- Apple iPhone sales are set to stagnate in 2016.
- Regions such as Greater China and India provide opportunities for growth.
- Software and services are kings moving forward.
As Apple (NASDAQ:AAPL) iPhone sales are strongly tipped to decline, they are geared up to seek greener pastures in Greater China. Hot on their tail, Samsung Electronics (OTC:SSNLF) aims to increase its footing in the region. A burgeoning middle class in the Eastern region has opened up a growing market of consumers able to afford Apple and Samsung's flagship smartphones. Fortunately for Tim Cook and co., Apple's devices are largely viewed as an indicator of one's financial position.
Despite Apple's strong iPhone sales in 2015, reports indicate that Samsung sold more units. However, it is worth noting that Samsung serves both the high-end and low-end smartphone markets. On the other hand, Apple primarily serves the high-end.
Growth in Greater China
Despite China suffering a tumultuous year from an economic perspective in 2015, Chinese consumers didn't put away their cards when it came to buying premium smartphones. Apple enjoyed a record-breaking year in the region; however, they seem to have overestimated demand. In order to compensate for this 'error' of judgement, they cut supplier parts orders by a massive 30%. This caused a panic among investors, thereby contributing to Apple stock price dipping below $100 earlier this year.
However, this could suggest that the next iteration of the iPhone could be largely changed.
Overall, Apple and Samsung have suffered under the onslaught of Chinese homegrown manufacturers such as Huawei and Xiaomi. Huawei managed to grow its consumer sales business by 70% and even has ambitious plans to beat Apple over the next 2 years.
Apple and Samsung know that Greater China remains one of the last few unconquered frontiers. However, the region's reputation as the 'world's manufacturer' means that consumers in that region are spoilt for choice. For the two tech giants to leave 2016 with a bang and conquer this challenging region, this is the year for truly game-changing devices.
The perceived stagnating innovation in the smartphone market risks affecting consumers' desire to upgrade their smartphones.
Due to the potential storm that could hit the consumer tech sector, Apple and Samsung have laid the foundation over the past few years to diversify their interests and strengthen their respective positions.
Apple and Samsung's rush to get into the growing digital wallet space isn't just to make the lives of their customers easier. With payment processing giants such as Paypal making billions of dollars in revenue, Apple and Samsung would like a significant slice of market share in this space.
Moreover, as high speed internet access expands globally, a lot of brick-and-mortar services will become mainstays in our pockets. Apple and Samsung have the foresight to prepare themselves for the forthcoming transition.
During the tail end of 2015, Apple announced a partnership with Chinese banking giant: UnionPay. This was a strategic attempt to increase their foothold in the Chinese market. However, unfortunately for them, just 24 hours later, Samsung announced that they had secured a similar deal. Consequently, Apple and Samsung's mobile payments solutions could launch in China around the same time.
Apple Stock performance
Apple endured a horrid start to 2016 after their stock price dipped below $100 for the first time in the preceding 14 months. With the iPhone- one product- accounting for such a huge percentage of their earnings, investors are a bit wary that Apple is placing most of their eggs in one basket. As a result, Tim Cook and Co. will have to show that they can trigger sales growth for the iPad and Mac line.
Apple announced earnings on January 26th 2016, and overall, the data was as expected. First quarter results showed a 1.7% y-o-y growth in revenue. When we combine this with the fact that Apple expects to make a midpoint revenue of $51.5 billion, this indicates that Apple expects a decline in sales growth for Q1 2016. Just to compare, Apple posted $58 billion in revenue for Q1 20 15.
Notably, 24% of Apple's revenue could be attributed to Greater China during the last quarter. The hype surrounding Apple in China seems to have quietened down a little bit after a strong 2015.
Samsung Stock Performance
Samsung struggled in 2015 due to a mixture of cheap and capable Chinese competitors and Apple's increased encroachment on 'their territory' in Greater China.
This contributed to $8 billion being wiped from their market value in 2015. To cap it off, 2015 marked the year Samsung posted their third consecutive annual decline in stock price (5.1%).
In brief, Samsung's premium pricing, and the fact that smaller competitors are catching up fast will bite them hard this year. I am just going to put my neck on the line and state that Samsung will post a significant decline in smartphone sales this year.
In fact, Huawei is growing at a stratospheric rate, and in 3 years could knock at the door of giants.
In conclusion, we are in the midst of a changing consumer hardware landscape. Platforms and services are now King.
Moving forward, we are likely to see the two giants place greater emphasis on services and software. This would allow them to use their brands as leverage in order to open more income streams. Let's face it: consumer electronics are so powerful that even a big jump in speed is unlikely to be noticed by the average consumer. Therefore, unless Apple and Samsung release some astounding devices in 2016, their sales figures will stagnate or possibly decline.
In an attempt to bump up revenue, Apple aims to gain a stronghold on the Indian market.
I anticipate the conversation changing from "Which brand makes the best smartphone?" to "What unique experiences and services does that device give me access to?" And we can see this already with Apple signing exclusive deals with the world's top artists via the Apple Music platform.
Let's wait and observe what Apple and Samsung hit us with; however, if you are hoping for a record-breaking year from either one, you are likely to be left disappointed.