Meeting customer demand for iPhone 7 is Apple’s big problem

Apple watchers must have breathed a sigh of relief when they saw the latest iPhone sales figures.

Although overall sales are still declining year on year, and talk of “peak Apple” still persists, the company recorded a 13 per cent rise in sales to 45.5 million, compared to the previous quarter when it sold just over 40 million units.

That growth can be attributed to the launch of the iPhone 7 and 7 Plus, which was unveiled on September 7th and went on preorder on September 16th.

The full impact of the iPhone 7 launch should be seen in the next set of results, which also includes the lucrative holiday period. Demand for the devices, chief executive Tim Cook said, is very robust, leading to some optimism about the company's prospects for the current quarter.

Block

There may be a stumbling block ahead though. Cook told an analyst call following the earnings release that Apple is finding it hard to keep up with demand for the new phones globally. It’s a particular problem for the iPhone 7 Plus, Apple’s 5.5 inch phone that includes a dual lens camera.

Cook said global demand was outstripping supply, which on the face of it looks like a good place for Apple to be – in demand. But in reality, facing a highly competitive marketplace, consumers not embedded in the Apple ecosystem may start to turn their attention elsewhere if Apple can’t come up with the goods when they want them.

In previous quarters, that may have been to Samsung’s advantage, but Google’s Pixel phone is also on the market now, and is widely considered a rival to Apple’s flagship devices.

Samsung, meanwhile, is suffering its own woes, thanks to a number of fire incidents involving its latest Note handset. The Note 7, which had been well received by both consumers and the industry as a whole, has now been discontinued as the company received a raft of complaints about the phone overheating.

Misfortune

Apple may benefit from Samsung's misfortune. Apple's chief financial officer, Luca Maestri, said it was "impossible to know" if there was any effect yet from the Note 7's demise. That should become clearer in the next quarter.

The trend for the iPhone is certainly moving in the right direction compared to the last two quarters.

But you can’t ignore the fact that, across the board, sales of Apple’s hardware are down. IPhone sales may have exceeded expectations and outstripped the previous quarter, but they’re still falling year on year, by 5 per cent.

IPad sales, meanwhile, are also on the wane, falling from 9.9 million in the third quarter to 9.3 million in the subsequent three-month period. That is despite the introduction of the iPad Pro line, which now includes both a 12.9 inch version and a 9.7 inch tablet.

Mac sales have also fallen, down 14 per cent year on year, a situation that may be helped by a refresh of the company’s computer line later this week. Among the expected product announcements is a new version of the MacBook Pro Apple’s laptop that has not changed in any major way for some time.

Speaking to analysts, Cook promised “exciting news” for current and future Mac owners.

Revenue

The company doesn’t break out sales for the Apple Watch, but instead includes its revenue figures in a product category that covers Beats products and other accessories.

"Apple didn't have a great (fourth quarter) as iPhones, Macs, China, the US and what appears to be Watch were down," said Patrick Moorhead, an analyst at Moor Insights & Strategy.

Revenue from Greater China, once seen as Apple’s next growth engine, fell almost 30 per cent in the quarter, after dropping 33 per cent in the preceding period.

One definite bright spot for Apple is its services revenue. The sector, which covers Apple Music, the App Store and other internet products, rose by 24 per cent. The company’s cashpile too is still growing. At the last count Apple had $237 billion ($217bn), a rise from the $231.5 billion ($212bn) it had three months previously.

Attention is now turning to possible new markets for Apple and there are persistent rumours that it is looking at the automotive market. But Tim Cook refused to be drawn on the company’s plans for that sector, saying only that they were always looking at new things, but there was “nothing to announce today”.

Additional reporting: Reuters