Foxconn Profits Plummet As iPhone Sales Disappoint: Is This The New Normal?

rated by 0 users
This post has 7 Replies | 2 Followers

Top 10 Contributor
Posts 24,856
Points 1,115,300
Joined: Sep 2007
ForumsAdministrator
News Posted: Wed, Apr 10 2013 5:23 PM
Foxconn is Apple's major manufacturing partner, and has ridden Cupertino's coattails to excellent year-on-year profit growth, even as its employees opted to take flying leaps from its manufacturing centers. The two companies are intertwined to the point that Apple products now account for between 60-70 percent of Foxconn's total revenue. That linkage leaves the Chinese manufacturer open to dips in Apple product sales as well, which is why the 19% drop in Q1 revenue has investors worried.

"A quarterly decline was expected, but not a yearly decline," KGI Securities analyst Ming-chi Kuo told Reuters. "This shows that Hon Hai's revenue depends too much on Apple, and iPhone orders corrected more than expected."

Some have greeted the downturn with optimistic predictions of "They'll have a new phone soon!" while others go for the dour "Apple could be losing its smartphone dominance." The truth is a little more complex.

Yearly launch cycles a poor match for upgrade market

T-Mobile may have launched a bold new experiment in cell phone purchases last month, with its no-contract, no-subsidy offer for the iPhone 5, but the vast majority of customers are locked in to two-year contracts. If you bought the original iPhone in 2007 and have upgraded every year thereafter, your next update won't hit until this summer. Up until now, Apple has boosted sales despite this trend thanks to aggressive user adoption and customers willing to pay full price. In the long run, this wasn't going to last. As smartphones become ubiquitous, the customer base driving sales shifts from first-time adopters to upgrade purchases.

The other problem (at least for investors wanting to see huge returns) is that it's not clear where Apple can take the smartphone from here. The original device debuted touch screens. The 3G added 3G capabilities, the 3GS substantially increased the phone's performance. The iPhone 4 had a beautiful screen, the 4S was faster, came with Siri support, and fixed the 4's antenna problems if you lived in a 3G area. If you didn't (and I don't), the phone continues to have problems.

Then the iPhone 5 came out. It's faster, had a 16:9 screen that Apple tried to sell as a revolutionary design element, supports LTE, swapped out a proven Maps engine for Apple's piece of garbage (at launch), and introduced data usage bugs that caused network bandwidth consumption to skyrocket. We covered this at the time, but you can see the before-and-after clearly in data consumption on my own phone.



With Verizon and AT&T pushing metered bucket plans at $10-$15 per GB, this was the sort of mistake that cost people money.

Was the iPhone 5 an upgrade over the 4S? Yes. And eight months after Apple released it, I might finally recommend someone buy one, now that the kinks are worked out. But there's nothing here to get enormously excited over. Apple could add a higher-resolution screen, or better battery life, or a faster processor. It could revamp iOS, or toss in faster LTE. There are definitely ways it can improve the product, but precious few of them are likely to be game-changing the way the previous models were.

It's not so much that Apple is losing dominance, but that smartphones and their capabilities have generally hit a plateau. And it's only bad news if you expected the meteoric rate of return to last forever. Tablets and smartphones are becoming part of the computing landscape, but the adoption process for a product always follows a certain curve. Frankly, I'd rather see Apple take longer on its next iteration and deliver a product that wasn't plagued by broken software and data eating network bugs.
  • | Post Points: 95
Top 150 Contributor
Posts 730
Points 5,865
Joined: Apr 2013
Location: Lewisville, TX
Clixxer replied on Wed, Apr 10 2013 6:24 PM

 Guess this will show if Tim Cook can bring Apple to the next thing or if Apples decline is starting. I know Apple will sell phones just because they are the Iphone that just goes to show you nothing last forever and innovation is becoming harder and harder especially with other manufacturer breathing down your neck with "technically" better equipment. It will indefinably be interesting to see where Apple goes in the next year or two.

