Think again: Apple will likely recover from its slump in iPhone sales

The iPhone’s role as a gateway is intricately linked to Apple’s broader ecosystem. (Bloomberg)
The iPhone’s role as a gateway is intricately linked to Apple’s broader ecosystem. (Bloomberg)

Summary

  • Slow iPhone sales is an opportunity for Apple Inc to move to another phase in its growth. The iOS smartphone is the primary hardware platform for a billion plus users to access the internet, it’s betting on services, and an AI strategy could yet go its way.

Apple Inc faced a significant challenge recently: declining iPhone sales. This trend, a stark contrast to the company’s record of rapid growth and dominance in the global smartphone market, raises critical questions about the future of one of the most iconic products in consumer electronics. 

A recent Bloomberg article highlights Apple’s woes, listing 10 reasons why it is in trouble (bloom.bg/3wKhj1z). I will touch on some of these, but also address some critical strengths Apple has that seem apparent but need analysis through an alternate lens.

First, the article. It states that demand for the iPhone has declined globally, primarily due to Chinese competition and a ban by the Chinese government on iPhones being used in any government department. Meanwhile, Xiaomi’s IQ handset shipments grew by almost 34% year-on-year. 

Huawei’s re-entry into the market with its own chip and the Harmony operating system has also dented iPhone sales in China, its largest overseas market. Bloomberg calculates that iPhone sales in China fell from 12.6 million units in January and February 2023 to 7.9 million in the same period of 2024. 

From a global standpoint, in the first calendar-quarter of this year, iPhone sales slumped by 10%. Its first-quarter shipments were a shade over 50 million units, 10 million units behind its chief rival, Samsung, which shipped a little over 60 million units in the same time frame.

However, it is not all gloom and doom for Apple. It still has a large installed base. It had over 1.8 billion active devices in 2022, the last time CEO Tim Cook shared these numbers. Even conservative estimates would put today’s figure at well over a billion iPhones. 

Also read: Apple aims to produce 25% of all its iPhones in India by 2028

While it has been a financial juggernaut for Apple, the iPhone is also the primary hardware platform through which over a billion people access the internet. To grasp the implications of this, we need to explore the factors behind it and reflect on the broader significance of this device in our digital lives.

I will draw on some insights from technology author Adrian Daub’s analysis in his book What Tech Calls Thinking. Daub argues that smartphones, particularly the iPhone, have become the primary medium through which we engage with content. He says: “To create content is to be distracted. To create the ‘platform’ is to focus on the true structure of reality…. It is the person who makes the ‘platform’ who becomes a billionaire." 

The content on Apple’s hardware platforms is not limited to entertainment or social media, but encompasses a wide range of digital interactions, from work and education to healthcare and personal communication. In this sense, the iPhone is not just a phone but a gateway to the digital world.

The iPhone’s role as a gateway is intricately linked to Apple’s broader ecosystem. This ecosystem includes the App Store, iCloud, Apple Music, Apple Pay and many other services in what is sometimes called a ‘walled garden.’ These services tie users deeper into the Apple experience, making it hard to switch hardware platforms. This ecosystem drives hardware sales and generates substantial revenue from services, which become increasingly crucial as hardware sales slow. Almost 20% of Apple’s revenues come from services.

Meanwhile, Apple’s seamless hardware and software integration ensures a smooth and intuitive user experience. This is crucial for content consumption, as users expect quick and reliable access to information and services. 

Daub highlights how this seamless experience encourages continuous engagement with digital content. The ease of accessing various types of content keeps users glued to their devices. The iPhone’s role in this ecosystem is not passive; it actively shapes how we consume and interact with content.

In addition, as concerns about data privacy and security have grown, Apple has positioned itself as a champion of user privacy. Features like App Tracking Transparency and robust encryption appeal to users who are increasingly wary of how their data is used. This emphasis on privacy still differentiates Apple from its competitors and reinforces the iPhone’s role as a trusted device for internet access.

While the decline in iPhone sales presents a challenge for Apple, it also opens new opportunities for change. The company will likely focus on a few strategies, the first of which will be to deliver meaningful artificial intelligence (AI) chatbot assistance, where Apple is badly lagging market leaders Google and OpenAI. According to Bloomberg, Apple is in talks with Google to have its Gemini AI, ChatGPT’s primary competitor, power iPhone features (bloom.bg/3yHNijl). 

Also read: Apple buys itself some time for an AI boost

This won’t be the first time Apple has worked with Google, though the power dynamics have shifted this time. As I have written in this space before, in the internet’s simple ‘search’ world, Google used to pay Apple billions of dollars to be the default search engine on Apple’s Safari browser on the iPhone. Now with AI, Apple will be at the buying end, but this is a symbiotic relationship, as Google’s Gemini will immediately get a critical edge over OpenAI’s offerings by accessing Apple’s billion-plus users.

The iPhone’s decline in sales does mark a pivotal moment for Apple Inc. However, the device’s role as a primary hardware platform for accessing the internet remains unchallenged. As Adrian Daub elucidates, the iPhone is not just a product, it is a critical conduit for digital content and interaction.

Apple’s stock has been hit, with hundreds of billions of dollars of market capitalization gone. My bet is that it will recover.

Also read: Microsoft unveils AI-enhanced ‘Copilot+’ PCs to compete with Alphabet, Apple; launch set for June 18

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