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Apple posts first loss in 13 years while iPhone sales dip 16%

by on27 April 2016 1341 times

All good things must come to an end. In April of 2013 we published an article that Apple and their iOS based devices would begin to slide in 2016. It was in response to a survey/analysis claiming that Apple would reclaim the crown from Google by 2016 and dominate through 2018. For some reason the technical and financial press were jumping at the announcement for Windows phone 8.x. The fact that Windows phone held a single digit market share at the time did not seem to matter to them.

Well, we are well into 2016 and not only has Apple failed to reclaim the crown, but they are posting a loss and a decrease in iPhone and Tablet sales. This loss is the first one in 13 years and represents a company that is sorely missing Steve Jobs. During Jobs’ reign Apple saw massive growth and rocketed to the top. Apple was able to build the corporate mythology that they were innovators and everyone gobbled that up. In reality Jobs was not so much an innovator as a renovation genius. He had a gift for spotting the flaws and short comings in existing products and making them better. He also operated on the concept of strict control. I mean control of everything; manufacturing, the OS, build of materials, services etc. If he could control all of that he could ensure user experience. Jobs had a knack for reinventing other people’s products in a way that made them look new. Under Cook Apple looks too much like the company that came late to the party and is trying to play catch up.

Apple is, of course, blaming this dip on market saturation and we would expect them to do this just like any company that sees a year over year drop of 13%. However, what they (and others) often miss is that with a truly innovative and exciting product saturation is not an issue. People will replace technology with new if there are compelling features or benefits to doing so. The iPhone 6 has not been surpassed by the iPhone 6S and the SE is simply too new to make an impact on the market yet (although it is unlikely to do so). Apple’s jump to the larger screen with the iPhone 6 generation was playing catch up to Samsung, LG, HTC, Motorola and well the rest of the Smartphone world. It did get people to swap out of their aging 5S phones and even to jump ship back to Apple, but it was short lived. Looking into the future the SE and the iPhone 7 are not likely to bring the faithful out in droves so Apple could be looking at another loss next quarter. The bright spot for them is in their services division where they did see an increase of 20%.

Tim Cook is going to run out of ideas to bring Apple in line with everyone else while. He has already borrowed screen size, keyboard and stylus from Microsoft’s Surface line while also taking from the main iPhone competitors in terms of design and functionality. There is not much left to borrow here. Apple is now a victim of their own mythology. For too many years they have claimed that the rest of the market steals their ideas and innovations. Now it is clear they are the followers and not the leaders and this is hurting them pretty badly. The loss of Jobs and his amazing way to distorting reality, the Apple PR machine, and the control of information that is no longer in existence is only serving to unravel the claims that Apple has stood on. The market will respond to the truth and Apple will continue to lose revenue and market share.

Tim Cook is not the leader that Jobs was. He is much better at logistics and business than he is at coming up with new ideas or presenting them. The fear of losing Apple as a partner is mostly gone and Apple is having a hard time keeping their most favored nation status with their partners. They have even gone back to rival Samsung for many of the parts that are inside the iPhone. These factors are all helping to write the future of Apple and it is not looking good.

Apple fans should not worry just yet though. Apple has a mountain of cash so they can buy up a few more companies to try and get ahead. We expect them to do this a few times this year to get the corner on interesting technologies, but they will probably not look to start ups after the debacle with sapphire glass. The days of Apple’s power and magnificence are sliding by, this will not be a quick trip to the bottom though as we do expect new products and services to hit the market that will keep them above water for a while, but we do not expect them to ever reclaim bragging rights of iOS over Android.

Last modified on 27 April 2016
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2 comments

  • Comment Link skalinich Monday, 16 May 2016 15:47 posted by skalinich

    You can post a loss for individual business units. I also did say they saw a year over year drop of 13% with the iPhone and iPad BU, but saw a 20% increase in services.

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  • Comment Link Jeff Monday, 16 May 2016 14:30 posted by Jeff

    The term "posting a loss" is misleading. Apple's Q2 2016 financial results are revenue of $50.6 billion, net income of $10.5 billion. Yes, in just one quarter of the year, they made 10.5 billion dollars!

    Last year, Q2 2015, they made $13.6 billion net income on $58B of revenue.

    So, the term you're looking for is a year-over-year decline in profits of 13%, not a loss. They're still on pace to make $40-50 billion dollars profit this year (i.e. more than just about any other company).

    As Apple said, market saturation is a big factor for why they haven't posted a new record this year. I agree that the iPhone 6S is not much of an "innovation" and Apple will need another home-run product in the long run or they can expect slowly declining profits.

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