Apple announced its worst financial quarter in over a decade, with sales falling 13% and profits dropping 22% year-over-year. The biggest decline was in China, where iPhone sales dropped 26%. This was largely due to weaker performance of the iPhone 6S compared to the previous year's iPhone 6, as well as growing competition in China from companies like Xiaomi and Huawei. To regain momentum, Apple will need to penetrate new markets like India, keep innovating its products, find new revenue streams, and make the iPhone more affordable.

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MEMORANDUM
Date​: July 23th, 2016
To​: Karen Turner
Professor
From​: Margherita Bernardi, Alessandro Mocchi, Shannon Nelson, Stefano Piizzi
Students
Subject​: Apple and losses incurred in the first financial quarter of 2016
Reference​: Team Research Project – Outline
INTRODUCTION
On April 26th 2016, Apple announced its worst financial quarter in over a decade (Apple,
2016); its sales and profit both fell impressively. The profit decreased by 22% year over year, that
is from 13.6 to 10.5 billion dollars, while the sales decreased by 13% from $58 billion to $50.6
billion. However, the worst sales slump occurred in China, with a 26% drop that brought regional
revenues to 12.5 billion dollars. The last time Apple's sales fell year over year was the first quarter
of 2003 (Goldman, 2016).
This issue is one of significant importance. Since Apple is considered the largest technology
company on the planet, a loss of this magnitude could affect the whole world’s economy, in
particular the stock market. Indeed,​ ​Apple's stock plummeted 8% in after­hours trading, to below
$100 a share ​(Goldman, 2016)​.
Given that around 70% of Apple's revenue is made up of iPhone sales, the company is
heavily influenced by the handset’s market performances. Therefore, this investigation is limited
to this significant gadget, that in one year experimented a fall in sold items by about 16% (from
61.2 to 51.2 million of items) ​(Goldman, 2016)​.
ISSUE STATEMENT
What are the causes of the iPhone
sales’ drop and how to react to this crisis?
​ ​Source: zdnet.com

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July 23, 2016 Page 2 Professor Turner
Source: arstechninca.com
Source: arstechninca.com

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July 23, 2016 Page 3 Professor Turner
RECOMMENDATIONS
We believe that in order to have the iPhone sales regain momentum, Apple should
implement the following action steps:
● Penetrating the Indian market, by leveraging on the cheapest version of the handset
● Keep the product simple and always innovative (enhancing battery, camera, materials)
● Finding new lines of revenues
● Making the product more affordable
RESEARCH SUMMARY & ANALYSIS
CHINA​ In the first quarter of 2015, Apple experienced a positive expansion rate also due to the
phenomenal debut of iPhone 6 in China. This year, instead, the Chinese market is very weak,
partially because in China Apple released the iPhone 6S in September, so it didn't get the
first­quarter iPhone boost that it had from Chinese customers a year earlier. The Chinese
smartphone market is the world’s biggest one, so its trend heavily influence Apple’s results.
Additionally, in China Apple has to face the fierce competition of Xiaomi and Huawei, who
now manufacture high quality smartphones, in terms of hardware, software and design and they
come in for reasonable prices.
Also, the Chinese consumer is much less brand loyal than the Western one, and Apple has
to struggle to keep its sales expand (Kantar, 2016)
LOSS OF MARKET SHARE ​Apple's iOS is losing
market share in favor of Android in certain
segments of the global smartphone market, such
as the US, Europe, and China.
The biggest market share losses for iOS
occurred in China, where the iPhone maker is
estimated to have lost 3.2 market share points.
In the same market, Android went up 3.4 points
to 76.4%. Kantar estimates that this is the first
time since August 2014 when Apple loses market
share in China's smartphone market (Mihai,
2016).
Source: Kantar.com

