Will Apple Come Back?

Sales of Apple’s (AAPL) best-selling product, the iPhone, were flat in its first quarter of fiscal 2016 (i.e. the quarter ended December 2015). The company sold 74.8 million pieces of iPhone during that quarter compared to 74.5 million pieces in the year ago quarter. The reasons cited by various analysts include the fact that 60 % of iPhone customers haven't yet upgraded to the iPhone 6 or 6S (or the 6 Plus or 6S Plus). Thus, the craze of owning the latest iPhone has dwindled. While Apple doesn't give guidance of specific products, Apple CEO Tim Cook did acknowledge the company expected iPhone unit shipments to decline in its second fiscal quarter.

Further, the December ended quarter was particularly the worst of the last four from global economic point of view with major markets like Brazil, Russia, Japan, Canada, Southeast Asia, Australia, Turkey and the Eurozone impacted by slowing economic growth, falling commodity prices and weakening currencies. . International sales accounted for 66 % of the quarter’s revenue.
Hence, foreign currency fluctuations have a very meaningful impact on Apple’s results. Apple said it was a rough time to have two-thirds of its sales come from outside the United States.

Due to a strong dollar, $ 100 of Apple's non-U.S. dollar revenue in Q4 of 2014 translated to only $ 85 last quarter. In the absence of such a plunge in global currencies, Apple would have posted more than $ 80 billion in sales, growing 8 % from the previous quarter.

The fall in iPhone sales in the last quarter has been year-on-year. CEO, Tim Cook defends it by saying that the same quarter one year ago was very strong and that the economic environment this year was “dramatically different”. One more hurdle in the way of increasing sales was that Apple suppliers have been cutting production of iPhone components left and right, citing weaker demand.

Another reason behind the fall could possibly be that Apple is widely reported to be introducing a new, smaller iPhone 5se on March 15. It has been seen in the past that usually, when Apple is about to launch a new iPhone, people looking to buy their new phone prefer to wait for the launch. The effect of this wait may be the slowdown in Phone sales.

Conclusion

However, this loss of sales now may possibly translate into a similar gain in sales once the 4-inch iPhone is launched. This new iPhone is predicted to add another $ 5.5 billion in sales in 2016, assuming the phone launches at an average selling price of $ 550. Even after considering the cannibalization from other iPhones, the 4-inch iPhone is expected to add about 10 million pieces to the sales of iPhone worldwide. Hence, this could possibly reverse the slowing iPhone sales for Apple Inc. This low cost iPhone may strike a chord among the emerging markets who are postponing an iPhone purchase due to weak currencies on their end right now.
Published on Feb 18, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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