Cutting Room: How long can Apple keep selling old tech?

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Samantha Tomaszczyk says offering older model to budget-conscious consumers rather than developing a new mid-tier proposition is risky, and questions if the manufacturer can get away with this for much longer

Apple’s results for July, August and September (confusingly called its fourth quarter) and subsequent comments from CEO Tim Cook paint a very clear picture of the company’s strategy going forward. And, as usual, there is something to please both the fanboys and the sceptics.

The Californian manufacturer surprised no one by announcing iPhone sales had grown year on year: to 33.8 million compared to 26.9 million in Q4 2012. This 26 per cent increase is due in no small part to Apple’s fourth quarter helpfully ending on September 28 – a full week after the iPhone 5s and 5c went on sale.

Although this represented a Q4 sales record, profits were still down nine per cent year on year (from £5.1 billion to £4.7 billion), which could be a sign of several ailments. It may be selling a greater proportion of older, cheaper devices, it’s new models could be more expensive to make, or perhaps it is having to shell out more on marketing in the face of even stiffer competition. Just to put this into context – these three things have all been given by struggling manufacturer HTC as reasons for why it is in such a pickle right now.

Indeed, there was a lot of pressure for Apple to perform in Q4, in light of recent findings which show it is losing market share to Android and Windows in both the smartphone and tablet market.

Analysis firm IDC reported in August that in the second quarter of 2013, Apple’s iOS was the only top three operating system to see its market share decline in the smartphone space. It fell to 13.2 per cent from 16.6 per cent in the same period last year. Android strengthened its place at the top by growing market share from 69.1 per cent to 79.3 per cent, and Windows grew from 3.1 per cent to 3.7 per cent.

The picture is bleaker in the tablet market. IDC found Apple was the only top five tablet vendor to see market share decline in Q2, recording a significant fall from 60 per cent to 32 per cent. Samsung increased its share by 277 per cent, from 7.6 per cent of the market to 18 per cent.

Asus, Lenovo and Acer also claim year-on-year tablet market share growth of 120 per cent, 313 per cent and 136 per cent respectively. And from an OS point of view, iOS was the only one in the top three to see market share fall. Android grew 162.9 per cent and Windows grew 527 per cent compared to iOS’s 14.1 per cent decline.

It is too soon to say whether Apple’s new releases in the tablet market – the iPad Air and iPad Mini – will reverse this decline (they went on sale on November 1), but a better assessment can be made of its chances to grow again in the smartphone space.

Speaking to analysts on a conference call about the results, Cook (pictured) said it was never the company’s intention for the iPhone 5c to be an entry-level device. He poured cold water on the idea of a “cheap” new iPhone, saying Apple is selling the iPhone 4s (a two-year old device) as an entry offer, iPhone 5c mid-tier (from £469) and iPhone 5s (from £549) as its flagship.

Cook said: “Our entry phone is the iPhone 4s. You know from comments I made previously, we are selling the iPhone 4 in very good [numbers]. As we begin to experiment in different regions at a somewhat lower price point, we saw a fair amount of price elasticity. So we are hoping… that will continue for S.”

Offering older models to budget-conscious customers rather than developing a new, mid-tier proposition, is an unusual strategy. It shows reluctance to give up its ‘premium’ image – which could be dangerous in a world where (according to analysis firm Gartner) demand for high-end phones is declining.

However, early signs show this strategy is working nonetheless. Apple’s Q4 results show China accounted for 15.3 per cent of its total revenue (£3.5 billion out of £23 billion). This was up 24 per cent on Apple’s Q3 and six per cent from Q4 2012.

You have to wonder how long Apple can get away with this though. Do Chinese customers not realise they are being sold a two-year-old device (which, in the world of technology, means it is out of date) for the same money that could probably buy them something better? Do they not care, as long as it has the Apple logo? Seems to work in the UK.

5 COMMENTS

  1. The strategy worked for Microsoft for 25 years once they’d become the brand of choice on the desktop. A new PC OS was mostly eye candy plus a few new features. Aggressive marketing deals with OEMs kept the brand in the dominant position. The way the tech interacts with users today is not much changed from the XEROX WIMP of the 1970s.
    Apple’s PC products did little to win market share from Microsoft and its OEMs. The smart iphone and tablet changed the game. Apple can follow Microsoft’s strategy until an easier to use interface makes their offerings seem clunky and old tech.

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