The challenges facing Apple’s iPhone in 2013

Apple shifted 47.8 million iPhone handsets in Q4 2012, the most it has ever sold in a single quarter. Year-on-year that figure represents growth of 29 per cent and an increase of 78 per cent sequentially.

It also upped sales and profits inside its iPad business as well. All in all it was a good earnings call. And yet despite this and the fact that Tim Cook officially confirmed that the company is struggling to keep up with consumer demand for the iPhone and iPad, Apple’s share value continues to tumble.

A lot of it is to do with the smartphone market, which grew 39 per cent year on year, says IDC analyst Francisco Jeronimo. The marketplace has changed and Apple’s business model is beginning to look dated. 

‘Here lies the biggest challenge for Apple. How to keep growing and keep market share when the market is moving in a new direction?’ Said Jeronimo. 

He added: ‘devices at lower price points are invading the smartphone segment. When the first cheap smartphones were introduced, typically running on Android OS, the experience was poor and the quality of the handsets very low. But that has changed.’

Nowadays we have devices like Google’s Nexus 4, although still something of an aberration in terms of pricing, and a myriad of budget Android handsets from the likes of ZTE, Huawei, and Samsung. 

‘Apple has based all its strategy on providing a high-end device, with the best in class user experience, a strong ecosystem, etc., but at a price — a very high price indeed. Now it is time for Apple to rethink its strategy,’ said Jeronimo.

But how can Apple do this? Is the iPhone about to fall victim to its own fame? It’s a tricky one in that changing the device too much would make it, well, not an iPhone – a fact Apple is already clearly aware of. And if it changes it too little, people will say it’s boring. 

One area where Apple can do this is display size, as it did with the iPhone 5. Although with the iPhone 5S or iPhone 6 we’d expect the increase to be more dramatic – perhaps 4.7-inches? 

‘Samsung has been extremely popular with its larger screens in the mobile space, and Apple has done close to nothing in this space,’ said Jeronimo.

Another rumour currently doing the rounds suggests Apple may launch its next iPhone handset in a range of sizes. That’s an interesting idea in theory, and one that’d no doubt be very popular with consumers. Pulling something like that off, however, would be a logistical nightmare – even for a company as cash-rich as Apple. 

‘The challenge for Apple is how to balance high quality handsets, affordable prices and high profits. This is a much tougher job then developing a premium device at a higher price,’ said Jeromino.

Whatever happens between now and the launch of the next iPhone, Apple’s iPhone business has to change. And time is of the essence here, according to Jeronimo, who says it’s now clear that Apple will not be able to continue posting remarkable iPhone results in the long term without a portfolio strategy change.

And it’s not just IDC calling for changes in how Apple runs its smartphone business, either. Analyst firms and investors seem practically unanimous in their verdict that something with Apple’s iPhone business has to change – and fast.  

‘Apple’s products have begun to lose their “innovative” top luster, even while still representing the competitive standard in the industry,’ said Andy Castonguay, Principal Analyst at Informa Telecoms & Media.

He added: ‘Apple’s next generation of devices and iOS will need to push into new, exciting design territory to firmly re-establish its claim as the industry’s innovation bellwether or risk continued declines in stock value and position in the vanguard of mobile device design.’

This year looks set to be an extremely pivotal one for Apple. We look forward to seeing if it can rise to the challenge once again.