Apple’s Biggest Problem Isn’t China

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Apple’s biggest problem isn’t a slow-down in the Chinese economy or the US-China trade war, which has been blamed for a big downward revision in sales.

Its biggest problem is taking consumers for granted at home and abroad.

At home, Apple assumes that the iPhone is a unique product, in an ever-growing market, where consumers are ready to pay higher and higher prices for newer iPhone versions. That was certainly true a decade ago, when Apple was the smartphone pioneer and service providers subsidized new smartphone purchases.

But it isn’t true nowadays. While some Apple fans still find Apple products unique, there’s plenty of competition from other smartphone makers.

Meanwhile, service providers no longer subsidize smartphone sales, as the smartphone market matures.

This change in the “context” — market conditions and circumstances — has made it increasingly difficult for Apple to continue with its old strategy: introduce new versions of its product and have consumers pay higher prices for them. Thus, the warning of a slow-down in sales growth.

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“For Apple bears, the current environment highlights the fundamental challenge the company is facing in its next stage of growth: convincing customers that they should pay more for iPhones, at a time when the smartphone industry has hit a peak and cheaper phones are flooding the market,” says Haris Anwar, Senior Analyst at Investing.com.

Overseas, Apple assumed that consumers are as anxious as American consumers to get hold of its products. While this is true for consumers in other developed countries, it isn’t for emerging markets like China, India, and Brazil, where per capita GDP is a fraction of that of developed countries.

In fact, Apple has done next to nothing to address the peculiarity and specificity of these markets, leaving them to Asian manufacturers, which have come up with affordable smartphones.

Apple is neither the first, nor the last fast-growing company to take consumers for granted and suffer the consequences.

Back in the 1990s,  McDonald’s focused on building new restaurants and buying up other food chains, and neglected to keep up with the demands of new generations of consumers — a menu with more vegetables and less meat. Big mistake. Growth and profitability declined, as consumers searched elsewhere for value.

In early 2000, Cisco Systems got obsessed with the product supply chain and distanced itself from its end customers, losing market shares to Juniper Networks and Huawei Technologies.

Then there’s the case of Research in Motion (now BlackBerry). In the early 2000s, growth soared for Research In Motion. Each quarter the company delivered better than expected earnings results.  BlackBerries took over conventional phones—outperforming even Apple. But in the next decade, the company failed to keep up with innovation. Big mistake. RIM’s customers responded by dumping BlackBerry phones for iPhones.

Will Apple’s customers dump the iPhone for competing products? It remains to be seem.

Meanwhile, Anwar is still upbeat about Apple’s innovation potential. “I remain optimistic about Apple’s future expansion and its massive power of innovation,” he says. “I think that’s the key fundamental that the market is discounting right now.”

He’s also upbeat about Apple’s growth potential in India. “And there’s another, potentially major growth driver for Apple: India. The subcontinent remains the biggest untapped smartphone market for the company; iPhones account for just 1% of overall smartphone sales in the region.”

That, of course, depends on Apple coming up with the right product to address the peculiarity and specificity of this market.

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