Apple Inc, the technology
giant from the USA, warned its investors in February that the company is set to
miss its revenue forecast and a drop in sales is expected because of the Global
Pandemic. The company said the pandemic affected its manufacturing processes,
and with a decline in people's disposable income, sales will be well short of
the target. Apple gave a similar warning last year before the pandemic. Then
the company issued a statement saying that it would cut its profit forecast by
$9 billion because of a sales drop attributed to the pricey iPhones. Indeed,
the decline in revenues and profit cannot only be attributed to the pandemic.
There is more to the story.
Despite a drop in sales,
Apple is not a company in crisis. The company's current valuation is more than
$2 trillion, which is more than the GDP of Italy, Brazil, Canada, South Korea,
Russia, Australia, and Saudi Arabia, to name a few. Its revenue stood at $64.7
billion at the end of September Quarter last year with $38.02 billion cash in
hand. With such strong financials, the company is the technology space leader
and holds a strong market standing and competitive advantage. The drop in sales
and revenue has not affected the company much, but this must be rectified soon,
or the company could quickly follow Nokia's way, from being a market leader to
a company struggling for survival.
What is Apple doing
wrong?
To start with, the sales
of the iPhone is constantly falling for the last few years. For the past few
years, Apple had to cut down its Sales Target frequently. iPhone sales are dropping
at a greater pace in China than in the rest of the world, which is alarming
since China is the biggest market for Apple. Even Tim Cook, the Apple CEO,
acknowledged this fact and wrote in a letter, "In fact, most of our
revenue shortfall to our guidance, & over 100% of our year-over-year
worldwide revenue decline, occurred in Greater China across iPhone, MAC, and
iPad." Apple's revenue in China declined by 29% in October last year, the
lowest since 2014. A similar pattern is observed across the globe for Apple.
According to many
experts, this was bound to happen and was a long way coming. There are many
reasons for this. Customers are holding up their phones for more extended
periods, and the replacement rate has fallen. People do not find any incentive
to upgrade their devices regularly as often the subsequent generation of the
devices is more of an evolution than a revolution. With prices rising with each
new generation, customers do not find any value in regularly upgrading as they
would get caught in the vicious circle of EMIs whereby they are paying for a
device whose value would depreciate fast. Even with luring bank offers and
online schemes, there is hardly any value in upgrading to the next generation
when the older one is more than capable for daily usage. Most people prefer to
upgrade with an alternate generation to feel a more revolutionary upgrade and a
mere evolutionary one.
People now prefer to
repair than replace their devices. Tim Cook told the investors in 2020,"
That people bought fewer new iPhones because they fixed their old ones." With
people holding onto their devices, the sales are bound to drop.
Apple's focus has been to
defend its turf, not to conquer new lands.
"I skate to where
the puck is going to be. Not where it has been"-Wayne Gretzky. Steve
Jobs loved this quote, but somehow after his demise, Apple has diverted from
this philosophy. Apple also lacks innovation. It has been more than a decade
since Apple launched a new business vertical. The iPhone, iPad, App Store were ground-breaking
innovations that expanded Apple's business and lured people towards it. These
devices created a solid fan base for Apple that has remained loyal to them
since then. Ever since Tim Cook has been at the helm of affairs at Apple, it has
followed the evolutionary path, not the revolutionary one it was once famous
for. The company makes minor incremental changes to the devices in each new
generation. The improvement is more of a technical increment which is not
noticed by the public at first glance. Under Tim Cook's leadership, the company
as focussed more on the computing power of the devices. Apple has made good
fundamental changes in its software and improved the processing capabilities.
With the launch of the M1 chips, the company has started making processors for
its laptops and desktops. All these efforts have given Apple a technical
competitive advantage but have raised its devices' prices, causing a fall in
sales. With Samsung launching foldable devices, notch free displays, and
flagship devices having cameras equally good as iPhone, Apple is facing the
heat in the market. To validate this fact, here are some of the numbers
·
According to figures released in Q2 2020,
Apple spent nearly $4.8 billion on R&D compared to Microsoft's $5.2 billion
and Alphabet's $6.2 billion.
·
Apple has only spent 2% of its cash flow
on mergers and acquisitions, which is less than industry standards.
Since both mergers &
Acquisitions and R&D are integral to a company's growth and prospects, it
is more important that Apple focuses more on these aspects.
Lastly, Apple's move to
remove charging brick from the iPhone boxes has not helped the companies cause.
Apple charges high prices for its devices which is referred to as Apple Tax,
and despite this, if it does not provide the essential accessories, the
customer's satisfaction is bound to get a hit. The competition is offering fast
chargers at no additional cost. The Verge magazine, along with other industry
experts, have criticized this move by Apple. Even the customers are annoyed.
To improve its sales,
Apple should focus on providing value to customers by reducing the prices and
making value money package. Lastly, Apple should get back to its roots of
making ground-making innovations for which once it was famous. The earlier
Apple does this, the better it will be for it; otherwise, it would get lost in
the crowd of Korean and Chinese tech giants.
See you next soon with some more exciting content.
About the Writer
Pursuing PGDM at IMT Hyderabad.
An Automobile enthusiast and Cricket fanatic, intending to make a career in Finance explains the reasons behind the dwindling sales of Apple in this blog.
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