Apple needs to show new iPhones are driving growth

Investors are waiting to see if its newest product will fuel momentum for the world’s most valuable company

(FILES) This file photo taken on September 7, 2016 shows the Apple logo on the outside of Bill Graham Civic Auditorium in San Francisco, California.
Apple on January 31, 2018 confirmed it is fielding questions from US agencies about its move to slow down older iPhones as batteries weaken."We have received questions from some government agencies and we are responding to them," Apple said in an email response to an AFP query.The reply came as comment regarding a Bloomberg report that the US Department of Justice and the Securities and Exchange Commission are investigating whether Apple broke the law by failing to disclose a software update that made older iPhone models function slower.
 / AFP PHOTO / Josh Edelson
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Apple is set to report quarterly results Thursday as investors and others are cautiously watching to see whether its newest iPhone will help fuel momentum for the world's most valuable company.

Despite Apple's spectacular trajectory in the decade since the introduction of the iPhone, the California technology titan is facing  questions on whether it can continue growth.

Apple’s image meanwhile has been bruised by revelations that the company updated its mobile software to slow the performance of old iPhones as batteries weaken from age.

The company's share price has eroded in recent weeks on speculation that sales of its flagship iPhone X have been far lower than expected.

It is staking much of its future on the redesigned iPhone X – the 10th anniversary edition of the iconic handset – which was introduced last year.

Although Apple does not normally break down sales by individual models, some analysts have expressed concern that the newest and most expensive iPhone is a laggard, while others say Apple has delivered on its promise with a fuller range of handsets.

Kantar Worldpanel ComTech (KWC) data released on Tuesday indicated the iPhone X was among the top three best-selling devices across Europe, Australia, Japan, 'urban China' and the US in December.

“The full results for the last quarter of the year show that Apple’s decision to release three new handsets over a staggered period, including the ultra high-end iPhone X, has been a sound one,” said KWC global director Dominic Sunnebo.

“Given that in December iPhone X made it into the top three best-selling devices across all key regions, particularly in urban China where it was the top-selling model, the pricing strategy seems to have been vindicated.”

Some analysts say Apple needs to think beyond the smartphone if it is looking to secure its future.

“We’re rapidly approaching the era of smartphone market maturation, and quite possibly, the end of smartphone market growth,” said Technalysis Research chief analyst Bob O’Donnell.

And while smartphones remain popular, voice-commanded machines, wearable computing, augmented-reality glasses and other innovations could make handsets seem like "old technology" in the not too distant future, the analyst reasoned.

“Challenges for the iPhone X and other high-end smartphones go well beyond just the appearance (or not) of a replacement ‘super cycle’,” Mr O’Donnell said in a blog post.

Smartphone upgrade rates are at record-low levels and do not appear poised to rebound in the current quarter, according to BTIG analyst Walter Piecyk.

"The sustained lengthening of the replacement cycle appears driven simply by customer choice to hold onto their phone longer," Mr Piecyk said.

Apple is in a unique position following a major US tax overhaul which has prompted the company to reveal plans to bring back most of its $269 billion (Dh988.03bn) in profits held overseas, providing funds to pay dividends, buy back shares, invest in research or make acquisitions.

Rumours being floated include the notion that Apple might want to buy streaming television giant Netflix to beef up content in its services business.

Netflix's value based on its share price is more than $88bn, an amount Apple could afford given its overseas cash, according to Swarup Gupta of Zacks Investment Research.

“Such a buyout would also add to Apple’s services muscle,” Mr Gupta said.

While there appear to be threats to Apple's share price this year, there also appear to be an array of opportunities, according to Mr Gupta.

Apple has touted the growth of its services business, revenue from which rose 34 per cent last year to almost $8.5bn, said Mr Zacks.

The company could also start making money from sales of voice-commanded HomePod speakers infused with the Siri virtual assistant. HomePod will make a belated debut this year, taking on Amazon Echo and Google Home devices

Mr Gupta noted that the controversy over the slowing of older iPhones “has dented the reputation” of the brand.

“But given the nature of Apple’s fan following, it could easily be forgotten in the months to come unless another major slip-up happens on the company’s part,” he said.