What the iPhone 7 Does Not Mean for Apple

Is the iPhone 7 that critical to company's long-term success?

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After two quarters of declining device sales dragging down Apple’s (AAPL, Financial) overall numbers all over the world except Japan, all Apple eyes are fixed on the brand’s upcoming iPhone 7 launch.

The expected 79 million unit sales can revitalize the sagging sales numbers for the world’s largest company. That expectation alone has boosted the stock more than 18% since May. The momentum is all set to continue at least until the third quarter sales numbers are out.

The smartphone market in perspective

For any electronics goods manufacturer, a new product launch is critical. It is the one chance the company gets to explain to the world how it is different from everyone else. And more often than not, it is these new products that take the company forward to the next phase of growth. For the iPhone maker, this phenomenon is compounded to a near-absurd magnitude.

Apple has been a lead innovator in the smartphone segment, inadvertently inviting so many other companies to nonchalantly copy its products. I’m not not one to drop names, but my friend Sam’s hung up on the idea that anything from Apple is worth copying!

Such has been the influence of Apple on the market that the company’s stock has always bounced in the weeks preceding its products' launches, the biggest reason being no one really knows what is lurking behind those velvet curtains until the show begins.

A flagging flagship brand?

Unfortunately for Apple, smartphone sales all over the world have slowed since the start of the year. Gartner Inc. (IT, Financial), one of the world’s most renowned research companies, says that the glory days of smartphone growth are over.

Gartner said global smartphone sales will continue to slow and will no longer grow in double digits. Worldwide smartphone sales are expected to grow 7% this year to reach 1.5 billion units. This is down from 14.4% growth in 2015. In 2020, smartphone sales are on pace to total 1.9 billion units.

It is not difficult to understand why that has to be the case. In developed markets you would be hard pressed to find someone without a smartphone, and it's even harder to find someone without a mobile phone. According to Comscore 198.5 million people in the U.S. owned smartphones by January, which is 79.1% of mobile market penetration. There isn’t much room to grow from here, and the situation will be similar in most developed markets.

In emerging markets, where Internet penetration is low, there is still room to grow, but on a comparative basis the price positioning of smartphones will severely restrict the sales numbers.

There are several Chinese and Indian companies that offer smartphones at low prices and the masses lap them up. As the price goes lower the competition gets even more intense, and that’s not even a fight that Apple wants to pick. Even the cheapest smartphone from Apple –Â the iPhone SE – is still an expensive phone as far as emerging markets such as China and India are concerned.

When you can get a high-performance smartphone for one-tenth of the price of an iPhone, people are going to flock to those models – and rave about their sour grapes, too!

Smartphone sales grew by a whopping 73% in 2010, but those days are never to going to come back again. The market all over the world has reached a mature stage where sales numbers are going to depend on a product’s lifespan and when an existing user decides to upgrade his or her phone.

That said, Apple may yet buck that trend with the iPhone 7 because of sheer brand superiority and appeal. In many emerging countries, the phone you carry in your hand shows your economic stature, and that’s not about to change. There’s a good chance that the iPhone 7 will, in fact, hit the 79 million benchmark despite rumors that disappoint. But even if it doesn’t, that’s not going to be the end of Apple – or the end of the iPhone for that matter.

The iPhone today is much more than a device. It represents the sheer thrill of ownership, the excitement of waiting all night in line outside the flagship stores just to be the first of your friends to get the newest model in your hands, and the envious eyes and craned necks trying not to look too obvious as they ogle you holding a new phone with the silhouette of a bitten apple on the back.

But as I’ve said before in a previous article about Apple’s service-oriented approach, the Cupertino smartphone king is coming to a point in its life where the focus is shifting from devices to an ecosystem that can support and sustain the usage of those devices.

As such, Apple will soon enter a new phase of growth – one that is far more stable than the roller-coaster ride that took it to the top of the capitalist market, yet far less exciting than the iPhone 7.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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