Apple’s Inflection Point

While Apple’s decline and slow down in iPhone sales was inevitable, what made it surprising was that it was a holiday quarter which has historically always been Apple’s biggest quarter. Now, Apple’s December quarter is still going to be a monster quarter revenue-wise, but, it is notable that they missed their revenue projections when they have historically been very accurate in projecting their guidance range.

Earlier in December I wrote about iPhone unit sales peaking. The challenge Apple’s December quarter iPhone sales had validates the iPhone has peaked and will likely stay flat, or stabilize in 2019. Which means Apple is in a position to reassess how they project unit sales and revenue going forward.

Apple’s Potentially Turbulent 2019
While the end market, or Apple’s customer, doesn’t give much thought to what is happening to Apple at a financial, stock, or business level it is something worth analyzing for those of us in the industry observing Apple from all angles. From a business standpoint, it will be interesting to see how Apple’s management handles issues that could arise in 2019.

One of the main things Apple’s management may have to address is a potential for a year over year decline in iPhone sales. While Apple is not disclosing iPhone unit sales any longer, a drop in iPhone sales year over year will reflect in overall quarterly and annual revenue. What is unclear is if the growth in services, or products like Apple Watch and iPad, can offset any revenue shortfalls from a drop in iPhone sales. If iPhone unit sales see a double-digit decline quarter over quarter or year over year it would be unlikely growth from other areas would offset the revenue loss from iPhones and could make 2019 Apple’s first year over year revenue decline in more than a decade.

Apple Can Use a Crisis
This may not be a popular statement, but I think a good old fashioned crisis is good for Apple. While Apple makes industry-leading hardware, that alone can not continue their growth streak any longer. Apple needs to go beyond hardware even more than they have in the past and further into software, and more importantly first party services. As I articulated in Apple’s Services Challenge this will stretch Apple in ways, and test them in ways they have not yet been tested:

Lastly, I’d like to touch on the most interesting part of Apple’s services strategy. Growing a services business will stretch Apple in ways I’m not even sure they can comprehend yet. Apple is not a services company, the same way that companies they are about to try to compete with are services companies.

Apple still has not perfected their cloud services strategy with a range of first-party experiences like iMessage, continuity, Siri and a host of other things that still break and remain inconsistent at best. To compete in services, Apple is going to battle on ground where they don’t have the advantage and are up against companies who spend more, control more of the cloud platform, and have built teams and decades of core expertise building services companies.

Apple is going up against new competitors they have not yet faced as they look to expand beyond hardware and operating system software. There is something to be appreciated about industry competition and how great it is for consumers, innovation, and the tech industry as a whole.

What a crisis can do for Apple, is make them better, stronger, and even better positioned for the future if they tackle it head on and challenge and inspire their employees to take it on.

This is why I titled the piece as I did stating this is an opportunity for Apple to step back and look at their business, their potential growth levers, the new face of market competition, the new market reality with their customer hardware cycles, and more, and reflect and then strategize on where they need to go from here.

A fresh market test is good for Apple and will be good for the industry and customers, but I also don’t gloss over the challenge it will be for Apple and moving forward strategically in the post-iPhone era will by no means be easy.

This inflection point will be something we look back on in a decade or more and see how Apple handled the task and may also reveal the things underlying fundamentals that set the stage for the next few decades of Apple’s future. There is no guarantee Apple will lead the next big tech revolution the way they led with the iPhone. We can game theory the fundamentals of Apple’s culture, process, people, and more that they have what it takes to lead the next era but that can never mean a guarantee. Whether this inflection point is the beginning of Apple’s fade from leadership or the very thing that catapults them to lead the next era is what I’m most interested in observing.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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