Although Apple (AAPL, Financial) has a strong brand value, it still faces numerous headwinds moving onward. Despite all the efforts in diversifying the revenue stream, the company is heavily dependent on the sales of its iPhone.
The company reported robust quarterly results until the fourth quarter of 2015, but things have changed a lot since. Through the past three quarters, the company’s top line has been falling at an average of 12% per quarter mainly due to declining iPhone sales.
According to statista.com, Apple’s iPhone sales peaked in the first quarter of this year. In the most recent quarter, 45.5 million iPhone units were shipped, down considerably from the 74.78 million iPhone units in the first quarter of 2016. Keeping this in mind, it can be certainly said that the company might face huge problems in the forthcoming years.
On top of that, as per idc.com, worldwide smartphone shipments are projected to grow just 3.1% this year, which represents an extensive drop from the 10.5% and 27.8% growth in 2015 and 2014. Moreover, smartphone shipments are projected to reach 1.84 billion by 2020 compared to 1.48 billion units this year.
Apart from this, Apple also faces tough competition from its foremost competitor Samsung (SSNLF, Financial). Recently, Apple launched its new iPhone 7/7 plus which gained an additional boost on the back of the Note 7 disaster. However, iPhone 7 models don’t seem so cool as the company has not included any significant changes.
Apple introduced a new color for iPhone 7 models and enhanced its battery life as well as camera quality. In comparison, Samsung has done a great job as it introduced Edge screen starting from its Galaxy S6 models. Moreover, Samsung’s latest flagship devices also feature virtual reality, which is gradually turning into a noteworthy feature for smartphones.
One more thing to notice is that Apple is losing its ground in China; consumers are losing interest in the company’s offerings. In the case of iPhone 7, only 43% of consumers in China were likely to show their interest in purchasing the new iPhone compared to 64% for iPhone 6.
Apple’s decline in China can be attributed to the success of Chinese smartphone manufacturing companies like Xiaomi and the slowdown in the country’s economy.
Summing up
Apple’s iPhone sales still account for two-thirds of the company’s overall revenue which is a big reason to worry considering the continuous decline in iPhone sales. Moreover, escalating competition together with lack of innovation will endure being a primary reason behind the company’s slothful performance in China. Stockholders are urged to avoid Apple until the company brings some innovative changes in its upcoming iPhone.
Disclosure: No position in the stocks in this article.
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