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July 23, 2016 Page 4 Professor Turner
To be fair, Apple looks this vulnerable every April. The Android industry is focused around
Mobile World Congress, and always announces new products in February that hit the market in
late March and early April. After the typical Christmas bustle, that spurs Apple sales in Q4, the
trend for the Q1 is in favour of new Android­based purchases (Spence, 2016).
Why? ​Android is stealing market share from Apple due to the fact that the competitors are
releasing innovative handsets with dual cameras, modular hardware and new form factors;
version six of Android is finally being used by a notable number of consumers; and Android’s
commanding share of the cheaper end of the market creates an economy of scale and an easy
on­ramp into Google’s cloud.
What does Apple have on its side of the fence?​ A reworked version of the three­year old
iPhone 5S, with a slightly bigger screen and nothing more (Spence, 2016). Looking forward,
however, the more affordable​ ​Apple IPhone SE could help the company turn things around in
China, a market where premium devices only account for a small segment of the smartphone
market.
On its home turf, according to the latest report from market research firm Kantar Apple’s
smartphone, the iPhone lost 0.5 points year­over­year and is estimated to have accounted for 38.3
of all smartphone sales in the US during the time period. Google's Android gained 3.3 points and
accounts for 58.9% of US smartphone sales (Mihai, 2016).
In Europe's five largest markets (Germany, the UK, France, Italy, and Spain), the iPhone
series lost 1.8 market share points while Android gained an impressive 6.7 points (Mihai, 2016).
MAIN COMPETITOR ​The number one counterweight to Apple’s supremacy is of course Samsung,
which has managed to jump ahead with critical acclaim for the Galaxy S7 family, released in March
2016, apparently being matched by initial sales that are lifting the revenue and profits of the South
Korean company.
According to Counterpoint Technology Market Research, a Hong Kong­based research firm,
the month of March saw Samsung accounting for 28.8 percent of the US smartphone market, with
Apple ranking in second place, with a share of about 23 percent (Counterpoint said LG came in
third in the U.S. market with 17.1 percent share; ZTE came in fourth with 6.6 percent of the
market; Alcatel was fifth with 4.5 percent; and Huawei accounted for just 1 percent of the U.S.
smartphone market). The ​Galaxy S7​ family will have likely played a big part in this, considering
their massive commercial success​ globally; ​the OEM’s earning results​ showed a notable 12% profit
increase for 2016, and estimates are high for the months to come.
Samsung’s flagship model is reportedly slightly better than its rival, the iPhone 6s, in terms
of performances, but things could turn around with the release of the upcoming iPhone 7.
Nonetheless, in the US, when we look at where the purchases are coming from, just 5% of
Samsung purchases came from those switching away from Apple, while 14% of Apple purchasers

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July 23, 2016 Page 5 Professor Turner
came from those switching away from Samsung (Kantar, 2016). In China there is much more
dynamism, where Apple clashes on the battleground against Samsung, Xiaomi and Huawei.
CURRENT SITUATION​ Although the losses are not significant, they are notable and they serve to
prove that Apple is having trouble maintaining the expansion rate it has enjoyed with the iPhone
6, its first smartphone to adopt a larger form factor.
One of the problem, therefore, is to find new markets for Apple smartphones, because the
Western Countries are saturated markets; the battle is on the Chinese territory, the largest
smartphone market in the world, but where apple has to face the harsh competition of Xiaomi and
Huawei. Penetrating the Indian market could prove a clever strategy in the years to come, since it
offer an enormous user base, but in that region the problem is the currently still­to­low average
income for buying the expensive Apple items.
The patterns of consumption have changed, people don’t change the smartphone as often
as in the past decade, and brand loyalty is now giving way to a more careful analysis of the
product’s quality.
Another question is whether the release of iPhone 7, on fall 2016, will help gaining
market share from Android. The new model may have a wireless charging system, extraordinary
graphics and camera, Li­Fi connection (through light, much faster than the classical Wi­Fi) , and
many other innovative features.
The newly launched iPhone SE, at a $399 price point, will likely appeal to more
cost­conscious first­time smartphone buyers who might otherwise be more inclined to pick up an
Android smartphone, and to the sizable installed base of iPhone owners who have not yet
upgraded.
SIMPLICITY ​Ken Segall ­ who worked alongside the tech giant’s co­founder, Steve Jobs, who died
on October 2011 ­ says company’s incredible growth was rooted in Job’s love of simplicity. A
growing number of clients perceive that Tim Cook’s Apple isn’t as simple as Steve’s Apple. They
see complexity in expanding product lines, confusing product names, and the products
themselves.
Talking about complexity in product lines, Apple now sells three different iPhones, four
different iPads and three different MacBooks; the Apple Watch comes in seemingly infinite
combinations of sizes and bands. But this wide portfolio is reasonable for a mature market, where
a bigger audience has more diverse needs.
Clients also complain about the growing complexity of Apple software (above others, Apple
Music), that is becoming always more weak and complex.

