News > Capital Markets

No, the New iPhone is Not a Make-Or-Break Moment For Apple’s iPhone Business

By NexChange
Capital Markets

FastCompany_16_9

A lot of people are framing the launch of the new iPhone X as Apple’s chance to revive a flagging iPhone business. The last couple of phone releases, it’s said, have not delivered the kind of blockbuster power Apple needs to sustain growth.

Now comes the 10th anniversary iPhone X–the super phone, the mold breaker, and Apple’s best chance for another huge hit!

I’d argue that that’s a skewed way of looking at things.

You often see a bar chart showing iPhone sales growing steadily since it launched in 2007, then leaping up in 2015 with the release of the iPhone 6. The iPhone 6 and 6 Plus were indeed a departure. They gave consumers the larger screens they’d been waiting for—the right product at just the right time. It was a huge hit, pushing Apple’s total revenues up 28%. (Apple gets about two-thirds of its total revenues from iPhone sales.)

Should we judge the iPhone business on whether Apple can repeat or exceed that hit? Maybe not. Maybe the iPhone 6 was a one-off, an outlier. Tastes can change rapidly, faster than technologies. The chance to perfectly match a strong consumer desire with something as basic and utilitarian as a size change just doesn’t come along every day.

If you just remove the bar on the graph that represents the iPhone 6 sales in 2015, you see a smooth and predictable increase in iPhone sales from 2014 to 2016. The jury’s still out on full-year 2017 sales. But if you look at the quarterly iPhone revenue numbers this year, they’ve beaten each of the same quarters in 2016.

And remember this is all happening against the backdrop of thinning smartphone sales globally over the past few years. It’s become much harder to find people who are buying a smartphone for the first time. It’s also been shown that people are holding onto their smartphones longerthese days before upgrading.

Apple will be introducing a bunch of brand new features in the iPhone X–like facial recognition, wireless charging, and augmented reality stuff– which I’m sure it hopes will open a brand-new chapter for the device. The company would love another hit like the iPhone 6, but it may be that all Apple has to do is convince a significant part of its user base to spend a few hundred more than they normally would for an iPhone upgrade.

The iPhone X is expected to start at around $1,000 and move up depending on memory. Apple almost certainly had to jack up the selling price to pay for the expensive new OLED display, wireless charging, and 3D laser systems in the new phone, but it probably didn’t do so at the expense of its normal high margin. And let’s not forget about the new iPhone 8 and 8 Plus. Apple may slap attractive price tags on those phones so that they sell in high numbers. We’ll see all the prices tomorrow, but rest assured that Apple marketing has thought all this through very, very carefully.

So let’s not start blowing the horns of doom if consumers don’t flock to lay down the plastic for the (expensive) new phone—not yet at least. But let’s do tune into our live blog for the play-by-play Tuesday starting at about 9 a.m. The presentation at Steve Jobs Theater starts at 10 a.m.

Photo: Apple

Subscribe to our Newsletter

Be one of the first to experience the future of financial services