10 Reasons the iPhone Could Eventually Hurt Apple's Business

 
 
By Don Reisinger  |  Posted 2011-04-21
 
 
 

10 Reasons the iPhone Could Eventually Hurt Apple's Business


Once again, Apple's earnings impressed the market. In its fiscal second quarter, Apple generated a whopping $24.67 billion in revenue and a profit of nearly $6 billion. As one might expect, investors, analysts and Apple fans were excited by the news. It effectively highlighted just how far the firm has come since the mid-1990s.

In addition, Apple announced that it sold over 18 million iPhones during the quarter, along with nearly 5 million iPads.

But there is much more to the story than just Apple's ability to generate continued interest in its devices. The iPhone especially is more important to its operation than ever before. And going forward, it will continue to be integral to its ability to generate record-breaking revenue and profits.

However, all that importance could spell trouble for Apple. Sure, the smartphone is doing well now, and for the foreseeable future, that will continue. But what if the iPhone starts to decline due to issues or slumping demand?

The iPhone's success could become a curse. Unlike all the other products Apple sells, the iPhone could significantly affect the company's business if issues arise.

Read on to find out why:

1. It's now half of its business.

Based on the data Apple provided in its second-quarter results, the iPhone represents half the company's revenue. Two years ago, that figure stood at approximately 18 percent. Considering all the products Apple sells, including the Mac, the iPad and the iPod, among others, having a single device representing half its operation is a risk. While things are good, the financial performance will skyrocket. But if things turn sour in the smartphone market for Apple, expect its revenue figures (and thus, its profit) to slide at a tremendous rate.

2. It's the driving force behind the App Store.

Apple's App Store is wildly important to the company right now. It's not necessarily a main revenue driver, but with over 10 billion application downloads, it's a place that Apple can continue to capitalize on over the coming years. Right now, the iPhone is the main driver behind the App Store, followed by the iPad. If trouble arises with Apple's iPhone in the future, the App Store, in turn, might falter, as well. The last thing Apple needs is to see not one, but two of its important operations decline at the hands of the iPhone.

3. Android keeps getting more popular.

Apple's iPhone is not competing in a vacuum. Right now, Google's Android platform is capturing more and more market share around the world as consumers opt for an increasing number of devices running that operating system. As Android's star continues to rise, the iPhone might be negatively affected. If that happens, Apple will need to find a way to maintain the iPhone's position in the marketplace, or it could find itself in a difficult financial situation. Android is a bigger threat to Apple's business than many believe.

4. The iPad isn't enough

Look at Apple's product line and try to find another device that's even close to as important to its operation. Some might say that the iPad is, but that market is still quite young and with so many competitors leaping into that space, it's doubtful that as many consumers will opt for Apple's tablet the way they have jumped for its smartphone. Until Apple can improve sales on its other products to a point where they would be just as important as the iPhone, it's easy to see that poor performance from the company's smartphone could prove extremely troublesome to its business.

Macs, iPads Can't Replace the iPhone Cash Cow


5. Its importance keeps growing.

Even worse, Apple's most important product, the company's smartphone is becoming even more important by the day. As noted, the iPhone's revenue represented just 18 percent of its operation two years ago. Now that that figure stands at 50 percent, one might wonder how much higher that figure will go. The more the iPhone contributes to Apple's revenue, the worse it could be for the company.

6. Can it be the iPod?

Luckily for Apple, it has been in a similar situation before. When the iPod was at its height, the device was integral to the company's operation. As sales started to wane, some wondered what would come of Apple. Then the iPhone changed all that. Apple's charge now is to make the iPhone another iPod. Surely the company's smartphone can't be so popular forever. Eventually, Apple will need to come up with something else to carry its banner.

7. Macs won't cut it.

Let's say that the worst happens and iPhone sales start to plummet. Apple would need to rely upon other aspects of its business to buoy its operation. Chances are that would mean hoping Mac sales could cushion the blow. The only issue is that it won't be able to do so. Macs made up just 20 percent of Apple's revenue in the last quarter. Two years ago, it accounted for 36 percent of the company's revenue. In other words, Macs are losing their importance at Apple. If the bottom falls out of its iPhone business, Macs won't be able to hold it up.

8. The iPod won't cut it either.

The iPod is another business unit that has witnessed its importance suffer greatly at Apple over the years. Just two years ago, the iPod made up 20 percent of Apple's revenue. In its most recent quarter, it accounted for just 6 percent of its revenue. Worst of all, demand for that device is waning. If the iPhone business starts to decline, it's tough to see how the iPod, once one of Apple's most important products, could help the company in any way.

9. It's the Apple of the investors' eyes.

As a public company, Apple has a responsibility to maximize shareholder value. As its revenue and profit figures continue to climb, it's proving quite effective at that. But if trouble starts to arise in its iPhone unit, it wouldn't take long for investors to sell off their shares and opt for something with more upside potential. That ripple effect-poor iPhone performance followed by a massive sell-off-could create turmoil at Apple, including management shake-ups, drastic product decisions and other issues that could have a long-term, negative impact on its operation.

10. It's Steve Jobs' creation.

There might be teams of people at Apple that are involved in the development of products, but when it comes to the iPhone, one person-Steve Jobs-was integral to its creation. However, Jobs is currently away on medical leave, and there's no telling when he might come back. If he is not involved in future iPhone models, there's no telling what might come out of it. And there's no telling how appealing those devices might be. As investors and analysts witnessed in the company's latest earnings release, as the iPhone goes, so goes Apple. It's important that all stakeholders keep that in mind. 

 


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