How Apple is preparing for the era after the iPhone

Production of smartphones remains one of the most profitable businesses in the world. More than 2.1 billion people use mobile devices daily (and it is expected that by 2021 there will be 3 billion). More than 1.4 billion smartphones are sold annually, this is a market for $ 480 billion. And about $ 200 billion of it, more than a third, goes to one company - Apple. But Apple itself is rumored not to be delighted. And arranges a complete reorganization, trying to somehow reduce its dependence on this market, so as not to fall with it.

Last week, Angela Arends, head of Apple retail for the last 5 years, left the company. Deirdre O'Brien, another industry veteran, was appointed instead. The dismissal of Arends was a big surprise, and many took it as a turning point in the direction of the company's movement. IPhone sales — Apple’s main revenue source — are beginning to decline, and Tim Cook is trying to find new development paths that could allow the company to continue to grow.

Angela Arends came to Apple from the British Burberry, a luxury apparel and accessory company. And its strategy was to turn the iPhone into the same premium product. And in terms of design, and in terms of price, and in terms of organizing offline stores in the style of "boutiques", where enthusiastic buyers could try out the new iPhone. With it, Apple began to produce expensive watches for $ 10,000 and more, and it also resisted any discounts on the company's devices, even on Black Friday (instead, customers were given gift cards so as not to reduce the “elite status” of the product in the eyes of buyers).

But after the mediocre sales of the iPhone XS and iPhone XR, especially in China, it still had to arrange the shares for it. Apple Watch as a premium accessory was not sold very actively, and the company last year on the move changed it into a device to track health. A few months before the dismissal of Arends, at the end of 2018, Tim Cook warned investors that the company would not be able to fulfill its sales goals for the holidays. For the first time since 2001.

According to the Wall Street Journal , almost every department of the company is undergoing restructuring. Many projects are frozen, managers are asked to review priorities. Co-founders of Siri left Apple, instead of them AI-projects will be led by new people who came from Google. It takes the most serious restructuring of the company since 2011, when Tim Cook took the post of CEO. Sources in the company say: Cook has confidence that iPhone sales have reached their limits, and the company is now time to change the scope of activities.

Why even Apple thinks the iPhone is doomed

IPhone sales for the last year were much lower than expected. The reason is clear - competition with cheap offers from China and India. Apple was the first to make a smartphone a desirable device, and put its name on the card, but its devices are several times more expensive than the alternatives from Huawei, Xiaomi and OPPO, which use mostly the same technologies.

In 2017, Apple sold 216 million iPhones. In 2018 - only 206 million. The fall was about 5% - it seems not much, but for a company that is used to seeing a growth of at least 10-15%, this is a very alarming signal.

Meanwhile, Huawei sold more than 206 million smartphones (an increase of 35% over the year). Against 3 million eight years ago.

The two most tasty smartphones in the world, China and India, turned out to be impenetrable for Apple. Its sales there have been steadily declining since 2016. The share of the iPhone is at the level of statistical error (3% in India, less than 8% in China).

It used to be saved by the fact that Apple was the unsinkable leader in the segment of expensive smartphones. With the strategy “for a good product from a market leader, it’s not embarrassing to overpay.” This became especially noticeable with the release of the iPhone X - the first device worth more than $ 1000, designed for the mass consumer. Almost half the price of the product went to Apple directly in your pocket.

Next came the XS and XS Max with prices up to $ 1,450. Sales at the end of 2018 were not very impressive, but the profit from each device was more than $ 500. Plus, Apple has started “quietly” through Amazon and other vendors to organize cool promotions, forcing buyers to once again think about buying. When you give a $ 40 discount on a $ 200 smartphone, or a $ 200 discount on a $ 1000 smartphone, the discount percentage is the same, but the impressions of the customers are different.

The hilling of the premium market under the leadership of Angela Arends was bearing fruit. Some people just have too much money. And if they agree to spend $ 12,000 on gold Apple Watch just for the sake of their color, why not offer these buyers something a bit more expensive than usual? Fighting with the Chinese in terms of price and performance is still a losing business.

