There is no questioning the popularity of Apple’s (AAPL) iPhone. With each iPhone launch we see huge lines of people trying to get their hands on the new device, and so far each iPhone has had better launches than the previous model.
When the original iPhone hit the market, it took Apple 74 days to sell 1 million phones. While this was a major accomplishment at the time, it would be considered a disaster in today’s world. Apple sold 4 million iPhone 4S's during its opening weekend, and then followed that up with a 5 million opening weekend debut of the iPhone 5.
The growth we have witnessed has been tremendous. A big reason is that iPhone users are so loyal to their trusty smartphones, but that is starting to weaken. A recent study showed that 88% of domestic iPhone users would be likely to buy another Apple smartphone. As impressive as this may be, it’s actually down 5% from a similar study last year.
The main problem for Apple is that even if it continues to produce blockbuster iPhone sales the company will get punished if it does not continue to grow its sales figures. The hype leading up to any iPhone launch is so intense that a lot of importance is placed on opening weekend sales figures.
Even with a successful opening weekend for the iPhone 5, a lot of analysts were disappointed with the 5 million iPhones that were sold. Leading up to the launch, estimates had ranged up to as many as 10 million phones sold.
The downside to having such a successful product is that future expectations continue to grow. What forecast could we expect to see for the first weekend sales numbers when the iPhone 6 gets ready to launch next year? 10 million? 15 million?
It will surely be higher than 5 million.
There are two reasons Apple could be in trouble.
The first problem is the decreasing likelihood that current iPhone owners will buy another iPhone. As we already mentioned, the figures are showing people are becoming less enchanted with their iPhones.
We already discussed the drop in domestic loyalty, but it is even worse in Europe, where just 75% of iPhone users want to buy another one. That is down from 88% this time last year.
If demand continues to soften, Apple is in big trouble.
The second issue is whether Apple can meet customer demands. Apple never seems to have enough supply of iPhones when they hit the market. This could be by design, as Apple may purposely limit supplies to boost the media hype around the launch, or it could be that its suppliers just simply can not keep up with demand.
We saw a report today that Taiwan's Foxconn Technology Group is having trouble keeping up with iPhone demand. The company’s chairman, Terry Gou, told reporters that the company is falling short of meeting the high demand.
Foxconn is the key assembler of the iPhone, so if it is having a hard time keeping up with demand now, how will it be able to handle higher demand should we see it?
So Apple has two big problems… keeping consumers coming back, and being able to build enough phones to meet demand. Of course, if demand falls, it will be easier to make enough phones.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors.