tim_cook_redchair

Asa Mathat

General


Tim Cook has made it abundantly clear that Apple will be going into some new market segments this year.

He said it on last month’s earnings call, and reiterated it this week in an interview with the Wall Street Journal.

“There will be new categories and we’re working on some great stuff,” Cook told the Journal this week, adding, of course, “We’re not ready to talk about it.”

Whatever it is Apple has cooking (and many expect a watch, or possibly a more serious entry in the television space), it can’t come soon enough. While smartphones continue to grow, most of that growth is in the low-end and mid-tier of the market — areas Apple has continued to eschew in favor of producing premium iPhone models.

In its earnings report this week, chipmaker ARM Holdings forecast that the high-end part of the smartphone market — the only part in which Apple currently competes — will grow only an average of four percent over the next five years. The overall market is set to grow 10 percent, fueled by growth at the low end.

“Anybody in the premium space has to be careful,” ARM Executive VP Antonio Viana said in an interview this week.

Apple is most definitely in that space, with the iPhone generating $32.5 billion last quarter, more than half of Apple’s total sales.

And while Apple isn’t alone in that area, it is the only company that sells phones exclusively at the high end. Rival Samsung has a particularly diverse portfolio of smartphones, with a model at almost every price and screen size.

Apple hasn’t ruled out moving into other price segments, but Cook has said Apple won’t do so unless it can do something up to its high standards, a point he reiterated with the Journal. Where it comes to true smartphones, Cook said Apple is typically No. 1 or No. 2 in the market.

“Would I like to be one in the places where we are two? You better believe it,” he told the Journal. “If there is a way we can do that without changing where our line is on a great product, then we’re going to do it. But what we’re not going to do is we’re not going to make junk.”




10 comments
U.I.
U.I.

Samsung's latest reports suggest it is actually losing money, per device, on the lower end phones. Nokia certainly has, before it was sold, and it seems only the Chinese makers can make any money there. 

The biggest difference between Apple and Samsung is that Apple benefits from the ecosystem as well (mostly Apps, some from adds) while Samsung doesn't - Google is making that money.

So, it is possible that Apple would be profitable even in the lower end segment.

However I'm certainly not going to argue with Apple and their huge financial success. They never focused on being the largest, only (in their opinion) the best. That catch-phrase has served them very very well for over 15 years.

I am certain wearables will be big, some day.

However I'm far more interested in the inter-operability they started on. If the phone, tablet, TV and some wearables are all inter-connected behind the scenes, that really could be huge for Apple.

mknopp
mknopp

I don't think some people understood this article. This is not an article about why Apple should enter into a lower end of the smartphone market. It simply points to the growth segmentation in the smartphone market to show that Apple's potential growth for the iPhone is flattening out. Because of this, they need a new category of product to pick up growth that the iPhone will lose over time.


That being said, I agree with Kelvin. Even if the high-end of the market slows in growth their retention rates versus their competition and the fact that they aren't the majority share holder in that segment means that Apple will likely grow that market segment more over time then the total growth.

erk.mobi
erk.mobi

I truly can't wait for iWatch to transcend the current game based on one of their existing technology while being the Rolex of the smart watches. Truly no one wants the plastic sporty nor industrial metal look "at all time". Soft-engineering based on what they already have + the look of Rolex or at least an understanding and integration of what has worked for the past century would be marvelous! The aim is not just the functionality nor not just the symbolic but the functionality within the symbolic that makes people want to invest high premium price. This makes sense because look at how much Ferrari and Apple 3G and 4G have in common, they are auctioned and resold in other parts of the world. The same can be applied to the watch and why shouldn't they now Burberry CEO has been recruited with a keen eye for the idea of luxury uniformity?

jebworks
jebworks

The same people who demand an Apple move into the low end are the ones who then complain about lower margins. You can't have it both ways. Apple is all about high end high margin products.

KyleH
KyleH

I agree with Ina. Although I agree with Cook for staying out of the low and middle end of the market. Apple still needs new product categories to keep growing. I suspect Apple will not make an all-in-one TV. More likely they will make a high quality 4K Cinema display with great sound. And rely on updates to its Apple TV set top box to drive sales. The boxes have a shorter life cycle, much higher margin and the competing boxes are mostly ugly.

Cliff Hazell
Cliff Hazell

Yup, Apple should totally listen to all the people who haven't built a $170b/year company.





Vox_Jim
Vox_Jim

I actually like Apple's low-end strategy - they still sell all the old devices, they enable the refurb market. You can get a 4s for free from any of the carriers. If anything, I would just expand this distribution - like pre-owned Mercedes. This way the whole ecosystem continues to be viable.


Genius really.

Jake
Jake

A high-end product is more than the materials used to construct the product. It is more than the look and feel of a product. One extremely important reason Apple's products are quality products are the support systems surrounding all product lines. 


These support systems include sales, service, training, and support. How long would Apple retain its vaunted and well-earned position as an innovative leader of quality if a billion low-end consumers were taxing Apple's support systems?

Kelvin
Kelvin

Apple only participates in the high end does not mean it is the only participant in that segment. Apple could well achieve higher growth rate so long as it takes market shares from other players, even with the segment is expected to grow at a low rate of 4% overall.

TheBasicMind
TheBasicMind

No Ina, that one chart doesn't show anything like why Apple has to move into other segments. What that chart manifestly fails to illustrate is how in segments other than the high end and middle, margins are just about zero, and in the middle they are greatly compressed. For all their greater volume, Samsung earn far less profit than Apple, and all other Android device vendors other than Samsung earn on aggregate negative profit, which, together with that, chart means higher volume for little or no profit, which simply represents higher risk for proportionately less return. So the chart shows how Apple might want to find some way to better address the middle segment, but it certainly doesn't show Apple should move into it (subtly different).  

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