Apple Earnings: A Year of Declining Device Sales

Apple has had a rough year – last quarter, the company reported its first-ever decline in device sales, and analysts aren’t very optimistic about this afternoon’s earnings announcement, either.

The latest Verto Analytics data shows that Apple is still holding strong in the mobile device market, where it has traditionally been an industry leader. But sluggish iPhone sales and a profusion of newer, cheaper Android handsets available on the Asian market threaten to erode Apple earnings and market reach – especially overseas.

Keeping Up with the iPhone

While the iPhone continues to dominate the U.S. smartphone ecosystem, with 42% market share, Apple can’t just sit back on its laurels. It still faces competition from Samsung, whose Galaxy smartphone line claims 25% of market share alone; the combined market share of all of Samsung’s smartphones is closer to 30%, which is slowly creeping up towards Apple’s numbers.

“Apple has been the shining star for the past few years with their dominant role driving the device ecosystem and operating systems that facilitate today’s smart services, mobile apps, and monetization opportunities available for game developers through the Apple App Store,” notes Verto CEO Hannu Verkasalo. “However, smartphone and tablet sales are stagnating in more developed markets.”

Apple earnings are also under threat from especially tough competition in key markets such as China, where local brands are producing cheaper Android devices and scrutiny from government regulators is hampering sales efforts. And while its 42% U.S. market share is a reassuring number, it also indicates that Apple may be approaching saturation of the domestic market – another worrying outcome for the future of the company.

Can the Apple Watch Save Apple?

A potential bright spot could be the Apple Watch, which may be following on the footsteps of the iPhone as it positions itself to graduate from a pricey novelty gadget to a necessary luxury.

The Apple Watch currently claims more than a 16% share of the wearables market, and our latest data shows slow but steady growth in Apple Watch sales over the last quarter. Major improvements to Apple wearables were announced at WWDC in June, and received an enthusiastic response from developers and tech press alike, but it remains to be seen if either of these factors can give the Apple Watch the bounce it needs; the new WatchOS 3 won’t be rolled out until the fall, which could help Apple’s holiday sales.

What Can Apple do Next?

Facing increasing pressure on its device sales (and especially soft laptop sales), it may be time for Apple to double down on its apps and services.

“Due to the challenges within the device market – slower growth, competition and pressure on margins – Apple should focus its attention execution on media content, value-added services, and new innovations in mobile payments or smart home – or even in other categories like smart cars,” comments Verkasalo. “According to our data, Apple lags behind services like Spotify, Square, Paypal, WePay, and Line. We have yet to see them fully leverage those ecosystems for their benefit.”

But this is a strategy that comes with its own difficulties. Apple has struggled to keep the iTunes Store as intuitive and as streamlined as its devices, and the acquisition of Dr. Dre’s Beats Audio service and launch of Apple Music have also received a rocky reception from listeners. And in the face of increasing competition from other streaming music services like Spotify, Apple needs to significantly overhaul its approach to both users as well as developers and artists. It certainly has the money–rumors recently circulated that Apple was in talks to acquire Jay-Z’s Tidal, another artist-led music service–but it’s unclear if the company can act fast enough to prove that it’s worth the premium placed on its products.

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