecosystem, they will be friendly to the remainder of the Apple ecosystem,” he said. “[That has] not played out as nicely as the company would have wanted.”
Sales and revenue slump for iPhone and Apple
Apple’s ecosystem reliance could be argued against, but its recent quarterly report provided cold hard fact. Along with posting a first-ever decline in iPhone sales, Apple also suffered its first revenue drop in 13 years.
In particular, Apple sales dropped by more than a quarter in China, its most important market after the US but one where competition from lower-priced rivals is fierce. Apple shares also fell about eight per cent and dropped below $100 for the first time since February.
For Neil Saunders, chief executive of research firm Conlumin, some fresh ideas are required. "Apple needs to come up with a radical new innovation or product rather than just the current incremental improvements to existing products,” he said. “This is the only way in which it will reinvigorate sales growth.”
Apple’s long-term prospects
Before Apple released its quarterly report, Chris Beauchamp, Market Analyst at IG, said that forward guidance was the key. “Apple bulls will be hoping that the firm can point to a good start for its new product, the iPhone SE (launched last month), with the lower price making it a potentially major player in developing markets.”
On top of that, CEO of Apple Tim Cook conceded the smartphone market was not growing and that customers were replacing their phones at a much lower rate. However, he pointed at the company’s services division, which includes Apple Music and the App Store, where revenue grew 20 per cent.
Therefore, market dominance might not be sustained by an ongoing ecosystem, but as long as it remains in place and is supported by a production line of innovative products as well as associated services, Apple should be able to continue a prosperous trajectory.
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