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Apple has reported its first sales decline in over a decade, with the company failing to meet analysts’ expectations and its revenue dropping for the first time since 2003. While you shouldn’t expect to see boarded up Apple Stores at any point in the near future, it is an indication that the company is struggling to replicate the record-breaking success of the iPhone 6 in 2015, and a big hint that its over-saturation of the market with its iPhone line and other devices is now having an adverse effect on its finances.
Managing $10.5 billion in profit and $50.6 billion in revenue in the first quarter of the year, this was a notable drop from the $13.6 billion in profit and $58 billion in revenue it generated in Q1 2015, highlighting that something might need to change within the company if they are to topple their own records once again.
So what kind of changes will these dipping sales figures likely inspire in the company over the course of the next few years? Here’s our take on what Apple’s declining sales mean for the future of the tech giant:
Focus upon services
The major change in Apple’s strategy, as outlined by its CEO Tim Cook, is that it will continue to focus upon services such as its paid Cloud storage, Apple Music and Apple Pay in order to keep consumers invested in the brand. Services such as these provide unique sources of revenue, with them allowing the company to obtain extra profit after a sale of a device has been made, by signing customers up for additional paid features.
Apple’s Chief Financial Officer Luca Maestri noted earlier this week that its services are now operating on a similar level of profitability to its other businesses, with the latest quaterly earnings report from the company revealing that these services currently generates more money than Macs. Speaking in a Q&A session following the report, Tim Cook said: “The most important thing for us is that we want to have a great customer experience. So overwhelmingly the thing that drives us are to embark on services that help that and become a part of the ecosystem.”
This indicates that Apple is now looking to these services to provide new avenues of revenue moving forward, with increased effort being put into the likes of Apple Music and its Cloud storage system in order to drive consumer interest. We should also expect more paid-for services in the near future, though Apple will inevitably be saving these for its Apple events.
A need for innovation
Smartphone launches are becoming as predictable as taxes, with the launch of a new device no longer garnering the same level of fervent excitement it once did. It doesn’t help that Apple is struggling to reinvent the wheel, with its annualized iPhone releases no longer being as successful as they once were.
The iPhone line represents two thirds of Apple’s revenue, so it is by far the company’s most important business. But while the iPhone 6 broke sales records, the iPhone 6S didn’t result in as many upgrades as Apple would have hoped. While many consumers swiftly upgraded to the iPhone 6 in late 2014, Cook said that the number of those who did the same for the 6S was “not a hair lower, [but] a lot lower.” He added: “If we had the same rate of success as we did on the 6, it would be time for a huge party, it would be a big difference.”
It’s not particularly surprising that this is the case. While the 6S was an improved version of its predecessor, Apple’s insistence upon only marginally improving its design and not offering many unique selling points for those who already owned an iPhone 6, understandably led to the device struggling to set the world alight. The iPhone SE also saw Apple curiously returning to an old design, with it boasting similar specs to the iPhone 6S (minus 3D Touch, regrettably) but housed inside the body of an iPhone 5S. While Apple is expecting this new device to bolster its sales throughout the year until the inevitable debut of the iPhone 7, it’s indicative of the company’s recent struggles to follow up the success of the iPhone 6 with meaningful designs. These recent sales numbers should highlight to the company that there is a definite need for change in their brand strategy when it comes to its upgraded models of its flagship phones.
Branching out to other products
Apple doesn’t disclose exact Apple Watch sales figures in its earnings reports, with the device instead being placed in its “other products” category, which also includes the likes of the Apple TV and Beats headphones, a brand which the company acquired back in 2014 for a mammoth $3 billion. Although we do not know of the exact figure, according to Apple the Watch matched its sales expectations, which is hopeful news considering that many believed Apple’s venture into the smartwatch market would prove to be a flop. With the Apple Watch 2 reportedly seeing the hardware cutting ties with the iPhone, a major quibble many early adopters had with the first Watch, this spells bright things for Apple and its solidifying of this new product line.
While Apple will certainly be looking to overhaul its approach to its iPhone launches following this quarterly report, an optimistic outlook for the other products it has up its sleeve will also warrant them looking into exploring further sources of revenue outside of its established businesses, and continuing to improve the likes of the Watch, Apple TV and more.
