After Years Of Blockbuster Global Sales, Apple's iPhone Hits A Slump
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It was just last year that Apple became the first American public company to be valued at $1 trillion. The new year has not started quite so well. The company's value plunged 10 percent in a single day. The catalyst was a letter from Apple CEO Tim Cook lowering earnings expectations for the company. NPR's Laura Sydell looks at what this means for Apple's future.
LAURA SYDELL, BYLINE: Think of a Hollywood blockbuster, say, "Mission Impossible." It's been super popular, so the studio releases several successful sequels. But one year, it releases a sequel, and it's a yawn. The iPhone is a bit like a movie franchise. After years of blockbuster sales, the most recent release has been kind of a so-what. As I recently discovered, some customers just weren't excited by it.
I'm standing in Union Square in San Francisco. The Apple Store is right across the way, and I'm going to ask some people here, if they still have old phones, why they're not walking in and upgrading.
MACHIK BUTORAC: The current ones do the job for me - I mean, for what I use. You know, I don't take much photos with the iPhone. I just use it for business.
ANNE MARIE BINGO: I think the only thing that would make me buy the new one is the camera because I have friends who have it, and it has taken really nice pictures. But that's not enough to make me get rid of this one that's still working fine and upgrade to the new one.
SYDELL: Many analysts say Machik Butorac (ph) and Anne Marie Bingo (ph) are typical of a lot of Apple customers right now.
JAMES MCQUIVEY: Apple's biggest problem is that it's a company that has built a sort of mystique around itself by, every two, three years, releasing a product that just boggles everyone's mind.
SYDELL: James McQuivey is an analyst with the research firm Forrester.
MCQUIVEY: It has been a number of years since Apple has really dazzled anyone with the hardware.
SYDELL: In his letter to investors, Apple CEO Tim Cook said that part of the reason he was lowering expectations was that there were fewer iPhone upgrades than expected. But his biggest problem is China. McQuivey says Chinese companies like Huawei are making products that have a lot of the same features as the iPhone.
MCQUIVEY: But this is a market that is very, very comfortable with knockoffs and very, very comfortable with substitutes because they're cheaper and they're more easily available.
SYDELL: That's a problem because it's not just about knockoffs. The Chinese customer has been one of Apple's biggest growth engines, says Loup Ventures analyst Gene Munster.
GENE MUNSTER: Two-thirds of the problem is China, and the economy there has had an acute negative impact on Apple.
SYDELL: Munster says China and Taiwan account for close to 20 percent of Apple's business. After growing four quarters in a row, Munster estimates that Apple will report that its revenue fell 36 percent in the last three months of 2018.
Apple CEO Cook believes trade tensions with the Trump administration are taking a toll on the Chinese economy. A lot of Chinese may still prefer the iPhone; they just don't have the money to buy it. At a moment when a lot of analysts are souring on Apple, Munster remains optimistic. While most of Apple's profits still come from the iPhone...
MUNSTER: The Mac, the iPod, AirPods, Apple Watch, services - all those are doing really well, better than what we'd expected.
SYDELL: According to Munster, year-over-year revenue for these products and services will be up close to 20 percent. Munster also believes, as carriers upgrade to 5G network speeds in late 2020, it will entice people to upgrade their phones.
MUNSTER: On average, 10 times faster - so downloading your movie 10 times faster or refreshing that webpage at those speed improvements - this is the difference between dial-up and broadband.
SYDELL: Meanwhile, the company isn't giving up on the franchise. Munster says he expects Apple to release new phones this year with better screens and better cameras.
Laura Sydell, NPR News, San Francisco. Transcript provided by NPR, Copyright NPR.