What Does the Data Tell Us about declining iPhone sales and what it means for Apple? Is Apple's future in peril? What should Investors know about the declining iPhone sales?
Keywords: apple stock abnormal returns, apple stock cumulative abnormal returns, samsung stock, aapl long term market analysis, iphone long term market analysis, iphone future analysis, apple losing smartphone market, samusng losing smartphone market, iphone future market analysis.
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So how has the market been responding to iPhones? Are they still hot, or not?
Analysis of the data from the last decade presents a very gloomy picture for the iPhone. Clearly, the iPhone has not been performing as it used to:
Table 1. iPhone' units sold by year and model
Source: MOBILE DEVICES MONITOR
For brevity, only the primary model has been listed, for example, the plus model, etcetera, are not listed in the chart, but the total units sold figure includes all models launched with the primary model.
We can clearly see that units sold peaked with iPhone 6, and no other product has come near that success rate for Apple. This result ties in with our other report titled "The Creative Destruction Process" (see below).
While it is true that the global smartphone sales have remained somewhat stagnant since 2016, they are not negative year-on-year, however.
The average annual sale of Apple products has been 48.1 million since 2016, a figure with more than seventy percent decline p.a., compared to iPhone 6 sales.
Is there a primary cause of the decline?
Yes, Apple has not been able to increase the utility of its newer phones compared to Chinese manufacturers. If an average customer sees a minimal marginal increase in utility in the newer model, they are less likely to upgrade. For example, if the yearly increase in utility was very substantial, the average user would be more enticed to upgrade, and this is what the data shows.
Another important issue worth analyzing here is the market's reaction to Apple's product launches. Data of cumulative abnormal returns (CAR):
What does this mean, simplistically?
The product launches did not meet the markets' expectations of AAPL; therefore, the Cumulative Abnormal Return for the product launch weeks for AAPL, demonstrates a downward sloping line. The expectations of the market were not met, and in the future, considering a substantial number of observed launches and longitudinal data, they are unlikely to be satisfied, i.e., the CAR for iPhone launches are not likely to be positive. Simplistically, Apple is very likely to continue to register negative CAR with the iPhone launches.
The fundamental understanding to glean from this analysis ties in with our recent report, titled: 'The "creative destruction" process, what is it, and what it means for the big guys such as Apple, Amazon, Facebook, and Tesla.' The report is linked below.
As Schumpeter (1942) postulated the 'creative destruction process,' in his work titled "Capitalism, Socialism, and Democracy," we are seeing the beginning of the third stage of the creative destruction process in the smartphone subsector.
The competition has already reached a point beyond the second stage of 'swarming' where like bees, the competition follows the market leader; overtime, some of the competition can improve the first mover's innovation or do it through better, more efficient processes. Thus, Apple or Samsung are unlikely to make long-term positive economic profits and are very likely to see further deterioration of their market share (see report linked below).
Long-term, the smartphone subsector isn't likely to provide AAPL with returns investors have historically expected; the same goes for Samsung. The big guys, nonetheless, of course, have the option to innovate out of this condition, and a mosaic of information collected from multiple sources points to the fact that this is the case; for AAPL, it may be a radically different method of delivering the functionality of the smartphone through a novel approach, for example, smart glasses, etcetera. Tim Cook has also made public comments regarding Apple's involvement with an electric car project.
However, these possibilities' expected value is arguably already priced in presently, and these possibilities don't reflect any possible value to be gained by purchasing Apple's stock currently.