Lower iPhone sales volumes & China troubles the new normal for Apple, says Credit Suisse

Posted:
in AAPL Investors edited April 11
Initiating coverage on Apple, Credit Suisse says that the slowdown in sales of the iPhone is expected to continue throughout 2019, with the smartphone business said to be in a "difficult spot" due to longer device lifecycles and a loss of effectiveness of price rises on revenue.




Applying a "neutral" rating on Apple's stock, Credit Suisse believes the iPhone arm of the company is becoming mature. After seeing sales dropping 3.2 percent in 2018, analysts for the firm anticipate a further decline for 2019, bringing down sales by another 12.4 percent.

The iPhone is "in a difficult spot" with units more than 20 percent below its peak," the investor note seen by CNBC advises. "Users are holding on to their devices longer than ever, and price hikes have likely run their course." According to the firm, iPhone life cycles are now at around four years, double the typical two-year upgrade cycle expected for most smartphones.

The four-year figure has been suggested by other analysts, including Bernstein in a February investor note. At that time, it was estimated just 16 percent of the iPhone install base will be replaced in some form, versus approximately one third in 2015.

Apple's problems in China, cited as one of the main reasons revenue fell below predictions for its first financial results of 2019, are not improving in a great fashion and with "no quick fix" on the horizon. Despite cutting iPhone prices by up to 6 percent in the market, revenue is said to be down 27 percent year-on-year in the first quarter.

"Beyond macro conditions, we see deeper structural challenges in China and do not expect a meaningful turnaround without a major iPhone refresh," which Credit Suisse suggests could occur with the launch of 5G-supporting models in 2020.

The move to increase the focus on its Services arm could eventually help offset the decline, but Credit Suisse advises it won't happen quickly, commenting "We recognize the potential in the shift to services, but believe it will take time for that view to play out."

According to the firm, the Services arm could grow from $40 billion in 2018 to around $65 billion by 2021.

Comments

  • Reply 1 of 18
    Given Chinese user's model of using one specific general app for most things resulting in far less interest in the App Store ecosystem, combined with Chinese censorship and lower income levels for many as well as home grown companies like Huawei making high enough quality copies for much cheaper, I don't see the path to great success for Apple or any high end phone manufacturer. 
    hmurchison
  • Reply 2 of 18
    designrdesignr Posts: 463member
    This article is just a long-winded way of saying that the smart phone market is maturing (or has matured) like many products before it and this leads to slower sales growth and more price pressure.

    Bottom line is that the smart phone as we have it now (and probably as it was even 2-3 years ago is "enough" phone for most people and there just isn't enough new every year for massive upgrade waves.
    flyingdpStrangeDaysracerhomie3
  • Reply 3 of 18
    wood1208wood1208 Posts: 1,867member
    People continue to upgrade there phones but at a slower space than in past. So, going forward the strategy might ought to be to keep users within own eco-system so when they need to upgrade, they upgrade within.
  • Reply 4 of 18
    designrdesignr Posts: 463member
    wood1208 said:
    People continue to upgrade there phones but at a slower space than in past. So, going forward the strategy might ought to be to keep users within own eco-system so when they need to upgrade, they upgrade within.
    Which is Apple's strategy. Has been all along. They just seem to be amping it up more obviously now. And it's a good strategy I think too.
    StrangeDays
  • Reply 5 of 18
    aknabiaknabi Posts: 148member
    designr said:
    wood1208 said:
    People continue to upgrade there phones but at a slower space than in past. So, going forward the strategy might ought to be to keep users within own eco-system so when they need to upgrade, they upgrade within.
    Which is Apple's strategy. Has been all along. They just seem to be amping it up more obviously now. And it's a good strategy I think too.
    Fair point... and for apps the walled garden makes sense... but given Apple's history I don't think many want their walled garden of eco-system content... might as well just use Disney which at least has mastered the art of bland, inoffensive content.

