Apple iPhone and the Global Smartphone Market
The global smartphone market has undergone an enormous increase during recent years demonstrating that the quantities of shipments have elevated by 52 percent in 2015, which allows surpassing the 1 billion unit threshold and standing for $296 billion in value (Capatina & Draghescu 2015, p. 61). It is forecasted that smartphone shipments will reach the level of 1.90 billion units by 2020 (Capatina & Draghescu 2015, p. 61). Nevertheless, the extraordinary increase has been escorted by a serious abruption. Huge industry players experience a high level of competition in an effort to embrace a higher amount of customers. Therefore, Apple has redefined the company’s hardware business model while Samsung, being the greatest Apple’s competitor, has built a solid advantage resulting from the scope of its operations. In addition, the industry analysis demonstrates that the entry barriers have fallen as a result of the Android operating system increase that is combined with numerous reference design platforms, which empower a blossoming and enlarging the manufacturing community. The current paper will analyze Apple iPhone in the global smartphone market and demonstrate how Apple can improve future production and sustain the company’s success.
The global smartphone market and industry are constantly experiencing tremendous growth and development during the last years. The level of competition remains fierce as two technology titans dominate the market meaning Apple and Google (Wouters, 2014, p. 31). Total mobile phone shipments in 2015 have reached the figure of 1.97 billion units on a global scale revealing a sustainable increase of 6 percent in contrast to the previous year (Capatina & Draghescu 2015, p. 63). Generally, the analysis of Apple and Samsung demonstrates that smartphone titans account for 35 percent and 39 percent respectively in regard to global shipment levels (Capatina & Draghescu 2015, p. 63). Despite the fact that such mature markets as the US, Canada, and Western Europe experience fresh incentives from network operators’ early upgrade programs, smartphone increase and development in these markets are currently seriously stimulated by replacement sales (Wouters, 2014, p. 31). The analysis reveals that replacements rates of 2015 account for 60 percent in regard to the installed basis in the US and Canada, and 40 percent of the installed basis in regard to Western Europe (Capatina & Draghescu 2015, p. 63). In essence, smartphone increase seriously relies on emerging markets, especially China. The facts demonstrate that China accounts for mobile phone shipments of 385 million units in 2014, which stands for 22 percent of the global output (Capatina, 2014, p. 609). The global smartphone industry and market are characterized by competitive dynamics. The recent years of the smartphone industry have witnessed a radical change in the dynamics and structure of the global smartphone landscape (Stoenescu, 2014, p. 623). The facts reveal that profit margins demonstrated a tendency to follow analogous (and sometimes even worse) trajectory in contrast to the PC industry while the strategic significance of mobile technologies made the smartphone market become progressively more multiplex and emulative (Hjorth, Richardson & Burgess, 2012, p. 28). The mobile industry turned into a subsidized channel for the business models broadening in regard to retailing and advertising beyond traditional hardware margin-grounded businesses. The facts reveal that Apple appears as a remarkable and outstanding exclusion to the above-mentioned dynamic (Wouters, 2014, p. 31). Nevertheless, Apple has created a specific ecosystem, which utilizes its content and services strengths in order to create industry-guiding profit margins for its hardware (Wouters, 2014, p. 31). Along with that, entry barriers have fallen drastically resulting in a “long tail” of emerging manufacturers, which are conjointly turning into a serious force (Capatina, 2014, p. 609). They are solidly broadening and developing beyond their heartland (China) utilizing such advantages as decreased cost, the home market scope and the supply chain closeness. These factors provoked massive disruption. It presupposes that such well-established phone-makers as Apple, Samsung, BlackBerry, Nokia, HTC, Motorola, etc. have been pressed between the Chinese manufacturers’ emergence (Wouters, 2014, p. 36). Nevertheless, the smartphone market, especially industry titans, is still experiencing healthy (but decelerating) market development and increase. Consequently, the current state of the mobile phone industry can be characterized as a duopoly. Starting in 2013, Apple and Samsung seized two-thirds of industry capital (Wouters, 2014, p. 37). Nevertheless, both phone-makers are predetermined to face elevated margin pressures due to competition rise. In addition, the conjoined Android ecosystem power pursues to close the gap regarding Apple’s differentiating capability (Wouters, 2014, p. 37). The facts demonstrate that Apple can probably sustain its leadership in regard to value expulsion due to its ecosystem advantages, which appear to be hard for Apple competitors to emulate (Stoenescu, 2014, p. 623). Regardless of intense competition, only one smartphone-making company demonstrates a high financial concentration (Hjorth, Richardson & Burgess, 2012, p. 28). The facts demonstrate that Apple captures a third of the smartphone market value (Capatina, 2014, p. 612). The company revealed a 31 percent operating margin in 2014 while the majority of other first- and second-tier manufacturers fluctuated around the zero profit line (Wouters, 2014, p. 38). This presupposes that Apple currently has a conjugation of assets, which provide the company with a possibility to differentiate its products and order highly solid premiums in margin and price (Capatina & Draghescu 2015, p. 64). Thus, due to the fact that one player sustains specific prices at the high end of smartphones, while Samsung acts highly aggressively in order to get an advantage in all other segments, the competitors appear as ineffective as emulators lack the advantages (Wouters, 2014, p. 38).
