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Apple has clearly lost some of its magic. Every major product shipment is in decline and the Apple Watch has failed to make the impact that many had hoped. The clouds on the horizon are the maturation of the smartphone market and how Apple can keep persuading people to upgrade devices every two years. The iPhone needs not only a dramatic redesign but also a user experience overhaul that takes advantage of this new design to make it stand out again. The rumored iPhone 7 does not appear to fit this bill.

Can Apple recover its mojo?

Apple was able to boost its sales substantially by finally releasing a range of larger-screen phones in 2014; however, iPhone sales have slowed gradually since 2012. The higher-end market that Apple targets is now almost completely saturated and Apple already holds a dominant position in this niche. After partnering with China Mobile and NTT DoCoMo in 2013, there are no major operators globally that do not sell the iPhone.

This was inevitable, but the primary problem for Apple is that the improvements in each of the new iPhone versions are increasingly marginal. Apple and other smartphone manufacturers are finding it harder to convince people that their new device is worth spending $600 on. This is partly the reason behind the Apple Watch launch – to recapture this unspent cash. With less and less to distinguish Apple from its smartphone competitors, the company may find it difficult to maintain its staggeringly high average selling price for much longer.

Brand power is extremely important for smartphones and Apple has enjoyed, by far, the strongest brand of any manufacturer. However, this reputation was built on the fact that the company produces high-quality, cutting-edge devices. If Apple devices become indistinguishable from the competition, its brand advantage will erode over time. Apple's brand can buy the company some time; however, the brand cannot sustain the business in the long term.

This will be avoided if Apple can reinvigorate the iPhone line. There are several possibilities here, but an edge-to-edge display or a foldable/bendable design are the options with the most potential. Augmented reality (AR) and virtual reality (VR) are options too, but Apple's competitors have an edge in this area and therefore these technologies do not present a unique differentiator.

However, Apple doesn't necessarily need to beat its competition to the market with any of these technologies. It just needs to optimize their use and integrate the features into the core user experience. Samsung's smartphones have featured curved-edge displays for a couple of years, and while undoubtedly being beautiful devices, their failure to demonstrate a need for the curved edge display has meant that the feature is "nice to have" but not worthy of an industry-wide revolution. Luckily, integrating new technologies and features into the user experience is Apple's forte.

In September 2016, Apple will launch the iPhone 7, and Apple's typical two-year cycle suggest this year's version will feature a redesign. However, supply chain rumors do not back up this expectation and instead point to a major iPhone redesign in 2017. If so, the iPhone 7 and Apple could be in for a rocky 12 months.

Appendix

Further reading

"Apple’s results mark the end of the golden smartphone era," TE0004-001079 (April 2016)

Mobile Handset Sales Volume Forecast: 2015–20, TE0004-001075 (April 2016)

Author

Daniel Gleeson, Senior Analyst, Consumer Technology

daniel.gleeson@ovum.com

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