Earlier this month, Apple announced that sales of its iPhone had dropped by 1 percent for the first three months of 2017 compared to the same period twelve months ago. The U.S. device giant still sold more than 50 million iPhones, but overall revenues were a little below analysts’ forecasts. Naturally, Apple was well-placed to explain the reasons why. The post-Christmas period has historically been Apple’s weakest quarter with consumers recovering from festive financial excess. Then there is the eagerly anticipated arrival of the next iPhone; the device that is set to mark its 10th anniversary. The industry is expecting something ground breaking and maybe consumers are delaying their smartphone upgrades in anticipation. But will it be enough to lift Apple sales down the line or is something more required?
Can Apple meet expectations?
There is no doubt that smartphone innovation continues to slow down. Nowhere was this better illustrated than at Mobile World Congress 2017, where the re-launch of the Nokia 3310, a 17-year-old device, took the headlines over leading OEMs. Apple is not alone in trying to identify the next step in device functionality that will preserve premium price points. The fact remains that all the OEMs know that it has to be more than incremental gains in camera functionality.
Has the iPhone reached the peak of its powers?
Industry analysts GlobalData Retail estimate that Apple’s iPhone revenues were $7 billion less than the same period two years ago. The same firm cited an “absence of significant new devices” as a contributing factor. It is fair to say that Apple’s ability to successfully grow its services division, which includes Apple Pay, iCloud, and the App store, has masked the iPhone sales slowdown. This part of Apple’s business contributed an 18 percent increase in sales as the value of the surrounding Apple ecosystem becomes increasingly clear.
Apple will be expecting the next iteration of the iPhone to re-inject some global momentum behind its device sales. It’s highly likely that loyal Apple users will continue to queue around the block once the anniversary model is launched later this year. But realistically, Apple’s growth is going to come from international markets outside its U.S. and European heartland. Markets like China and India will determine whether the iPhone can sustain its growth trajectory and the market for secondary devices could have a decisive impact.
Secondary iPhones: stimulating services revenues in China and beyond
The ongoing growth of Apple’s services revenue proves the value for offering cost-effective access to its global ecosystem to new subscribers. If you look at the current smartphone market in China, Apple’s position continues to weaken as Huawei, Oppo and Vivo continue to claim more cost-conscious users. The premium price-point for the iPhone 7 and 7 Plus puts the devices out of financial reach for too many.
The ability to offer “certified like new” (CLN) or “functional pre-owned” (FPO) iPhones to the Chinese market removes this obstacle by removing $200-$300 from the original retail price. This means Apple can introduce many thousands of users to its surrounding services ecosystem and create brand lock in. This is important at a time of existing political upheaval to counter the preferential treatment of the Chinese government towards its own OEMs. According to Counterpoint, Apple is currently ranked fourth in terms of overall Chinese smartphone market share and continues to be chased by Xiaomi in fifth place. Apple continues to dominate the premium Chinese smartphone market, but this is in decline as the country’s economy slows down.
Apple taking control of secondary iPhone market
Despite this, Apple remains the most sought-after smartphone throughout the global secondary device market – a market where demand always outstrips supply. This is a major reason why Apple has started to manage its own device BuyBack program – not only to incentivize users to upgrade when new models are launched, but also to capitalize on increased service revenues associated with Apps and media from emerging markets.
New users keen to access the Apple ecosystem for the first time do not necessarily need the latest OS to run the latest app or service to benefit from digital inclusion. The same iconic brand that sustains strong sales of new iPhones in the US and Europe will continue to contribute to high latent values in the secondary market. The iPhone 8 will do extremely well once launched. This will stimulate availability of used iPhones which will be redistributed to deliver new service revenues from new users in new markets. Apple, with its broad device and services offering looks well set to benefit from every eventuality – all while sitting on more than $250 billion in cash.
Biju Nair is CEO of HYLA Mobile, a company that provides mobile device trade-in and reuse solutions.