History of Apple iPhone
The facts reveal that Apple launched its ‘insurgent’ and ‘revolutionary’ product during the first quarter of 2007 (Hjorth, Richardson & Burgess, 2012, p. 28). This product, meaning iPhone combined three customer-oriented and client-popular concepts incorporating a mobile phone, a widescreen iPod, and an internet communication device (Hjorth, Richardson & Burgess, 2012, p. 29). Therefore, as a client-oriented product, the iPhone could boast with a completely new user interface grounded on a large multi-touch display and pioneering software, which customers could control using their fingers (Capatina, 2014, p. 608). Apple marketed 1 million iPhones less than three months after the product become accessible by the customers (Capatina, 2014, p. 609). The facts demonstrate that the iPhone accounted for approximately 55 percent of Apple’s total income during the first nine months of the just-ended fiscal year (Capatina & Draghescu 2015, p. 65). Although the company does not disclose its profitability data concerning the product lines, the facts vividly demonstrate that the iPhone is the main driver of operating profits as a gross margin surpasses the level of 50 percent on the devices (Capatina & Draghescu 2015, p. 65). Therefore, Apple demonstrates a strong and solid consumer demand, which allows it to command high subsidies (Capatina, 2014, p. 609).
Firstly, sole-sourced outsourcing partners in the US, Asia, and Europe perform the manufacturing and supply of numerous crucial constituents. Outsourcing partners in Asia implement the last assembling of practically all Apple hardware products (Hjorth, Richardson & Burgess, 2012, p. 28). Logistics or manufacturing in these locusts or transition to final line end can appear as undermined for numerous reasons incorporating natural and synthetic disasters, information technology system crashes, military operations or economical, labor, environmental,. problems, among others. Secondly, terrorism, wars, geopolitical instabilities, which are combined with other business intrusions, might damage international commerce together with the global economy resulting in adverse effects on the company, its providers, logistics suppliers, production retailers, and clients incorporating channel partners (Hjorth, Richardson & Burgess, 2012, p. 28).
The global crisis is still having a significant influence on Apple’s iPhone retail performance. The economic conditions demonstrate a tendency to affect business suppliers and thus can negatively influence Apple’s capability to acquire constituents. This is the main reason why Apple sustains subjected to solid hazards of supply scarcities and price elevations (Stoenescu, 2014, p. 623). Nevertheless, Apple expects to experience decrements in its gross margin percentage, which will mainly appear due to a greater mixture of new and innovative products with flat or lowered pricing ((Stoenescu, 2014, p. 624). These products will demonstrate greater cost structures and would equip a greater value to customers. In addition, prospective strengthening of the US dollar can also negatively affect the company’s gross margin (Capatina, 2014, p. 615).
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The Apple iPhone business requires the company to utilize and store clients’, personnel’s, and business partners’ personally identifiable information, which typically incorporates name, address, phone number, email address, contacts, preference, tax identification number, along with payment account data (Capatina, 2014, p. 615). Despite the fact that malicious attacks to obtain access to personally identifiable information can seriously and negatively affect numerous companies across different industries, the Apple faces a comparatively higher risk of being targeted due to the company’s high profile, overall industry competition, and the quantity of personally identifiable information the company manages (Capatina, 2014, p. 616).
The facts reveal that Apple iPhone Research and Design expenses elevate year by year (Wouters, 2014, p. 31). Thus, the company demonstrated $3.4 billion during 2013, $ 4.2 billion during 2014, and $ 5.1 billion during 2015, which appears to be a highly significant manner in the current competition (Capatina & Draghescu 2015, p. 63).
