iPhone share slump spurs calls for low-price model

Q2 sales result in lowest share in three years

By , Computerworld |  

Apple has hinted at the transition to software and services in its earnings statements this year, breaking out those revenues for the first time. In the second quarter, for example, the category Apple labels as "iTunes/Software/Services" booked $4 billion in revenue, 11% of the company's total and 25% more than the same period the year before. No other reporting segment came close to that year-over-year gain.

But market share is linked to more than software and service revenues.

The iPhone has been successful, most agree, because of the "virtuous cycle" of sales that lead to developers committing to the platform that leads to more apps that leads to more iPhone sales. A shrinking market share means an end to that cycle, or at the least, a departure of developers.

Llamas disagreed. "The installed base [of the iPhone] is huge and the loyalty rate by customers is still pretty high," he countered, suggesting that gloomy speculation was unwarranted.

Still, analysts are convinced -- though clearly, not unanimously -- that Apple's shrinking share has motivated it to design and sell a lower-priced iPhone and discard the years-long strategy of filling those price points with older models.

"That's just not a good enough strategy," argued Restivo. "Apple is known for its latest and greatest products, and even in pre-paid and emerging markets, that customer base still needs to feel that they have a new, shiny object. If it's yesterday's news, there's not as great a sales potential."

With a lower-priced phone in its portfolio -- more importantly, a new phone in that range, not the "yesterday's news" of the iPhone 4 or iPhone 4S -- Apple can take advantage of the sales opportunities around the world and grow its market share.

Restivo is confident Apple could and would do so.

"There's a reverence for the brand. Apple is a global, aspirational brand, that's key," he said. "And there are opportunities for Apple to compete, even in China, where they're really only skimming the surface."

Mawston, of Strategy Analytics, came to the same conclusion. "Apple's share of the mobile phone market is struggling to break through the 10% ceiling into double figures, and it will only be able to achieve this on a sustainable basis if it adds new iPhone models at lower price-points or with bigger screens in the future," he said.

"One quarter does not an ecosystem make," said Restivo. "But I think a lower-priced iPhone is inevitable."


Originally published on Computerworld |  Click here to read the original story.
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