Apple's primary issue is decreasing average revenue per unit in both smartphones and tablets
Apple is under scrutiny as its disappointing fiscal first quarter results have led to questions as to the firm's profitability going forward.
Faced with increasing competition and the need to push further into emerging markets where device price points sit lower than Apple's offerings, the manufacturer is facing serious challenges over 2013.
Apple's primary issue is decreasing average revenue per unit in both smartphones and tablets, according to Informa Telecoms & Media. Apple sold a massive 47.8 million iPhone units in the fourth quarter of 2012, an increase of 29% year on year, on the back of the iPhone 5 launch and strong continued volumes of iPhone 4 units. Sales of the new iPhone 5 model helped boost Apple's declining average revenue per unit from a second quarter 2012 low of $622.89, back to $641.57 in the fourth quarter, but that figure was still down 2.7% from the fourth quarter in 2011.
Andy Castonguay, principal analyst at Informa, commented: 'The growing competitive pressures Apple is facing in the smartphone market means that the average revenue per iPhone will come under increasing scrutiny as the company expands its business in China and other growth markets where demand for lower priced models is expected to outstrip iPhone 5 sales.' Apple has continued to lead the tablet market, with a 48.1% year on year increase in overall tablet sales following the 2012 launches of the updated iPad and the iPad Mini. That volume increase was offset, however, by a sharp 21.3% decline in average revenue per unit from the fourth quarter in 2011.
Castonguay remarked: 'The lower price point and slimmer margins for the iPad Mini highlight the broader strategic challenges that Apple will face in 2013, namely how to enhance volume in an expanding set of countries without incurring a precipitous drop in profitability.' Informa's Castonguay stated: '!Apple's fourth quarter performance was not only hampered by supply chain restraints, but also by increasing competition from Samsung and other manufacturers vying for the premium consumer market. With modest but growing sales of Windows Phone devices as well as a revived product line expected from BlackBerry, Apple's products have begun to lose their 'innovative' top lustre, even while still representing the competitive standard in the industry. 'Apple's next generation of devices and iOS will need to push into new, exciting design territory to firmly re-establish its claim as the industry's innovation bellwether, or risk continued declines in stock value and position in the vanguard of mobile device design,' warned Castonguay. Tudor Aw, KPMG's head of technology in Europe, commented: ''The interesting news is that both [Apple and Samsung] said that future growth rates are expected to decline, as a result of increased competition and market saturation. At the moment we are just not seeing anything new that would qualify as the 'next big thing'. As far as the global players in smartphones are concerned, it feels like we haven't see any new 'jaw dropping' features which would move the needle in terms of future growth rates for a while. It may be that we are entering a period where market penetration rather than innovation will be the name of the game.'
Victor Basta, managing director at Magister Advisors, M&A advisors to the technology industry, said: 'Apple is in the best place to achieve growth and rerating through innovation in software and services. It has hundreds of millions of credit card enabled subscribers through iTunes and the App Store. Apple arguably owns and controls the whole app concept and is the micropayments king. How Apple transitions its revenue dependence from hardware to software is at least as important as any Apple TV and in the medium to long term much more so.'
Basta continued: 'Fundamentally Apple needs to get to a place where it doesn't matter whether they sell 50 million devices or five. Devices are fast becoming irrelevant and will continue to trend towards zero profit and beyond.'