It is known that Apple markets its hardware and software products to venture and governmental customers in every geographical segment. The Apple iPhones are developed in the markets due to their performance, effectiveness, easiness of use and seamless integration into the information technology environment (Stoenescu, 2014, p. 625). In addition, iPhones appear to be consistent with thousands of third-party business services and applications while the tool empowers the evolvement and secured escalation of custom applications together with remote device administration (Hjorth, Richardson & Burgess, 2012, p. 37).
Consequently, Apple is subject to legislation and regulations affecting its domestic and international operations in a multifold of areas. Therefore, the US and foreign legislation and regulations affect the Apple operations incorporating all labor areas, digital content, consumer securing and defense, e-commerce, services caliber, intellectual property ownership, data privacy requirements, safety, etc. (Stoenescu, 2014, p. 625).
In such a manner, Apple iPhone demonstrates an amazing IOS operating system, which is combined with outstanding multi-touch features. The facts demonstrate that the iPhone is known to be the first phone, which can be genuinely outlined and named as a “smartphone” (Capatina, 2014, p. 608). This appears to be the first-mover advantage for the company while all others can be easily demonstrated through the SWOT analysis of Apple iPhone.
Firstly, Apple is considered as one of the top global companies as a result of the company’s brand equity. Starting from Macintosh computers, Apple is considered as a brand with promise (Hjorth, Richardson & Burgess, 2012, p. 28). Secondly, Apple is constantly characterized by the applied tag of innovation as Apple is accountable for numerous technological revolutions. Thirdly, Apple is characterized by a high level of customer loyalty (Hjorth, Richardson & Burgess, 2012, p. 28). Fourthly, Apple demonstrates outstanding software and OS as, for instance, IOS (Apple operating system of Apple iPhone) appears to be a respected mobile platform due to its speed and flexibility (Wouters, 2014, p. 34). In addition, the user interface is amazing and demonstrates a high level of customer orientation. Fifthly, Apple iPhone is characterized by a broad level of developer support and control in the hands of users as the Apple developer community is regarded as one of the strongest online communities ever. The final advantage of the Apple iPhone implies design consistency (Capatina, 2014, p. 615). Apple iPhones appear to be highly similar in looks and design-wise, which means that there are not many alterations to overall smartphone design. The focus consists of the inner systems as they are the main concentration of the company and they are actually marketed to the customer (Hjorth, Richardson & Burgess, 2012, p. 28).
Nevertheless, it is also important to understand Apple’s iPhone weaknesses in order to define possible changes for future product enhancement and success sustainment.
Firstly, Apple iPhone is characterized by a high price. Due to Apple’s brand equity, the company is bound to targeting the A grade segment (Hjorth, Richardson & Burgess, 2012, p. 32). Nevertheless, even in this case, the Apple iPhone appears to be more expensive in contrast to Samsung smartphones offering analogous features (Capatina, 2014, p. 615). Secondly, Apple’s iPhone demonstrates unnecessary restrictions including the absence of Bluetooth, the absence of expandable memory, and non-removable battery (Capatina, 2014, p. 615). The high price of the product stimulates customers to expect a higher number of necessary features from the smartphones they acquire. Thirdly, the Apple iPhone is featured by the absence of design variety (Wouters, 2014, p. 35). Despite the fact that design consistent can be regarded as an advantage, a large populace demonstrates a tendency to constantly change smartphones switching to other brands and comparing their designs and features. iPhone cannot satisfy the required design variety for this type of customer. In addition, this feature allows competitors including Samsung utilize their advantages as they offer a huge variety and numerous features (Wouters, 2014, p. 35).
Supply and Demand Conditions
The majority of analysts believe that the strong demand for Apple phones will merely strengthen and continue. The public requirements for the iPhone 6s demonstrate that the demand outstrips the company supply. The figures reveal that Apple is frequently incapable of meeting the demand for the product, and the last quarter of 2015 demonstrates that Apple did not meet the demand of 42 percent of its customers (Capatina & Draghescu 2015, p. 68). In such a way, the demand for the iPhone product demonstrates a tendency to follow the customer’s tastes. Therefore, the shifting of demand curve obviously elevates the company’s equilibrium amount of iPhones purchased. The desire of customers to acquire iPhones elevates the demand curve of the iPhone products (Capatina & Draghescu 2015, p. 68). On the other hand, the shifting of the supply curve obviously elevates the equilibrium amount of iPhones marketed. It presupposes the fact that iPhone is desired and favored by customers lowers the overall iPhone product supply (Capatina & Draghescu 2015, p. 69).
