Will Apple Struggle This Year?

According to Android Guys, a handful of unlocked Android phones are going to give Apple and the iPhone fits. Unsurprisingly, Apple Insider figures they will have a great year (here and here). While both sides need to be taken with a grain of salt (given they both have somewhat fan-driven agendas), both may not be quite on the money. Besides, there are larger forces at work here.

Apple Slowing Down?

The Android Guys piece isn’t the first to state that Apple will have some issues in 2016. Business Insider and others have said something similar, although for different reasons. The problem is that, time and again, they fail to understand Apple’s market, and where Apple sells product. It isn’t that I don’t think Apple may see a slower year in 2016. I just don’t think the reasons put forward by others are relevant.

We could take these arguments apart in detail, but all of them miss the one “big picture” problem: Apple is a very, very big company. Their products occupy large positions in their respective markets. A single product is unlikely to unseat them, and one that does won’t do it on price (if you think so, then you don’t understand how Apple sells products, and why people buy them). Many have predicted time and again that Apple will implode (the Zune will kill iPod, Android will eliminate iPhone, the Phablets will kill the iPhone, cheap phones will kill the iPhone, Surface will kill the iPad, Surface will kill MacBook).

All of them have been wrong, and nothing announced has changed any of that. Apple sells what are seen as premium products at premium prices, and there is a substantial market for that kind of product. Lexus and BMW don’t try to sell their cars to someone buying a Chevy Spark, and they don’t compete in that market.

Apple’s main issue with growth is that they are huge. Their numbers are big. To move the needle on any of them requires revenue growth in the billions of dollars. When a company sees revenue around $170 billion a year, it needs $17 billion of new revenue for a 10% increase.  That’s a lot to try to add to the bottom line.

Some Products Shine, Others Will Merely Glimmer

The iPhone will likely see limited growth, but I expect smartphones in general to slow down. The market isn’t completely saturated, and there are still some growth areas. But early results are showing a similar trend. The iPhone has continued to gain marketshare globally, but I do expect it will top out and remain in second behind Android. My guess is that the numbers will settle around 75% Android, 20% iPhone and 5% “everyone else”.

The tablet market will likely continue to shrink as people replace their tablets with big smartphones. That means new iPads won’t be bought to replace current iPads, the Plus models will take their place. The iPad Pro may help a little here, but it may only slow the decline, and not stop it. The Surface will continue to remain at the edges, and remain a non-factor in the market.

Without a serious refresh, the MacBook line will continue to see some growth, but remain the lone product that increases sales in an otherwise shrinking PC market. A refresh, done properly, could be one area of larger-than-expected growth in Apple’s portfolio. Apple desktops will still chug along, helping to add to their PC marketshare gains.

Music sales will likely continue to slow as many transition to streaming services. Apple Music may help Apple retain some customers, but the experience just isn’t “better enough” to take on Spotify and Pandora at the moment, and while they are up to about 15 million users, that’s still only good enough for 8th place globally (see the Wikipedia article for a comprehensive list). Expect that to evolve as Apple tries to figure out the right formula. It’s still early for Apple on this one.

The new Apple TV will still look for its place in the universe. I haven’t tried the latest release (I still have the older puck), and I’m currently mixed on whether apps will make a difference. Taking on viewing habits built on 60+ years of tradition is a steep, steep hill to climb. I don’t expect much impact on the bottom line.

The App Store will continue to grow as more and more people decide that apps help make their iPhones and iPads useful. The Apple Watch will likely slow. I still think smartwatches are a solution looking for a problem. It needs to be more than an accessory for your smartphone as well as an expensive fitness band.

An Apple Car (if it ever sees the light of day) won’t make any difference at all. Selling cars isn’t like anything Apple has done before. It’s a different market, with massive regulation, the most complex consumer product ever created, and a century of behavioural history. It will be an interesting experiment and nothing more.

A Flat Year?

Ultimately, I suspect Apple will have an “okay” year. They will still consume almost all the profit in the smartphone market (they reportedly take in 94% of all smartphone profits globally), but the growth may be slower, possibly flat. It depends on how things progress in China and where sales start to top out in Africa. An iPhone 7 may or may not reignite things toward the end of the year.

The App Store and MacBooks may be the lone bright spots for growth. Tablets likely will shrink a bit more, and phones (for everyone, not just Apple) will flatten out as the market settles down. For this year, the record-setting financial numbers are probably gone. Apple will still see healthy revenue and profit, in line with last year’s numbers. What likely will be missing is growth. It’s a side effect of having such large numbers. It takes a lot to move the needle.

Apple has entered a new phase, and this could be the year it ultimately loses its “we’re the underdog” image. Despite being the 800lb gorilla in music, apps, smartphones, tablets and notebooks, Apple has managed to keep it’s “struggling to stay in second place” image intact for a while, while simultaneously making some of the most-imitated products out there. Apple may have to come to grips with the same problem all big companies have: struggling to find growth once the numbers are as big as they get.

This is probably the year that Apple doesn’t see record year-over-year growth. Overall, revenue and profit will continue to increase, just not at the record-setting pace we have seen in the past. Even 2015 saw Apple struggle to maintain their pace of revenue growth. Unless something changes drastically, I don’t see that changing this year.

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