    EDIT: As a random aside an amusing point is that the Jobs family rakes it in if either Disney or Apple win the bland tv content battle
    edited April 11
  • Reply 6 of 18
    SpamSandwichSpamSandwich Posts: 30,836member
    The future of Apple is in discounted home appliances!   /s
  • Reply 7 of 18
    racerhomie3racerhomie3 Posts: 1,011member
    It’s more or less fine. People are buying enough accessories & services.
  • Reply 8 of 18
    designrdesignr Posts: 463member
    aknabi said:
    designr said:
    wood1208 said:
    People continue to upgrade there phones but at a slower space than in past. So, going forward the strategy might ought to be to keep users within own eco-system so when they need to upgrade, they upgrade within.
    Which is Apple's strategy. Has been all along. They just seem to be amping it up more obviously now. And it's a good strategy I think too.
    Fair point... and for apps the walled garden makes sense... but given Apple's history I don't think many want their walled garden of eco-system content... might as well just use Disney which at least has mastered the art of bland, inoffensive content.

    EDIT: As a random aside an amusing point is that the Jobs family rakes it in if either Disney or Apple win the bland tv content battle
    Yeah the content play is likely less sticky absent exclusive content. Netflix and Hulu learned this (and HBO and Showtime years before them). This is why Apple is trying to producer original content. But for most people I suspect the desire is for a variety of content, old and new, from various sources. I like some of Netflix's stuff, I like some of Hulu's stuff. I like older stuff too. Etc. I think it's great Apple is offering something new. We'll see how much traction it gets. Ultimately I bet this boils down to a "big three (or four)" of streaming each having a mix of old, non-exclusive and self-produced content. Apple could be one of them. I suspect Netflix will be. Hulu is a question now with Disney+ coming and Disney owning a chunk (51%?) of Hulu. Could be they buy the rest of Hulu and roll it into Disney+.
  • Reply 9 of 18
    hmurchisonhmurchison Posts: 12,215member
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing 


  • Reply 10 of 18
    The future of Apple is in discounted home appliances!   /s
    Refrigerator-toasters for everyone!
    SpamSandwich
  • Reply 11 of 18
    And they are still trying to count iPhones... have they learned nothing!?
    kruegdude
  • Reply 12 of 18
    designrdesignr Posts: 463member
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing.
    It will be interesting. I suspect the next big thing is personal transportation (cars). Autonomous/self-driving, electric, etc. I think this is a place where Apple could do some big things. Apple's core competency of tightly integrated software and hardware (albeit digital hardware so far) could work well here. That said it's also a very different ball game in many ways. The players they'd be competing against aren't exactly dunces.

    But, the car is arguably the next most personal device to the phone that many of us have.

    The "smart car" to the car could be like the "smart phone" to the phone. The technology exists. It just needs to brought together in a way that Apple is pretty good at bringing things together.

    There's an opportunity there I suspect.
    hmurchison
  • Reply 13 of 18
    asdasdasdasd Posts: 5,263member
    designr said:
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing.
    It will be interesting. I suspect the next big thing is personal transportation (cars). Autonomous/self-driving, electric, etc. I think this is a place where Apple could do some big things. Apple's core competency of tightly integrated software and hardware (albeit digital hardware so far) could work well here. That said it's also a very different ball game in many ways. The players they'd be competing against aren't exactly dunces.

    But, the car is arguably the next most personal device to the phone that many of us have.

    The "smart car" to the car could be like the "smart phone" to the phone. The technology exists. It just needs to brought together in a way that Apple is pretty good at bringing things together.

    There's an opportunity there I suspect.
    The barriers to entry there are extremely high. I know you are going to mention what the phone manufacturers at the time said about the iPhone but it’s not the same. Apple were great at creating an OS, getting the OS onto a small device was tough but within their competency. Cars are not. 

    Also autonomous cars will probably never work. 
  • Reply 14 of 18
    avon b7avon b7 Posts: 3,451member
    Give me autonomous drone pizza delivery and I'd be happy. From there move up to light shopping, taking the rubbish out. Relatively 'simple' stuff.


    designr
  • Reply 15 of 18
    designrdesignr Posts: 463member
    asdasd said:
    designr said:
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing.
    It will be interesting. I suspect the next big thing is personal transportation (cars). Autonomous/self-driving, electric, etc. I think this is a place where Apple could do some big things. Apple's core competency of tightly integrated software and hardware (albeit digital hardware so far) could work well here. That said it's also a very different ball game in many ways. The players they'd be competing against aren't exactly dunces.