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July 23, 2016 Page 6 Professor Turner
From the birth of the brand, the consumer products are offered as i­things; then in the last
period Apple­things were introduced. Now the problem is about iPhone naming, because Apple’s
naming scheme is becoming noticeably less simple and confuses consumers.
The problem of complexity has been expanding also in marketing, scope in which Apple
was considered to be the gold standard. Steve Jobs kept the process simple; he trusted a small
group of smart people at his longtime ad agency and he was actively involved in the process.
Now, Apple is building a large in­house marketing group, where teams compete to produce new
campaigns and more people are involved.
There is serious work to be done in rebuilding the perception of simplicity that helped
Apple become the world’s most valuable company; if this won’t happen, the firm could lose its
main comparative advantage
CONCLUSIONS
The sales of Apple's signature gadget ­ iPhone ­ fell for the first time in the history of the
brand. Why?
● Western smartphone markets are saturated, the competition moves to China and India
● Apple is losing market share against Samsung and the Chinese companies
● Customers want simpler and more innovative products

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July 23, 2016 Page 7 Professor Turner
REFERENCE LIST
Mihai, A. (2016, April 6). Kantar: Apple's iPhone is losing market share in the US, Europe, and
China.
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S­Europe­and­China_id79971
Apple. (n.d.). Apple ­ Press Info ­ Apple Reports Second Quarter Results.
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https://www.apple.com/pr/library/2016/04/26Apple­Reports­Second­Quarter­Results.htm
l
Bridgeward. (2016, April 26). Notizie Bridgeward. Retrieved July 16, 2016, from
https://notizie.bridgeward.com/apple­vendite­in­calo­per­la­prima­volta­dal­2003/
Goldman, D. (2016, April 26). Apple's iPhone sales sink for the first time ever last quarter.
Retrieved July 16, 2016, from
http://money.cnn.com/2016/04/26/technology/apple­earnings/
Guenveur, L. (2016, June 4). Android OS Share in China Gets Boost from New Year’s Sales.
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http://www.kantarworldpanel.com/global/News/Android­OS­Share­in­China­Gets­Boost­fr
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http://www.kantarworldpanel.com/global/News/Apple­versus­Samsung­is­so­over
(7/13/2016)
Jones, C. (2015, May 7). Apple's iPhone Continues To Lose Market Share Month To Month.
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Maggio, A. (2016, May 04). Apple loses market leadership to Samsung as number one smartphone
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http://9to5mac.com/2016/05/04/apple­samsung­smartphone­market/
Segall, K. (2016, June 09). Has Apple lost its simplicity? Retrieved July 16, 2016, from
https://www.theguardian.com/technology/2016/jun/02/ken­segall­apple­steve­jobs­simpli
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SoloTablet. (n.d.). SoloTablet ­ Apple, prodotti di qualità e clienti soddisfatti ma riluttanti... Retrieved July
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Spence, E. (2016, April 10). Apple Once More Loses Out To The April Competition. Retrieved July 16,
2016,

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from
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fc6ae4