Apple Sales Decline A Major Cause Of Huawei And US Fight
Apple is perhaps one of the most recognized brands in the world. Apple is not just an emblem of capitalism, the new digital age and the era of invasion of smartphones and tablets but it is also a symbol of the American economy.
More than 10 years ago, Apple unveiled the iPhone to the world- an innovative product that rendered manual keyboards on phones obsolete. It wasn’t so long ago that everybody had BlackBerry’s and a physical onboard keyboard.
In the beginning, many were sceptical of a cell phone with only a digital screen but the iPhone was quick to erase these doubts. The iPhone 3G was a success then followed by the 4 and 5 and so on.
Each new phone was a new symbol of modernity and innovation, many set out to conquer this new smartphone market such as Samsung which to this day competes heavily with the iPhone.
Other brands such as blackberry failed to accept that the market was changing and shrunk to near obscurity in a relatively short time no more than 15 years. Apple managed to earn billions of dollars with the sales of its smartphones over the years, the iPhone is Apple’s cash cow representing more than 70% of their entire income but today Apple seems to be at risk its sales and income are falling fast.
The appearance of new brands especially the Chinese Huawei which threatens the company has produced tensions between the Chinese and the US government. The competition between these two giant companies also represents the growing economic war between the two most powerful countries in the world.
We will examine the rise of Apple, the difficulties that it currently faces against China and we will see if it will suffer the same fate as blackberry. Let’s begin.
The decline of iPhone sales.
The last quarter of 2018 seems to be one of the darkest eras ever for Apple. The projected sales of the iPhone were not up to par with their expectations, the results published in early 2019 revealed the magnitude of the fall of the iPhone.
A reduction of 15% of revenues last year. That decrease in the sale of the iPhone which Apple depends seventy per cent of the revenues on was a major blow to the company. This fall caused apple’s total earnings in the quarter between the months of October and December to decline to twenty billion dollars.
Apple shares have lost the third of their value in less than four months but racing around three hundred and seventy billion dollars in shareholder equity.
It seems that there is starting to be a disenchantment of Apple’s products in the eyes of their loyal customers. In the first quarter of 2018, Apple sold fewer iPhones than in the first quarter of 2017 this is not a good sign as Apple generally sells more iPhones in the first quarter of the year every passing year.
Here you can see for example the explosive sales of iPhone since 2009
Each year there’s always an initial peak which represents the sale of the year’s new models however Apple’s latest model especially the iPhone XS has not reached the number of sales that Apple was hoping for.
Normally, Apple reports its sales every quarter in order to keep the markets informed most importantly for their shareholders but recently Apple’s president Tim Cook had announced that the company would no longer report their quarterly sales.
They have induced more doubts within the company. Their actions have shown that their sales have recently been falling and although Apple has always been interested in the number of units sold, what had really fed the company were the exorbitant prices of their iPhones.
Apple iPhones especially lately take advantage of the expectations of consumers by inflating their prices every single year promising new changes but not many of their innovations have recently changed the experience in a major way.
Unfortunately, this happens to be the norm for most smartphone companies. They release a new phone every year without fail but the lifespan of an average smartphone lasts longer than this.
If a new phone was to be released with the lifespan of a previous smartphone there should be some innovations. Apple and other companies have even been accused of purposely compromising older models through updates to push sales of their newer models.
Rumours of companies purposely slowing down their smartphones have always existed. But in October of 2018, Italian antitrust officers fined Apple and Samsung 10 and 5 million Euro respectively for pressuring the sale of their newer products by compromising older models with updates.
Back in 2008, the smartphone market was very limited. Brands manufacturing these products only included Nokia, Blackberry, Samsung Apple and LG but today there are countless brands to choose from countries all over the world.
In summary, the smartphone market is currently oversaturated and this over saturation has forced these brands to lower their prices in order to stay competitive.
Global decline in sales of smartphones.
Global shipments of smartphones registered an annual decrease of four per cent during the year 2018 this means that it is the first time that sales do not register an increase but even until today, high-end smartphones such as the iPhone or the Samsung Galaxy has prices that exceed a thousand US dollars.
The high prices of iPhones do not directly reflect the cost it takes to produce them. The prices are increased in order to make a larger margin of profit and these prices are part of a marketing strategy in order to demonstrate that they are indeed high quality.
