Apple sales stumble shrouded by record profit
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While it seems harsh to be negative about a company that has just taken $75.9 billion in revenue, the focal point of today’s quarterly update from Apple is inevitably the year-over-year growth rate. Here the rather lackluster 2 per cent uplift represents something of a misstep for a company that has built its reputation on impressive performances.
It is certainly the case that a strong dollar diminished Apple sales growth, but even the increase of 8 per cent on a constant currency basis is fairly anemic when set against previous quarters. Of particular concern is the 4 per cent decline in revenue in the Americas, which remains Apple’s most important region in terms of sales.
In our view, the fact that the weakest performance came from the most mature region with the highest levels of product penetration is no coincidence. The blunt truth is that Apple failed to persuade consumers to buy into its holiday product lineup in the way it has done in previous years.
While there is no doubting Apple’s technical and design prowess, some consumers simply overlooked its new iPhone, seeing too few benefits over and above their existing models to convince them to upgrade.
“Nevertheless, the fact remains that 2016 is year when Apple needs to come up with revolutionary rather than evolutionary product.”
The new iPad, which even by virtue of its name was aimed at a more professional audience, also received something of a lukewarm reception among consumers.
This translated into soft sales growth. Our own data show that this holiday was one of the weakest for personal electronics in recent history. Indeed, a number of players like Best Buy saw their own results dragged down by lower than normal demand for things like tablets – something that underlines the fact that when Apple sneezes, other retailers catch a cold.
None of this is to diminish the impressive numbers, which continue to indicate that Apple is an immensely popular brand with desirable products, but it perhaps serves as an early warning that the company needs to work much harder at creating a step change in the new devices it launches. It must also ensure that these are squarely aimed at satisfying real consumer demand rather than internal egos: while Apple engineers may be excited about shaving a millimeter off the depth of a phone, such technicalities are far less appealing to everyday users.
Fortunately for Apple, the lack of growth in the Americas was offset by continued strong growth in China, where product penetration is far lower and there is a much larger base of new consumers to capture. The same is also true of parts of Europe, although here the advancement in Apple sales was somewhat depressed by the strength of the dollar against local currencies.
Nevertheless, the fact remains that 2016 is year when Apple needs to come up with revolutionary rather than evolutionary product. If it fails to do so, its growth is likely to be diminished still further.
Questions & Answers
Q.Which geographical region was of particular concern for Apple's revenue decline?
Which geographical region was of particular concern for Apple's revenue decline?
The Americas region showed a 4 per cent decline in revenue. This is Apple's most important region for sales and has the highest levels of product penetration.
Q.What contributed to the slower sales growth for Apple's new products?
What contributed to the slower sales growth for Apple's new products?
Consumers did not see enough benefits in the new iPhone to upgrade from existing models. The new iPad also received a lukewarm reception, leading to soft sales growth.
Q.How did the strong dollar affect Apple's reported sales growth?
How did the strong dollar affect Apple's reported sales growth?
The strong dollar diminished Apple's sales growth, reducing the reported uplift to 2 per cent. On a constant currency basis, the growth was 8 per cent, which is still considered anemic.
Q.What offset the lack of sales growth experienced in the Americas?
What offset the lack of sales growth experienced in the Americas?
Strong growth in China helped to offset the decline in the Americas. China has lower product penetration and a large base of new consumers for Apple to capture.
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