    But, the car is arguably the next most personal device to the phone that many of us have.

    The "smart car" to the car could be like the "smart phone" to the phone. The technology exists. It just needs to brought together in a way that Apple is pretty good at bringing things together.

    There's an opportunity there I suspect.
    The barriers to entry there are extremely high.
    Yep. I know.

    asdasd said:
    designr said:
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing.
    It will be interesting. I suspect the next big thing is personal transportation (cars). Autonomous/self-driving, electric, etc. I think this is a place where Apple could do some big things. Apple's core competency of tightly integrated software and hardware (albeit digital hardware so far) could work well here. That said it's also a very different ball game in many ways. The players they'd be competing against aren't exactly dunces.

    But, the car is arguably the next most personal device to the phone that many of us have.

    The "smart car" to the car could be like the "smart phone" to the phone. The technology exists. It just needs to brought together in a way that Apple is pretty good at bringing things together.

    There's an opportunity there I suspect.
    I know you are going to mention what the phone manufacturers at the time said about the iPhone but it’s not the same. 
    You "know" wrong. I wasn't going to say that at all. Not one of those people. I totally agree it's not (exactly) the same.

    asdasd said:
    designr said:
    This is great news.   We're ending this era of mass phone production and the great thing about this is that it's going to require companies to branch out and innovate in new areas.   It's understandable that Apple that in "catch all the monies" mode but it's time to get to creating the next big thing.
    It will be interesting. I suspect the next big thing is personal transportation (cars). Autonomous/self-driving, electric, etc. I think this is a place where Apple could do some big things. Apple's core competency of tightly integrated software and hardware (albeit digital hardware so far) could work well here. That said it's also a very different ball game in many ways. The players they'd be competing against aren't exactly dunces.

    But, the car is arguably the next most personal device to the phone that many of us have.

    The "smart car" to the car could be like the "smart phone" to the phone. The technology exists. It just needs to brought together in a way that Apple is pretty good at bringing things together.

    There's an opportunity there I suspect.
    Apple were great at creating an OS, getting the OS onto a small device was tough but within their competency. Cars are not. 
    Definitely agreed on the first part. Simply suggesting cars could be another path.


    edited April 11
  • Reply 16 of 18
    hmurchisonhmurchison Posts: 12,215member
    I think Apple should get back to defining some standards.  

    Soon we'll have robust home networking (Wifi 6) and home automation.   Physical media everywhere is dying.   It's time to define an new digital format 
    that balances the needs of consumers and content providers wrt DRM and is extensible. 

    Phones don't have enough storage at an affordable cost to become that central repository yet.   What I'd love to see is living digital content (LDC).   A good example of this 
    is today's digital book or magazine that can be updated near realtime.  

    What this looks like for Audio or Video is this. 

    Music 

    I purchase a song,  it become a smash hit.  Through an LDC I'm able to append my original song with Remixes, Live Versions or multimedia content.   These take the form of different "layers" or "channels" of media and are exposed through an easy interface on mobile and desktop devices. 

    Movies

    Similar structure.  Want to add the extended Director's Cut? No problem.   Hey look the studio has a different "hotter" Atmos mix for Home Theater aficionados.  Add it.  Want to see it in 3D or VR?  Add it. 

    Digital Content needs to play into its strengths?  It's ability to be dynamic and extensible.  We've hit mainstream for phones.   There's only so much room left to improve the camera or display.  Media is ripe for disruption and 21st century thinking. 
  • Reply 17 of 18
    loquiturloquitur Posts: 112member
    So, the complaint they seem to be making is that Apple is a mature, possibly non-growth
    replacement-market business, like apparel, automobiles, and entertainment/leisure.

    That industry classification is called "consumer discretionary" with an average P/E ratio of 25 --
    if Apple traded at that valuation it'd be $300 share -- I'll take it!
    edited April 12
  • Reply 18 of 18
    tyler82tyler82 Posts: 802member
    Capitalism is a cancer. When is enough enough?
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