Is Apple Limiting Its Own Growth Overseas?
Apple’s (NASDAQ:AAPL) iPhones proved to be hot products each time they were released over the last several years, but as the smartphone market expands around the globe, Apple could be missing out on key markets for continued growth and relevance.
The iPhone may be the most popular smartphone in the U.S. and sit high on the totem pole in many other developed nations, but there are still a lot of regions in the world that don’t sell the device or where it simply can’t perform well due to its high price.
There is a potential of 2.8 billion customers that Apple doesn’t seem to have an angle at getting. Most of those customers are in Asia, and Apple may be standing in its own way. One of the key things keeping the iPhone from selling in a lot of places is its substantially high price. But, Apple’s terms with carriers may also be a major factor. It seems some carriers aren’t to fond of the terms of agreements necessary to get the iPhone on their network.
The numbers suggest that Apple isn’t making friends with carriers very easily anymore. Since September 2011, Apple hasn’t added more than a dozen new carrier partners. According to Asymco.com, the iPhone is only carried by 240 wireless providers, meanwhile Samsung (SSNLF.PK) has its devices supported on nearly all of the world’s approximately 800 mobile carriers. Strategy Analytics suggested that only about 500 carriers have the technology to support the iPhone.
It’s not just small carriers that can’t afford to carry the iPhone that haven’t made deals with Apple. Neither the world’s largest mobile carrier, China Mobile (NYSE:CHL), nor Japan’s largest mobile carrier, NTT DoCoMo (NYSE:DCM), carry Apple’s iPhones. That’s an incredibly significant loss for Apple. According to China Mobile Chief executive officer Li Yue, a deal between Apple and the carrier would have to be mutually beneficial and “the business model and benefit sharing still need further discussion.” NTT Docomo CEO Kaoru Kato said the company still hasn’t decided if it would carry the iPhone, while other major carriers in Japan — such as SoftBank — have been offering the iPhone for over a year.
It’s not easy for carriers to offer the iPhone. According to market analyst Horace Dediu, “Apple has run out of the kinds of operators that will say yes to them.” Apple requires carriers to guarantee minimum sales tallies and the price of the phone. The subsidies some carriers have to use can be too expensive for the iPhone to be worth their time. On top of that, Apple doesn’t allow carriers to put their names on the devices, which competing manufacturers often do allow.
This all spells trouble down the line for Apple. In the last quarter, iPhone sales only grew 7 percent — compared to the 36-percent growth experienced by the entire smartphone market in that quarter and an 88-percent growth in the year-earlier quarter. Apple’s gross margin was also down almost 10 percent year-on-year in the last quarter. As half of the company’s revenue comes from the iPhone, continued growth will be important, and this stagnation could sour Apple’s stock further. Despite the troubles, Apple may be able to pull through on the margins it still has; it accounted for 70 percent of all handset profit in 2012 despite not having the greatest market share, according to Canaccord Genuity. A cheaper iPhone could smooth things over in these markets, but might also cut Apple’s industry-leading profit margin even further.
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