How The Iphone Maybe Fading Away

As Samsung celebrates its first registered profit in years during the third quarter of 2015 and shows off new devices along with LG and others at the Mobile World Congress (MWC), Apple is having a nervous start to the new year. Yes, it posted record quarterly revenues of $75.9bn and record quarterly profits of $18.4bn, but glance behind the titanium curtain at Apple and a core problem is materialising.

That problem is the iPhone, a device that still accounts for around two-thirds of Apple’s revenue. With smartphone penetration slowing considerably in western markets and an economic softness in China sparking concern that Apple will no longer see the profits and prospects of old, speculation has been rife that the firm will try and combat global economic pressure by launching a cheap device with a smaller screen before unveiling the iPhone 7.

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Following MWC, Apple is rumoured to be launching the budget iPhone 5SE – which is reported to be similar in price to the 5S but with updated features – in a move to help those on lower price points and reticent to upgrade their phones purchase a new model. This would help spread the Apple payment system to places such as India and China, but would also spell the beginning of the end for a phone that has always been able to consistently command premium pricing, based on little more than brand design.

The conundrum for Apple is that iPhone sales are flat, iPad and iMac sales are down and wearables are yet to take off. Meanwhile, Samsung has produced some of the most innovative and cost-effective technology of the past 12 months.

When comparing smartphones, the Galaxy S6 has more megapixels and a larger high-resolution screen than the iPhone 6S. When we look at the wearable offer, the Apple Watch is tethered to the iPhone but the Samsung Gear S2 can work withany Android phone, so arguably has wider appeal.

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Even Samsung Pay has an advantage over Apple Pay as it works with older credit card readers and point-of-sale machines that don’t have built-in near-field communication. Moreover, Samsung’s virtual reality offer, via its Gear VR headset, is cost-effective and high performing, and is boosting the appeal of Galaxy phones further.

So should Apple be more than a little nervous that it’s losing its grip on the global smartphone market?

Across the 34 markets tracked by GlobalWebIndex, Samsung might be the top brand for current ownership but the iPhone is still the handset that people say they are most likely to consider purchasing in the future.

What’s more, there are some particularly interesting national trends behind this global headline: consumers in emerging markets are most enthusiastic about Apple.

If we look at China, our data shows that 35% of internet users want an iPhone, compared with 28% for Samsung, 24% for Huawei and 21% for Xiaomi.

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Converting expressed interest into sales is far from straightforward, especially given the iPhone’s premium price tag. Yet we find a similar pattern across virtually all fast-growth markets; from Brazil to Malaysia, Saudi Arabia to India, it’s the iPhone that consumers want the most. While Samsung now tends to top the table in developed markets, Apple can also hope to capitalise on huge numbers of current owners upgrading to a 6 (or 7) handset.

Our research shows that just 30% of iPhone owners have a 6 or 6S handset, whereas around 60% still have a 5, 5S, 4 or 4S. Combine these potential upgraders with new customers poached from rivals and the possibility of a cheaper phone option for emerging markets, and that’s a pretty sizeable target audience.

It’s also worth noting that even with the Samsung Gear S2’s wider Android appeal, our data shows that close to 50% of smartwatch owners in the US and UK opted for the Apple Watch.

That leaves the race to take the wearables market mainstream wide open. Who’d bet against Apple with its track record of entering established marketplaces and building dominance?

The fact is that Apple has always been able to trade on its premium status far more than any other brand. It will have to weather both an economic and Samsung storm this year, especially if virtual reality takes off, but there’s still a long way to fall from the tree before Apple has to panic.

Also read: The New Apple's 4-inch iPhone may not be called iPhone 5se