Apple Diagnosis & Guiding Policy
For nearly a decade, Apple has been the most valuable publicly traded company in the world. They were the first to make computers look attractive with its revolutionary products and services. Apple transformed the way we live and shape the culture of the 21st century. Almost everyone wearing an Apple watch or using an iPhone or iPad but things haven't always gone to plan for Apple. Apple was dying during the mid-90s and fell into a death spiral and they weren't making it at all. Steve Jobs returns to serve as CEO in 1997 and he reshaped Apple to what we see now, becoming the most valuable traded company in the world with an approximately 2 trillion-dollar market cap (Rumelt, 2011).
Apple’s biggest challenge is their iPhone sales. Sales of its prime product, the iPhone has been slowing down. Historically, more than half of Apple's revenue came from the iPhone. In 2015, this was around 66% of revenue. In 2018/19, despite having higher prices, iPhone only accounts for about 50% of total revenue. Many customers were turned off by the high prices Apple is pushing and consumers are holding on to their phones longer. The average American smartphone holder now keeps phones for 32 months up from 25 months a year before according to consumer tracking service (NPD, 2018).
On top of that, Apple is having a rough time in China. iPhone sales are slumping in China, where Apple assembles most of its gadgets. Apple’s success hinges upon the Chinese market which represents about 20% of sales so when China's economy slows down, Apple takes a hit. In the spring of 2018, the United States and China started a trade war and it’s taking a huge toll on the already slowing Chinese economy. Also, China is the world's largest smartphone market with more than 1.3 billion people and a fast-growing middle class and Apple far from the only game in town. There's Huawei, Oppo, Xiaomi, and oneplus. All offering similar models and features at a much lower price (Apple, 2019).
The second part of my paper is to identify Apple’s guiding policy and what steps they are currently taking to attack their core challenge. To overcome the decline in iPhone sales, Apple dramatically expanded their strategy by extending their services even further and making them more entertaining, more useful, and more informative. Tim Cook had been hammering on this for a couple of years now in an effort to transform the company from being focused on hardware to being focused on hardware, software, and services. This is the new era for Apple, where they're trying to move out from being just an equipment company to more of a recurring revenue business. This is going to be the new story of Apple, where their installed base drives company growth.
In conclusion, iPhone sales struggles and Apple battles longer upgrade cycles, but the growth of service kept Apple moving forward. Apple’s revenue from services is now growing faster than the sale of Apple’s hardware. This shift is a good thing for investors because it makes long-term growth more predictable than just relying on annual product launches. In 2018 fiscal year, Apple had $100 billion that was not iPhone. Also, in Q4 of 2018, if you take everything outside of iPhone, revenue grew at 19% (Apple, 2018). In 2019, services revenue grew 18% YOY, iPad revenue grew 15.8% YOY, and wearable, home, and accessories revenue grew 41% YOY (Apple, 2019). Diversifying away from iPhone is finally working. Apple saw booming services, wearables growth, and stable margin. In 2019, Apple announced that it had an installed base of 1.4 billion users, showing the incredible scale of Apple's hardware business and the enormous opportunity for its services business.
References: Rumelt, R.; NPD; Wheelen T.L.; Apple 10-K (2019 & 2018)