When Apple finally broke the $1,000 limit on mainstream smartphones, it was considered an incredibly bold move. And though many have followed suit, the increase in price appears to have marked some tumultuous times for the tech company. iPhone sales have been steadily falling, the cost of manufacturing is increasing, and Apple stock is responding as would be expected.
Despite many manufacturers increasing the costs of their phone, Apple has been particularly hard hit. In China, Apple’s sales fell 27% year-over-year. In large part, this was because Apple products went up in price while other competing manufacturers went down. More competition is available and the price point that Apple is currently at may not be entirely sustainable.
While the company remains optimistic about its long-term prospects, it’s not likely that manufacturing is going to get more expensive for Chinese companies at a rate faster than it will for the United States. In part, this is because of the new trade tariffs; Chinese companies were an affordable option for Apple’s manufacturing, and tariffs are making manufacturing more expensive for Apple.
However, that wasn’t the only issue. Many consumers were pulling back their spending in the last quarter of the year, on the wake of economic short falls and uncertainty. A pulling back of consumer spending in luxury goods directly impacts Apple, as Apple is one of the primary “luxury” technology brands available. While other brands may be seen as utilitarian, Apple has invested quite a lot into branding its company as a more sophisticated option.
An example of this is Airpods — which have been seen as an exclusive, luxury device, and which many now equate to a certain level of braggadocio.
In addition to poor earnings reports, Apple was recently the center of controversy when it was discovered that its group Facetime feature could be used to listen in on another person. When calling from an Apple phone to another Apple phone, users could “add” themselves to the Facetime conversation. Once that happened, the phone would start playing audio from all of the added users — including those who had not yet picked up.
Apple reacted within a week to this threat by pulling the feature from phones entirely. Yet before it was able to react, the news circulated. Many people were able to reliably reproduce this bug, which could easily be used for spying on anyone who had a recently updated iPhone. While this isn’t a major issue in and of itself (as it was resolved fairly quickly), it has called into question Apple’s quality control.
These types of major bugs slipping through are often a sign that some level of quality control has failed at a company, or that products are being shipped out before they have been completely tested. When paired with the earnings reports that are currently falling short, this can paint (to some) the picture of a company that is slipping and losing hold of its market.
Despite all of this, Apple continues to expand its market. Wearables are becoming a major portion of Apple’s product line, including the Apple Watch. These wearable devices may eventually prove to be more popular than their flagship products, especially as the flagship products become prohibitively expensive. With fitness devices becoming commonplace and the idea of augmented reality still in the near future, Apple may still have a few tricks up its sleeve.
Apple isn’t going anywhere. Despite the poor earnings reports, the company itself still appears to be quite healthy and profitable. However, investors may want to watch these signs carefully, as it does appear that Apple may have become too unwieldy to reliably pivot.
With Apple products steadily becoming more expensive, they are becoming priced out of the market — especially the international market. With manufacturing becoming ever-cheaper in other areas of the world, Apple now has further competition. It’s only a matter of time before some of these brands start increasing their market saturation in the United States as well.
Regards,
Ethan Warrick
Editor
Wealth Authority