But this last bastion is cracking. Just a week ago, Samsung and Huawei both entered the “super premium” segment with their flexible smartphones for $ 1,980 and $ 2,600. These folding devices will be the most expensive smartphones to date (not counting accessories for $ 10,000 from companies like Vertu). Now those who want to boast the coolest gadget have an alternative. Flexible smartphone, which is more expensive than most would agree to give a computer. The need to take the technique of Apple to prove their worth and success no longer exists.

Samsung also raised the price of its flagship S10 line. The price of S10 + goes from $ 1000 to $ 1600, and the future version with 5G is likely to be even more expensive. No one expected such a sharp jump in prices (Samsung S9 cost $ 720), but this means one thing: there are more offers for buyers with money. Apple is no longer the only one with such expensive products.

But the main reason for the gradual preparation of Apple for the “era after the iPhone” is the general state of the smartphone market. The last few years he grew only by the forces of China. And in 2018, he showed his first decline in history. For the year, it was estimated that about 1.43 billion devices were sold. Compared to 1.51 billion in 2017. Drop more than 5%.

It is expected that the 2019th will be even worse. Even with all the new 5G, flexible displays, perforated cameras and subscreen fingerprint scanners. The market is saturated, and new models come out more often than previous ones have time to outdate.

Case for the protection of Apple

But Apple, of course, early to bury. Belief in the bright future of the company is still strong - both among its top managers and investors. Yes, 80% of revenue now accounts for one iPhone. But historically, one of the firm’s strong points was that it was never tied to a single product, and always found new ways of development. Many others. the giants build themselves around one successful “key” project. After years of research and development, Google is still a search engine. Microsoft has relied on Windows for more than 33 years. Intel, HP, Nvidia and AMD are doing the same thing today than they were a few decades ago.

Apple can change. From a computer manufacturer, she became a company known for its music players. She managed to change the phone industry, then do the same with tablets. And over the past two years, it has become a world leader in the production of watches, forcing industry’s oldies to move aside.

Apple has huge financial reserves, the best experts in the world and one of the most famous brands in the world. Good revenue (about 10% of the total) comes from services — including iCloud, Apple Music, AppleCare, Apple Pay and the App Store. Recently, the company announced plans to increase the profitability of this sector by 2 times by 2020.

At offices and laboratories in Cupertino, according to rumors, AR-glasses, iPod Touch of a new generation, as well as a large video-streaming service, a competitor to Netflix and HBO, are being developed for the production of TV series for which in 2018 $ 1 billion was allocated by “Open Secret” in Silicon Valley is the electric car Apple (project "Titan"), which Elon Musk complained about back in 2016, telling how Apple is poaching employees from Tesla. The approximate release date of this “iCar” is called 2021.

Over the past year, Apple spent $ 14.5 billion on development, 25% more than in 2017. And if it succeeds in doing the same with the VR / AR headsets that it used to do with phones, the company's future can be secured for the next 10-15 years. A large investment fund, Piper Jaffray, led by Deb Schonman, recently sent a letter to its shareholders informing them of their (rather unexpected) decision to invest even more finances in Apple shares:

We predict that over the next two years, Apple will add VR to the MFi program (Made for IPhone). This will allow third-party developers to create programs and games for virtual reality. And in the next 5-10 years, we expect Apple to release a mixed reality (MR) headset, with the long-term goal of replacing the iPhone with it.

Analyst Ming-Chi Kuo says it will happen even earlier. According to him , Apple's AR-glasses should enter the market in 2020, and their mass production will begin this year.

According to former Apple employees, Tim Cook began to think about what will happen to the company after the iPhone, back in 2010, when he was COO under Steve Jobs. Cook predicted that the smartphone boom will pass, and the company will inevitably have to switch to other products. Now this strategy is finally moving into the active phase.

Using materials WSJ , Bloomberg , ZDnet and Macworld .

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