The data prove that the smartphone market has been dominated by Apple’s iPhone series of products for several years. Due to the fact that numerous smartphones are released on a basis of Google’s Android operating system, the level of competition is increasing provoking alternative phone operating systems (Microsoft Windows Phone, Firefox, Ubuntu and Blackberry OS 10) to expand in popularity (Wouters, 2014, p. 36). The identification of the selling price for the new product, which would appear to be consistent with both Apple and its customers, is the main task of the company (Capatina, 2014, p. 618). Apple understands that it is highly crucial to create the ‘right’ price as when it is decreased, an insufficient amount of phones will be produced while when it is too high, the unsold stock will be created (Stoenescu, 2014, p. 625). Thus, the creation of the iPhone 6 can be used as a perfect example of Apple’s price elasticity analysis. When the pricing team originated the price of 550 for the unit, the production department announced that merely 10 million units could be produced (Capatina & Draghescu 2015, p. 68). Therefore, the production department proposed to elevate the price to the level of 700 in order to produce enough phones to reach the company’s sales objective (Capatina & Draghescu 2015, p. 68). Apple demonstrates that the nominal price elasticity of demand for the iPhone6 is lowered in contrast to the initial offerings of the iPhone 5C and 5S.
Cost of Production
The facts demonstrate that the latest Apple iPhone 6S costs Apple approximately the analogous amount of money as previous iPhone products. In spite of the fact that the new iPhone 6S is essentially discrepant from the iPhone 6, the company together with its production associates succeeded in preserving the spending and expenses at approximately the same level. Thus, all materials, assembling, testing and packaging spendings of one Apple iPhone 6S appear to reach $234 (Capatina & Draghescu 2015, p. 68). This price does not actually incorporate the price of hardware and evolvement together with distribution expenses. The facts demonstrate that the display continues to be the most expensive constituent of the iPhone. Thus, the new display package incorporates a “retina-class IPS display panel with 1334*750 resolution, touch screen, Ion-strengthened cover glass as well as 3D Touch sensors and force-feedback mechanisms” (Capatina & Draghescu 2015, p. 70). In addition, the Apple A9 application processor, which is known to power the new-generation iPhones appears as less expensive as compared to previous iPhone versions accounting for $25 per one chip (Capatina & Draghescu 2015, p. 70). Despite the fact that the new Apple iPhone 6S has a similar design to its predecessors, the smartphone has been fully re-engineered in regard to its inner basis.
On the basis of the above-mentioned analysis, specifically PESTEL and SWOT analysis of the Apple iPhone, there are some suggestions and strategies for Apple, which can appear to be useful and beneficial for the success sustainment and company profit maximization.
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The first recommendation regards the iPhone operating system. Apple is known to have its own operating system, which is typically regarded as a privilege. Nevertheless, the industry presents several open-source operating systems including Android, which can stimulate some customers to switch to a different brand. Apple’s iOS demonstrates numerous unique features, which practically distinguishes it from other OS’s. High level of competition combined with the rapid pace of open-source OS development stimulates numerous users to switch to other operating systems as even some critical software for backing up and data storing appears as pricy in iOS Apple Store. Therefore, it is recommended for Apple to break or eliminate some of these providing its customers with a possibility to enjoy free or low-priced applications. This will help in intercepting Android customers and strengthen the Apple iPhone position among global smartphone users.
Secondly, the smartphone industry is considered to be highly attractive; therefore, numerous companies are furiously growing in the market-facing both existing and new markets. Non-stop technology causes new demands and innovative markets, and additional technology developments. Therefore, Apple should constantly play with prices continuing its premium price strategy. Despite the fact that Apple iPhone is on top, the R&D is supposed to elevate because of severe emulation. The increase in R&D expense is stimulated by an elevation in quantity and associated spending to endure broadened R&D operations. Despite the fact that overall R&D spending elevated by 41 percent in 2015, it actually sustained as sufficiently constant in contrast to the percentage of the net sales. The focused investments in R&D are essential for the Apple iPhone’s future growth and emulative position in the marketplace due to the fact that they are directly connected to the opportune evolvement of innovative and amplified products, which are central to Apple’s core business strategy. Further investments in R&D will help the company remain competitive.
Finally, Apple iPhone should better penetrate the Chinese smartphone market. China can provide a healthy customer demand in regard to Apple Chinese iPhone sales. The facts demonstrate that smartphone prices start to stabilize in China, which allows opening the iPhone market in the country. This can add 10 percent to the global share of Apple iPhone thus maximizing its profits at least by 20 percent.