Apple (AAPL) is the world’s biggest, most profitable company.
But the company is still looking for its next big “it” product as the iPhone enters its 10th year of life.
And now the company has another problem brewing for its signature product line: mixing down.
“Our research indicates that recent smartphone customers increasingly are opting for the iPhone 6S – base model priced $100 less than that of iPhone 7,” write analysts at Barclays.
“Recent data from IDC provide evidence to this point, as the mix of iPhone unit purchases for <$500 surpassed 20% the prior two quarters, after having reached this point only one other quarter since 1Q 2011.”
In other words, people are buying cheaper iPhones. Which is not good for Apple.
“If this trend continues, then there is risk of Apple’s next product cycle being more of the same, e.g., absence of any major growth spurts… More important, we think that the mixing down signals smartphone customers are increasingly comfortable with purchasing last year’s technology, which could dampen the iPhone 8’s growth prospects and make it harder to generate a major growth rebound in 2H C2017, even as easier comps approach.”
To parse this analyst-speak a bit, trends indicate people don’t really care about buying the latest and great from Apple. As a result, consumers are buying Apple products that are cheaper than they used to be.
The shorter-term concern is that an increase in the purchase of cheaper iPhones is negative for Apple’s profit margins. But the concern about margin pressures hides the fact that Apple seems to be clearly lacking a “next big thing” product.
The iPhone is probably the best consumer product of the last generation. Few technology gadgets have done more to reshape our daily lives and the broader consumer experience in the developed world. Expecting Apple to create another product with similar impact is likely asking too much.
Recall, however, that last quarter Apple CEO Tim Cook said in response to whether the company has a “grand strategy” that, “We have the strongest pipeline that we’ve ever had and we’re really confident about the things in it. But as usual, we’re not going to talk about what’s ahead.”
And while Apple surely wouldn’t be discussing a product in development it thinks is the “next iPhone,” news out of its car unit hasn’t been positive and long-time supporters of the idea the company would build an integrated television set bailed on this.
Additionally, the success of iPhone wasn’t really about building a better BlackBerry — the dominant handset at the time — but creating a new category of device consumers didn’t even know they wanted.
“We would argue that Apple’s long-term success depends on creating and delivering new personal technology experiences,” UBS analyst Steve Milunovich wrote late last year.
“The bar is high as Apple must go beyond understanding how customers currently use products to anticipate delightful experiences customers may not yet know they will value.”
That is, Apple must create the future it will succeed in, rather than try to anticipate the future by improving the present state of play.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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