iPhone 5 release paints a grey future for Apple

For once, the rumour mill was right: The latest iPhone 5 will be seen as an impressive device that will easily sell as many as Apple can make.

The new device, introduced at a media event in California, was showcased along with updated versions of the iPod touch, iPod nano and iPod shuffle. It sports a larger 4-inch screen, faster processor, 4G wireless capability and a new operating system: iOS6. Without a doubt it's Apple's best phone ever.

Early warning signs

Mania aside, however, not all is well in Apple's world. With almost half of its revenues coming from the iPhone, a protracted slowdown in sales growth suggests the iPhone's best days of exponential sales increases may be behind it. Earlier Apple products, like the Mac or iPod, can provide a baseline for understanding the iPhone's current market trajectory, says IDC analyst Kevin Restivo.

"Each successive model or iteration was incremental," says Restivo. "There was no real revolutionary design leap, and yet those products were successful for years and grew at exponential rates.

"I don't see why the iPhone is any different," he adds. "Still, iPhone growth is slowing, so we're not going to see the wild growth that we've seen in the past."

An increasingly competitive market, coupled with reduced consumer confidence, means the new iPhone faces its toughest market conditions since its 2007 introduction.

"Given the world's macroeconomic conditions, people will be more careful of any consumer product purchase," says Restivo. "They need to be captivated by the product."

Apple may be a victim of its own timing, where it introduces a new phone about once per year. Consumers, keenly aware of this cadence, typically slow down their purchasing for at least a quarter before the new device is launched. This year, the drawdown stretched back six months.

Slowing iPhone growth

Slackening sales growth raises legitimate questions around the frequency of Apple's major mobile product launches. A simplified product matrix may support Apple's branding strategy, but it doesn't necessarily pad the bottom line.

The uberphone's year-over-year sales growth, which hit 183 per cent in 2011, was down to 27.8 per cent in the most recent quarter. While this growth is marginally higher than the annualized global smartphone market growth of 25 per cent expected by research firm TechNavio through 2015, it's hardly spectacular, and reflects a six-month slowdown in growth for the once-invulnerable franchise.

Rising competition

When the iPhone launched in 2007, a yearly refresh cycle made sense. Today, a once-patient next-generation iPhone buyer has additional options to ponder while they wait for the next Apple product. The market is now congested and competitive. Last quarter, 51 per cent of all smartphones sold in the U.S. were Android-based, according to comScore. Apple's iPhone snagged 32 per cent.

As new Android devices continue to launch steadily throughout the year, they pull in once-loyal iOS buyers who simply can't, or won't, wait for the next new phone from Apple. As the current iPhone reaches the end of its year-long product cycle, it becomes vulnerable to a combination of shiny new Android phones and the growing numbers of less-than-loyal buyers responsible for accelerating smartphone demand.

A number of options are available to Apple as it considers means of reducing its window of exposure in the final months of an older product's life cycle:

Ramp up to a six or nine month release cycle. While an entirely new device every six months to replace the previous model is unlikely, an accelerated timeline at least reduces the potential of having a year-old phone compared against a brand-new competing device. It's not as if Apple doesn't have the resources to crank up the timeline — and push its competitors closer to the edge.

Add tiers to the current offering, then stagger the release date. Although Apple retains previous-generation iPhones as lower-cost options, a specifically-designed device could maintain interest during the long months when currently no new iPhone is released. Differentiating factors could be screen size (smaller), construction (more plastic, or alternative materials) or even battery size.

Schedule operating system updates opposite planned hardware launches, as aligning them with hardware releases merely dilutes the impact.

Any change exposes Apple to brand dilution, as the iPhone is the linchpin of its premium-mobile image. But when monolithic branding faces up against changing market dynamics, the status quo is no longer sufficient. A more frequent schedule, with greater product variation, could help Apple align more closely with an increasingly competitive market and avoid the softened demand that accompanies consumer perceptions of old product. IDC's Restivo says everything rides on this.

"As the iPhone goes so goes Apple," he says. "The company absolutely needs the next generation iPhone to be a hit."

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca