Beware of the Worm Threatening Apple’s Future

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By Jacob Maslow

iPhone 6 & 6+
Apple iPhone 6 and 6+

As easy as it is to get excited about Apple (NASDAQ:AAPL) thanks to its recent breakout profit performance due to the iPhone 6, serious questions linger about this company’s long-term health. This is not hater talk here. This is fundamental business reality.

The truth is that Apple’s revenues are overly dependent on one product. A large chunk of its earnings depend on the iPhone. While the iPad has shown some strength in the past, the tablet market is showing signs of turbulence. Apple might not be able to retain its market share in the fast-changing tablet market, which is quickly evolving into a commodities market, driven more by price, rather than the brand.
Sure, Apple will probably always retain a foothold in a large global tablet market. But this shouldn’t give investors reason to be hopeful. This is precisely the kind of market positioning Apple has in the desktop world. Like it or not, much of Apple’s value and investor expectation relies heavily on its continued strength in the smartphone space.
Apple’s smartphone market share might not be sustainable. The same factors that are at play in the tablet market are also at work in the smartphone market. In fact, we only need to look at the Chinese market, to get a clear understanding of the dynamics of the smartphone market. While American and Chinese consumers are worlds apart in terms of preferences, Chinese consumer trends might herald the future for global smartphone consumption trends.
The trends don’t look good, as far as Apple is concerned. Based on the success of Chinese mobile phone maker Xiaomi, the market is focusing more on content. That is alarming. We are not talking about hardware. We are not even talking about operating systems like iOS or Android. We are talking about content.
If content is the future of the smartphone market, expect handsets to become cheaper and cheaper. The focus would be on the content that you are enjoying, and the functionality that you get access to. It is not whether or not you have a nice logo at the back.
Make no mistake about it, Apple will still have a role and a place in that future. However, it would be as a niche or even a luxury player. It won’t be the dominant player.
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