Benzinga - by Shanthi Rexaline, Benzinga Editor.
Apple, Inc. (NASDAQ:AAPL) is facing multiple headwinds, and chief among them are the weakness in China and slowing iPhone sales, said Bloomberg’s columnist Mark Gurman on Sunday.
China Woes Abound: While iPhone sluggishness will negatively impact China sales, the tech giant is facing other headwinds in the world’s second largest economy as well, said Gurman in the latest installment of his weekly “Power On” newsletter. The company is stymied by China’s ban on foreign brands in government workplaces and a shift in consumer preference to homegrown technology, he added.
After a 13% drop in China sales in the December quarter, Apple is bracing for another drop in the first quarter, which it is scheduled to report on May 2, the columnist said.
While Chinese consumers are not switching phones en masse, the main issues in China center on bringing new users to the Apple product ecosystem and getting existing users to upgrade sooner, he said.
Why iPhone Is Losing Appeal: According to Gurman, the reasons for the slowdown in the pace of iPhone upgrades are:
- Lack of old-school carrier subsidies
- Rising iPhone prices
- Shaky economic fundamentals
- Tentative recovery seen after the COVID-19 pandemic
Increased focus on services and accessories in recent times has shifted Apple’s attention away from iPhones, Gurman said.
“But even that strategy is reaching its limits. Sales growth has ground to a halt, and it seems clear that something needs to change,” he said.
The Way Out: Since there is no major new product category coming in the near future, an option before Apple is to make a cheaper version of the iPhone and making a renewed push into emerging markets, Gurman said.
The earliest attempt by Apple to make the iPhone cheap was to cut the price of one-year old models by $100 whenever a newer model debuted, he said. The company subsequently released the iPhone 5c in 2013, but it was largely dismissed as merely the previous version encased in colorful plastic, and it was priced similarly at a discount, he added.
The iPhone SE was also an attempt to lower the cost of the iPhone, Gurman said. The iPhone SE currently costs $429 but it isn’t a bargain due to a lack of features, he said. The tech specialist noted that Chinese brands such aa Xiaomi, Transsion and Oppo offer models with bigger screens and multiple cameras for $150.
Apple, Gurman said, is planning to upgrade the SE in 2025, making it look more like a modern smartphone and arming it with a faster chip and premium materials. He estimates that the price could be well above $400 but said that, to make meaningful inroads into emerging markets, Apple should consider lowering the price point to $250.
“Now, that's not something Steve Jobs would probably do, but going downscale could be what the company needs right now,” he said, adding that the co-founder said long ago that “[we] don't offer stripped-down, lousy products.”
Gurman said the company can bring down the price by using an all-screen LCD approach instead of the pricier OLED display, reducing the number of cameras, sporting “an older but still capable chip” and having a plastic shell that still retains Apple’s industrial design.
A low-cost iPhone could build the Apple brand in the developing countries and the company can then look to upsell pricier devices, he said. He added that Apple hesitated to test this strategy due to concerns about diluting its premium brand.
Check out more of Benzinga’s Future Of Mobility coverage by following this link.
Among the emerging markets Apple can target are India, where it is already expanding, Vietnam, Indonesia, Thailand and Malaysia, Gurman said. He also flagged other opportunities, including parts of eastern Europe, Latin America and Africa.
“That doesn't mean Apple writes off China, which is going to remain key to its business. But the company needs to be less dependent on the country, and developing a low-end iPhone could help with that,” the columnist said.
Apple ended Friday’s session down 1.22% at $165, according to Benzinga Pro data.
Read Next: Apple’s Falling iPhone Sales Have Another Challenge To Deal With As Huawei Launches New Phones
Photo: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.