There is no doubt in the minds of investment analysts that the success of the iPhone 7 is vital to the future of Apple at a time when the company has landed itself in hot water in Brussels over alleged tax avoidance and may face a tax bill of 13bn USD if they fail to overturn an EU ruling in the court of appeal.
iPhone is almost two-thirds of Apple’s revenue
Sales of the iPhone account for about two-thirds of Apple’s revenues, which worries some investors. Since its profitability is higher than the corporate average it generates around 70% to 75% of the company’s total profits. Therefore the focus and concerns regarding how the iPhone does are well placed. The key question is will the iPhone reach its sales potential thanks to new upgrades which include a faster processor, more memory, a new camera and enhancements to the iOS10 operating system?
The prevailing concern Wall Street has about Apple is how future versions of the iPhone will sell. Will the company be able to add enough features and functionality that current owners will want to upgrade? Will Android users switch? Will feature phone users buy Apple vs. Android? A longer term concern is will another company introduce something that changes the landscape like Apple did to Blackberry that wiped the latter off smartphone map.
The slowdown in smartphone sales is not confined to Apple. Worldwide smartphone growth has declined to its lowest rate since 2013, according to research firm Gartner, but signs that consumers may be tiring of new iterations of iPhones could have a profound impact on Apple and the wider US stock market.
The company is so large at this point that where Apple goes, the stock market often follows – and Apple shares are going down. “Apple comprises about 7% of the total S&P 500 earnings,” said Angelo Zino of S&P Capital IQ. “It’s going to have huge implications not only for Apple but for Apple’s supply chain. That 7% number is just for Apple. There are a lot of other companies like Best Buy that are tied to them.”
While the iPhone has been a phenomenal success since its launch in 2007, Apple has had less luck with its new products. Sales of iPads have stalled and the Apple Watch has yet to prove its mass market appeal.
In China, where Apple has used the nation’s economic boom to keep iPhone sales soaring, the future looks even less certain. Apple CEO Tim Cook said that Apple had achieved a 77% increase in iPhone sales in the country. “Notwithstanding these outstanding results, we started to see some economic softness in greater China in recent months, most notably in Hong Kong,” CEO Tim Cook said. No one is counting Apple out, but the economic climate in China and soft Quarter 1 iPhone sales puts immense pressure on Cook to make sure the iPhone 7 has a successful debut. The iPhone 7 goes on sale in Mexico on September 16th.