Apple’s China Sales Blip Is Nothing Like Nokia’s Implosion At All

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Apple has reported slowing sales in China, issued a revenue and profits warning and – some are comparing this to the implosion of Nokia a decade back. Seriously folks, this is nothing like that at all. Nokia got entirely blindsided by a new technology – the smartphone originating from Apple. Apple is facing a combination of slowing economic headwinds and a maturing of the marketplace. These are not equivalent events and they’re not going to have the same effects either. Plus, Apple has a defence in a manner than Nokia never did.

This thus is very overblown indeed:

Apple’s shock iPhone sales warning ‘like Nokia in 2007’

Just no.

More than $70bn was wiped off Apple as the iPhone maker’s shock sales warning saw the company compared to Nokia at its peak. Apple suffered its worst trading day in five years, with shares falling by 10pc and its market value dropping below Alphabet, Google’s parent company. On Wednesday night Apple’s chief executive Tim Cook cut revenue forecasts, blaming a weak Chinese economy for disappointing sales of the iPhone. The announcement was the first time Apple has issued a sales warning in 17 years and led to a host of ominous predictions about the company’s future. Analysts at Goldman Sachs compared the slowdown in iPhone sales to Nokia’s position at the end of 2007, when the fallen Finnish giant…

Chicken Little cries that the sky is falling gets the Goldman team into the papers again but really.

Every mode of production – and therefore near all companies – does get blindsided eventually. A new technology comes along and takes away the entire reason for the existence of that organisation. Very rarely a company is able to reinvent itself – Apple moving into smartphones, or perhaps iPods before that, being an excellent example. But much more likely is that an integrated steel company, Bethlehem, US Steel maybe, bestrides the world as a colossus and then is brought to its knees by people doing something as unsporting as recycling scrap a la Nucor.

This is what happened to Nokia. They were doing great in dumb and feature phones. Then along came the smartphone and, well, Nokia didn’t have anything special to offer. Sure, there was all that nonsense with Microsoft and the rest but the essential point was that the skills and abilities that made them great at the former technology didn’t work for the next. So, they went.

We also have the more mundane experience of near all companies before this inevitable happens. Which is that they grow and grow like Topsy until they’re at about the size they’re going to be given the market niche they’re occupying. They thus become reliant upon the economy in general, rather than the supercharged growth that comes from expanding that new market niche. It’s about arguable that that’s where Apple is. There’s no great reservoir of people rich enough to be buying Apple who aren’t already. Maybe India, a bit, but Africa’s still too poor to be a mass market for them. Smartphones themselves aren’t a new tech any more, a significant portion of the global population already has one.

It’s not entirely true but it is largely so that Apple is now reliant upon more general economic conditions. Better GDP growth in a place might speed up the replacement cycle for example, worse slow it. That realisation alone would lower the stock price. A certain amount of speedy growth already being built into it and if that’s not going to happen well…..

Do note though that these two situations just aren’t the same at all. A reversion for Apple to roughly normal growth patterns, defined by economic expansion in general, isn’t the same at all as being blindsided by a new technology.

There’s also one more thing. There was nothing in the Nokia universe that prevented people from switching handset. No tie in to a set of services, data, storage, anything at all, that made the physical kit itself difficult to switch away from next upgrade. That’s entirely not the case with Apple at all. Even if the unthinkable does happen and Apple gains no new net handset customers at all, ever, there’s still a vastly profitable replacement market there for a decade or three given the technological lock in.

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Patrick

Is it not more the case that Apple is a hardware manufacturer and that value lies more in the software? Apple’s products are frequently incompatible with other companies’ stuff. £800 quid for a new iPhone? That’s crazy. Smartphones are becoming commodities. Apple is rapidly losing market share – so it can keep shrinking but asking super high prices, which leads to a revenue cliff edge, or it can slash prices, which cuts revenues now. The problem is that they make THINGS. Things which are now ubiquitous and unremarkable and where the competition is excellent and much cheaper. Apple is a… Read more »

HJ777
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HJ777

Apple’s iPhone isn’t rapidly losing market share. Its market share has stayed roughly the same for the last decade: http://www.statista.com/statistics/216459/global-market-share-of-apple-iphone/ Apple is a hardware manufacturer but it’s the software more than the hardware which differentiates it from other manufacturers. Yes, they tend to be more expensive than rivals but the idea that other manufacturers’ top Smartphones are available at commodity prices is quite wrong – just look at the Samsung S9, for example. As for incompatibility, why does a smartphone need to be ‘compatible’ with other companies stuff? I changed from an Android phone to an iPhone and had no… Read more »