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Apple facing new challenges

In 2018, Apple became the first public company to be worth $1 trillion on the New York Stock Exchange. Other technology stocks have also seen rising market values, all riding the waves of the digital revolution. 

Apple is a mature company among American technology giants. Founded in 1976, it is older than most, having been listed in 1980. Its legendary co-founder, Steve Jobs, who died in 2011, had a vision of Apple's potential that has been a key to its success. Jobs worked closely with its design genius, Jony Ive. The iMac, with its innovative design, was launched in 1998. The launch of the iPod and iTunes in 2001 caused a sensation. The iPod was not the first music player, but, together with iTunes, they were a major step forward in the digitalization of music. The iPod had an instant design appeal that won over consumers. Similarly, the iPhone, launched in 2007, with its aesthetic design appeal and many functional features, raised the smartphone to a new level.

Sales of iPhones reached 1.4 million in the first year, and the market value of Apple reached $106 billion. The launch of every new model has been promoted by Apple as a media event, and has been eagerly awaited by loyal users. This was another of Jobs' innovations. Sales grew continuously until 2016, and then started to fall slightly, partly because users were not replacing their phones as frequently as Apple had predicted. Could Apple have peaked? Has Apple's innovative capacity fallen behind competitors? 

In 2017, Apple still sold 216 million iPhones, and the company's market value was $179 billion. Sales of iPhones represent nearly 60% of Apple's revenues. When the company announced in 2018 that it would no longer be disclosing how many iPhones, iPads and Macs it sells, the news was met with scepticism, and the share price went down. It impliedly confirmed that iPhone sales had been falling. Apple's profits have relied on high prices and larger margins than its competitors. Apple raised prices of iPhones in 2018, to maintain revenues, but this policy risks losing potential sales. Meanwhile, competitors have gained market share. By 2018, Apple was third behind South Korea's Samsung and China's Huawei in smartphone sales globally. Alongside Apple, their high-specification smartphones at lower prices look appealing. How will Apple respond to these new challenges? 

Apple's main market remains the US. But China has become an important market for Apple, generating 25% of its revenues. China's consumers have been drawn to the features of the iPhone, along with its cachet as an up-market brand. China's middle-class urban consumers are highly brand-conscious, and sensitive to symbols of affluence. But these discerning consumers are now spending more cautiously. Apple must also think about sales in emerging markets where consumers are more price-conscious. Apple's competitors have been shrewd in developing smartphones for these markets, such as India, Turkey and Brazil. 

Apple has been gradually increasing its revenues from its sales of services such as Apple Music, iCloud, the App Store and Apple Pay. All of these involve enhancing user experiences and building brand loyalty. They also maintain relations with consumers who make recurring purchases. Apple has tended to focus on its iPhone, and its revenues have reflected this faith in its enduring popularity. Under its CEO, Tim Cook, Apple is now rethinking its focus towards services, building on its strong brand image. He announced a new Apple TV streaming platform in 2019, in a high-profile launch event in California. Apple will face strong competitors such as Netflix in this market. 

Brand image can be volatile, and is affected by corporate reputation. Tech companies, such as Facebook and Google, have taken serious knocks to their reputations over user privacy, anti-competitive practices and tax avoidance. Apple's business model rests on manufacturing carried out by millions of migrant workers in China, whose harsh working and living conditions are documented. Apple is also well known for its tax arrangements and off shoring of assets to minimize tax liabilities. Its premium brand image masks an unsustainable business model. Could a new iPhone recapture the magic? The challenges became even greater in 2019, when Jony Ive announced that he was leaving the company to set up his own design consultancy. So great has been his impact, Apple's shares fell following the announcement of his departure.

• To what extent is Apple's business model posing risks for the company?
• What should Apple do to make its business more sustainable?