Apple has “stumbled lately.” That’s the overwhelming consensus coming from the press, blogosphere and Wall Street recently.
Demand for the iPad and iPhone is dropping, we’re told, and Apple isn’t doing interesting or exciting things anymore.
Here’s what’s going on.
Big iPad, Small Demand; Small iPad, Big Demand
Reuters says Sharp, which is one of the companies making displays for iPads, has slowed production, possibly because of a reduced demand for iPads. Demand in the 4th quarter was weaker than expected, according to a Chinese market research company called TrendForce.
If falling demand for the iPad is real, it’s being blamed on two factors. The first is — finally — competition from the Android world. In Japan, for example, Google’s Nexus 7 is selling better than the iPad.
The second is that the iPad Mini is “cannibalizing” iPad sales or, in the words of one writer, has “killed off” the iPad.
The iPad Mini is selling far above demand, and that high demand delayed the Chinese launch of the product by two weeks, according to reports.
The Boring iPhone Can’t Keep Up With Exciting Market
The problem, some say, is that Apple screwed up and overestimated demand. It could also be that Apple is cutting demand artificially to prepare for a new iPhone 5S.
Others say the drop in iPhone demand is illusory, that if you look at all the data, there may be a tiny drop in demand, but nothing drastic.
Senior ABI Research analyst Michael Morgan wrote this week that “barring an unlikely collapse in Samsung’s business, even Apple will be chasing Samsung’s technology, software and device leadership in 2013 through the foreseeable future.”
A consensus has formed that the iPhone has peaked, jumped the shark and turned a corner. Some predict that half of all global smartphone shipments will come from Samsung.
Others have an alternative reason for the iPhone’s coming market share decline, which is the rise of cheap Chinese-branded Android phones, which are already hammering Apple and Samsung sales inside China, and now threaten to go after markets in the US, Europe, Asia and Africa.
Lenovo, of all companies, is beating Apple for market share in China with 14.8% of the Chinese smartphone market. (Apple has 6.9% and Samsung has 16.7%.
A more distant threat comes from operating systems other than iOS and Android (and beyond Windows Phone 8 and BlackBerry 10.)
Samsung and Intel are supporting a platform called Tizen, which is based on MeeGo and made by the Mozilla Foundation, which is best known for making the Firefox browser).
Ubuntu Linux has created an operating system designed for smartphones as well.
Some say that HP plans to revive the webOS.
Some analysts say the appeal of new operating systems by handset makers stems from Google’s decision to compete directly with its partners and make Android phones of its own, both with the Nexus phones and also with the acquisition of Motorola.
The Truth Is Even More Boring Than the iPhone
There are several competing dynamics at work that creating the perception that Apple is failing.
1. Apple’s fortunes are and have for a long time been boom-and-bust based on shipments. Apple ships a new iPhone. They dominate the market for a few months. Sales level off again, then the air gets sucked out of the room when everybody starts anticipating the next iPhone model. Right now we’re in the post-iPhone 5, pre-iPhone 5S doldrums.
2. Android phones have suddenly gotten super cheap. There is a class of people numbering in the hundreds of millions or possibly even a billion or two who never had a smart phone because of the high cost. Suddenly, Android handset makers are churning out very low-cost smart phones. So millions of people are moving from feature phones to smart phones, and they’re not buying the relatively pricey iPhone. So the market share numbers have shifted strongly away from iOS and toward Android.
3. Android phones have suddenly gotten super big. When the iPhone first shipped, it seemed like a normal-size phone. With the phablet revolution and the rise in very large displays on phones, Apple has become one of the tiniest phones out there. Big phones are popular, and Apple is currently missing out on this big-phone craze.
4. Apple’s conservative, iterative approach to iPhone development isn’t exciting. People get their information about phones from bloggers and journalists — people who writing about stuff when there’s something new to write about. Apple’s approach to phones is to have a single vision for the phone, then iteratively work toward that vision. The Android market is characterized by a lot more variety and experimentation. The iPhone, on the other hand, isn’t changing in ways perceptible to users — or bloggers and journalists.
5. In the tablet market, we’re moving from a historically unique situation that existed for the first two years of the iPad’s existence: No competition, to speak of. It took an eternity in Internet years for competitors to come out with tablets that anybody wanted. Now, finally and inevitably, they have. The iPad’s perceived troubles represent a return to normality.
6. The press and Wall Street are also cyclically oriented. There was a period of time, building up to 2010 and 2011 where Apple was a perfect, unstoppable juggernaut that dazzled everyone with its mastery of design, supply chain control, message discipline and more. The stock price soared past $700, and everyone perceived that Apple was the only company capable of this kind of total mastery. Of course, Apple’s success during this time was exaggerated, and so is the current “bust,” if you want to call it that.
In reality, people are confused by the complexity of the consumer electronics market, and focus on the horse-race aspect of marketshare numbers, stock prices and other metrics. But the reality is that Apple was very successful and very profitable two years ago, one year ago and remains so today. Android had and will always have much bigger market share by far, and Apple had and will continue to have much bigger profits by far, as it goes after the “sweet spot” of the market while competitors slug it out in the zero-margin segment.
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