Apple is famously known for producing their products in China and more specifically at the Foxconn Factory- the main manufacturing location where all Apple smartphones are produced.
At Foxconn, the working conditions are so precarious that the company has set in place anti- suicide netting so that Chinese workers do not take their own lives due to the atrocious conditions in the workplace.
U.S. President Donald Trump had declared the campaign that he would make the largest American companies returned stateside and produce their products domestically. In one of these statements, he has stated that Tim Cook was a great friend of his and that he advised him to produce iPhones in California and not China.
The thing is, it is much cheaper for Apple to manufacture the product in China and companies such as Foxconn already provides the installed infrastructure.
Even so, yielding to political and economic pressure by the white house, Apple and Foxconn had promised to invest 10 billion US dollars in Wisconsin employing more than 13,000 people.
The state of Wisconsin had reached an agreement with Foxconn through which the company would receive subsidies between 3-4.8 Billion USD which would have been by far the largest subsidy ever granted to a foreign company in the history of the United States.
However, the company has announced that they will not follow through the construction of the factory citing the high cost of the American workforce. President Trump spoke with the president of the Taiwanese company Foxconn and apparently had reached an agreement in which Foxconn will finally continue with the construction of the factory but on a much smaller scale.
Although almost all of Apple’s production is concentrated in China, the country is also an important market for the American company since 20 per cent of its sales come from that country.
The Chinese economy has been slowing down over the years as its economy is going through a transformation from manufacturing and exporting economy to an economy of domestic demand and where the Chinese increasingly adopt the Western consumer lifestyle.
The rise of China technology powerhouse.
While China emerges as a second world power, we can’t ignore the technological and scientific development that it’s undergoing including that of its smartphone companies. The Chinese company that has increasingly worried Apple is Huawei.
While Apple and Samsung have 19% of market share, the percentage sales growth is almost nil Apple and Samsung had negative sales growth of negative 4 per cent and negative 5 per cent respectively.
Unlike the previously mentioned brands, Huawei experienced a 34 per cent increase in sales with 205.3 million units shipped in 2018 compared to 153.1 million units shipped in 2017.
Huawei is the third leading company in the global cellular market and last year had an explosive growth of 43 per cent in just one year.
Huawei has been able to produce high-end smartphones with functionality and features that rival the iPhone or the Samsung Galaxy at much more comfortable prices. This is why many consumers, especially in China, have begun to transition to Huawei.
In the case of China, it is a local company so the Chinese have more motivation to purchase the product, however, it is worth mentioning that many consumers in general still purchase the iPhone for its social status.
Huawei VS the USA.
The explosive growth of the Chinese brand which threatened the Western technology companies such as Apple and the South Korean brand Samsung has led to political tensions between the US, the European Union and China.
The US and the West, in general, have not been very happy with Huawei’s exponential growth obviously the United States looks after Apple’s interests and in that very essence, President Trump has accused the Chinese company of spying on its users.
In December 2018, the daughter of the founder of the Chinese telecommunications giant was arrested in Canada and faces extraditions of the United States.
The daughter of the founder of Huawei is also the financial director of the company but the United States has been investigating Huawei for a possible violation of sanctions against Iran.
The Chinese embassy in Canada strongly protested against the arrest and demanded her immediate release. For the time being, she’s on parole but the U.S demanded her extradition. The United States accuses Huawei and its board of directors of stealing technology from T-mobileanother US company.
The arrests came at a delicate time for relations between the United States and China both nations are involved in a trade war that has seen both countries impose billions of dollars on each other’s territories. It also coincides with movements to restrict the use of Huawei technology in Western countries.
The U.S, Australia and New Zealand have blocked the use of the Chinese company’s equipment and infrastructure for new faster 5G mobile networks but in general, the smartphone market is a trillion-dollar market and the threat of Huawei and other Chinese brands will unlikely cause Apple to disappear like Blackberry in the past.
Apple also has many investments in other aspects of technology and there will always be buyers for the iPhone but in any case, Apple has a huge pool of liquid reserves with billions of dollars to support any shortage in income.
It will soon be the end of the reign of Apple and Samsung and China’s takeover is imminent.
What do you think of the iPhone, do you think their insane prices are worth it and what brand do you think is on the rise let us know in the comments below.