My rig - I7-4770K, ASUS Z87-A Mobo, 16 GB Corsair Ram, AMD 7990 GPU, CoolIT AiO Cooler, NZXT H630

  • | Post Points: 5
Top 500 Contributor
Posts 187
Points 2,015
Joined: Apr 2013
Location: Fenton, Michigan
Johnny3D replied on Wed, Apr 10 2013 7:15 PM

I'm pretty sure Apple is already in decline. Apple's stock has been dropping pretty steadily since November of last year. It has gone up and down, but the overall trend is down. I haven't seen anything out of Apple that isn't just rehashing the same stuff they have been doing in quite a while.

  • | Post Points: 5
Top 200 Contributor
Posts 428
Points 3,530
Joined: Jun 2012
RiCoFrost replied on Wed, Apr 10 2013 7:58 PM

There are too many other better choices out there now. They cant keep selling products at such high prices. They will need to drop prices to bring everything inline.

Apple is no longer the best smart phone and it hasn't been for sometime now.

  • | Post Points: 5
Top 100 Contributor
Posts 1,016
Points 10,925
Joined: Dec 2010
Location: Mcallen, Texas
OSunday replied on Wed, Apr 10 2013 8:43 PM

Couldn't agree more, Apples dominance is going to fade and become more equal in sales numbers to other smartpohnes "as smartphones become ubiquitous.

Combine that with the fact that the amount of "new" smartphone adopters decreases as more and more people own smartphones and that removes another little boom in sales, with the fact that it's also an off year in the typical two year contract upgrade plan most users are locked into.

Smartphone capabilities have definitely hit a plateau and no longer have a catch to lure people away from android and WP7, and the "Apple appeal" because it's apple and a trending popular product is still present but is definitely declining as well with other phone manufacturers like Samsung strongly stepping up their game.

This along with the fact that Android is able to take a foothold and expand since it's on a wider variety of devices there's more room for experimentation and creativity for the platform since it's not limited to one phone.

  • | Post Points: 20
Top 10 Contributor
Posts 8,430
Points 102,120
Joined: Apr 2009
Location: Shenandoah Valley, Virginia
MembershipAdministrator
Moderator
realneil replied on Wed, Apr 10 2013 10:33 PM

Competition is a terrible thing. Android phones are pretty compelling these days.

Sell them for less. We will come.

Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.

(Mark Twain)

  • | Post Points: 5
Top 150 Contributor
Posts 730
Points 5,865
Joined: Apr 2013
Location: Lewisville, TX
Clixxer replied on Wed, Apr 10 2013 11:39 PM

OSunday:

Couldn't agree more, Apples dominance is going to fade and become more equal in sales numbers to other smartpohnes "as smartphones become ubiquitous.

Combine that with the fact that the amount of "new" smartphone adopters decreases as more and more people own smartphones and that removes another little boom in sales, with the fact that it's also an off year in the typical two year contract upgrade plan most users are locked into.

Smartphone capabilities have definitely hit a plateau and no longer have a catch to lure people away from android and WP7, and the "Apple appeal" because it's apple and a trending popular product is still present but is definitely declining as well with other phone manufacturers like Samsung strongly stepping up their game.

This along with the fact that Android is able to take a foothold and expand since it's on a wider variety of devices there's more room for experimentation and creativity for the platform since it's not limited to one phone.

I could not have said it better myself. I'm just hoping that Windows steps it up more and RIM hangs on. Competition is what got phones to this point and hopefully as long as their are 4 major brands for then it will continue when the next thing big comes out. 

My rig - I7-4770K, ASUS Z87-A Mobo, 16 GB Corsair Ram, AMD 7990 GPU, CoolIT AiO Cooler, NZXT H630

  • | Post Points: 5
Top 200 Contributor
Posts 331
Points 2,415
Joined: Sep 2011

Competition is a wonderful thing. These companies need to to be chasing each other to capture consumer dollars. Competition leads to innovation. And yes, Blackberry and Microsoft can need to keep it up.

  • | Post Points: 5
Page 1 of 1 (8 items) | RSS