The financials of Apple Inc. (NASDAQ:AAPL) don’t lie. In the second quarter of 2016, sales of the iPhone went down for the first time in history. The iPhone wasn’t the only product affected. Virtually sales of all Apple products declined as well.
The “cool effect” which is so heavily marketed by Apple to young consumers wasn’t able to boost the company’s iPhone sales in Q2 2016. Back in 2014, consumers were already complaining that Apple had lost its “cool factor”. In a survey made by Reuters/Ipsos two years ago, 16% of the 1,379 participants were stating that Apple – and hence, its products – were no longer as cool as they were in the previous years. In fact, 50% of responders said that Android devices had become “cooler” than Apple. Nevertheless, iPhone sales continued climbing quarter after quarter until the beginning of the summer of 2016.
In the first quarter of 2012, iPhone sales were $14.9 billion. Sales of the iPhone climbed steadily up until Q1 2016 reaching its maximum point at $38.9 billion. In the second quarter, however, they plummeted almost 5% bottoming at $37 billion. Although it is suggested that the brand had been losing its main marketing driver in the last few years, i.e. “the cool factor”, iPhone sales weren’t affected up until almost Mid-2016. In fact, ever since the iPhone was launched back in June 2007, iPhone sales had never had a drop – again, until Q2 2016.
Has the iPhone finally lost its popularity? While consumers may not perceive the iPhone as “cool” as they perceived it in the past, there is more to it than it meets the eye.
Tim Cook, Apple’s CEO had already predicted that this would happen in January 2016. He warned investors that there were some “extreme conditions” in the economy that would probably affect iPhone sales for the first time since it was created. And, the main factor was, in particular, the Chinese economy.
Apple faced a 26% decline in overall sales in the Chinese market in the second quarter of 2016. The Chinese economy as a whole has been growing at a slower pace than before in recent years.
It is important to note that around 50% of all smartphones sold in the U.S. are iPhones. The market has reached a saturation point in the U.S. and has also been slowly but steadily reaching saturation point in other markets. Also, economic conditions are now more favorable for Android devices which are cheaper and have similar features. In fact, Chinese sales of Android devices remained solid. The Huawei brand is the market leader with a market share of 24.4%, ahead of Apple’s 22.2%.
Huawei isn’t the only strong competitor of the iPhone in China. Chinese brands such as Oppo and Meizu also reported a good performance in this particular market. In fact, each one has a market share of around 6% which has been growing on a year-to-year basis.
As a whole, the iPhone has been a victim of the slow growth evidenced in the smartphone market. Mature markets, i.e. U.S. and Europe aren’t lured with the newer versions of the iPhone or other high-end smartphones since they don’t ee any benefit in upgrading given the lack of new attractive features these new phones come with. The iPhone and Apple may still have a good deal of “brand awareness” among consumers, however, the economy and strong competitors offering low-priced devices along with the lack of interest on behalf of consumers in regards to newer versions of the iPhone are beginning to affect its popularity.
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