Is Apple at the Crossroads: Where Next?

Apple Market Analysis and Commentary




19 Feb 2016 - In April 2016, Apple will be 40 years old so Futuresource Consulting has released its latest Perspectives Report that focuses on its journey, highlighting the key growth milestones, anticipating both the opportunities and challenges it faces to stay at the top.

Apple has ridden the mobile device tsunami, for the last seven years and grown into one of the most successful and valuable technology companies the world. In Q1 of its FY2016, revenue growth flattened, but the company still reported record profits.

For 25 years Apple fought to differentiate itself from a commoditised PC market built on 'Wintel' architectures. In 2001, it found a new string to its bow, iPod, and in 2007 launched iPhone, the powerhouse which has driven the company to the preeminent position it holds today.

The latest Futuresource Perspectives Report forecasts that iPhone accounts for 66% of Apple's business which generated $155 billion in sales in 2015. "This does not mean Apple's other businesses are a slouch - combined sales of Mac and iPad make Apple the largest personal computing supplier, and any company would be pleased to own a services and content business with more than $20bn in sales. This includes iTunes, Apps Store," commented John Bird, principal consultant at Futuresource Consulting. "However, maintaining the sheer scale of Apple today is highly dependent on the continued success of iPhone."

It is the view of Futuresource that a high share of Apple owners and new smartphone buyers will continue to choose iPhone going forward. However the company faces a slowing smartphone market together with continued momentum of Android, which is underpinning Google's applications driven dominance of mobile advertising. Android's biggest champion, Samsung, is #1 in the smartphone market competing directly against iPhone with high end Note 5 and S6 products.

A growing threat is also emerging from China, where local brands are now dominant and leaders like Huawei and Xiaomi expand into international markets with good quality products at comparatively much lower prices. As iPhone's USPs are progressively challenged by its competitors in a tightening market, it is difficult to see further growth.

Other threats include the PC business which are currently in a non-growth phase, tablet demand is falling as the replacement cycle has yet to build and phablets (large screen smart phones) divert potential buyers. The PC market is also contracting and the Mac is under attack in Apple strongholds like Education, where some buyers are moving to lower cost Chromebooks and web-based computing.

Apple's pre-eminence in digital entertainment is also under threat from new competitors, notably subscription streaming services such as Netflix, Amazon, Spotify and Pandora. Amazon is also Apple's principal competitor in digital books. iTunes has traditionally dominated music and video download markets but demand has slowed as subscription services have taken off and competition intensifies.

Futuresource states that although Apple faces some fierce competitive challenges, the company is immensely strong and has room for organic growth across iCloud, Apple Pay, Apple Care etc. The other revenue streams include Beats, Apple TV and Apple Watch. Futuresource believes Apple has a major opportunity in wearables, which will grow into an $80 billion market by 2020.

In terms of diversification, it will certainly be interesting to hear the announcements Apple will make beyond its 40th year in business as it may not be content to consolidate its business at around the $200 billion revenue level.

It may well look for new markets which are big enough to generate $10 billion+ new revenue each year it needs to grow and exploit its core strengths in software, industrial design, digital electronics and supply chain management. There are plenty of areas where its brand and retail frontage would be a relevant fit e.g. jewellery or fashion. It is an open secret that Apple is planning to get into automotive as it has hired over a thousand automotive engineers. At over $500 billion annually, the car market would certainly offer Apple room for growth, perhaps the company can re-invent the automobile as it has done before with iPod, iTunes, App Store and iPad?

To view all our latest reports, please visit our reports portal here.

Notes
Futuresource Consulting is a specialist research and knowledge-based consulting company, providing organisations with insight into consumer electronics, digital imaging, entertainment media, broadcast, storage media, education technology and IT. With a heritage stretching back to the 1980s, the company delivers in-depth analysis and forecasts on a global scale, advising on strategic positioning, market trends, competitive forces and technological developments. www.futuresource-consulting.com

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