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Apple faces huge expectations with next iPhone

Apple has posted flat profit for 1Q14, year on year

Apple’s traditional launch slot has come round again and tThis time the industry is expecting to see two devices launched – the iPhone 5S and the debut of a lower priced entry-level iPhone, expected to be named the iPhone 5C.

Apple has set high expectations for itself following the success of previous models and of the iPad series, and will have a lot to live up to in order to sustain its momentum.

According to Jan Dawson, chief telecoms analyst at Ovum, the key challenge for Apple with this week’s launch is to demonstrate that it can maintain momentum in overall sales of iPhones, in a way that won’t significantly drive down margins.

Dawson noted that iPhone tend to spike in the fourth quarter of the year following a September product launch, and fall over the rest of the year as the model ages. “But as the overall numbers have grown, the year on year growth rate has slowed significantly, from 80 to 100 per cent to 24 per cent, even accounting for the cyclical trends,” he said.

“This is partly due to the law of large numbers, as the same increase in shipments reflects a smaller percentage of historical shipments, but it’s also largely driven by Apple’s increasing saturation of its addressable market.”

One interesting aspect of Apple’s launch event is that the firm will be holding an event in Beijing, a “clear indication of Apple’s intention to penetrate the Asian market with its new 5C device”, according to Markellos Diorinos, head of engagement management at mobile monetisation solutions provider Upstream.

“According to Ovum, the number of mobile connections in China is expected to rise by almost 100 million by 2017, with smartphone penetration set to rise from 46 per cent to 64 per cent during the same period,” he said. “However, Android’s share of market growth is predicted to be more than double that of Apple over the course of the next four years.”

Diorinos added that this makes the pricing of the 5C right all the more significant, as Apple must ensure the device is within reach of the masses.

“Given that the average annual income in China is approximately $2,100, pitching the 5C in at the wrong price point could create serious obstacles as Apple tries to establish its presence in China and other emerging markets,” he said.

“According to recent research we conducted, a third of emerging market consumers would only pay $100 or less for a smartphone, so even if Apple drops its premium price tag, only a drastic drop in the cost of the device can guarantee its victory in these regions.”

Apple will also need to adapt its App Store model for emerging markets, where penetration of banking and credit cards is lower than in the firm’s core markets. In this regard Apple’s relationships with China’s operators will be crucial, as it will depend on them to bill end users.

Another talking point is the expected integration of fingerprint scanning technology in the new 5s device. This could drive uptake of mobile banking services, according to David Webber, managing director of financial services software provider Intelligent Environments.

According to the firm’s research, 40 per cent of UK consumers would be more likely to access their bank accounts via a smartphone if it had a built-in fingerprint scanner; equivalent to over 18.4 million UK consumers.

“Fingerprint technology, already used in mobile phones in Japan for authentication of mobile payments, will allow Apple and third party developers like financial services institutions to eliminate passwords.  The increased functionality of not having to enter passwords manually removes a barrier some consumers have when accessing bank accounts or making payments via a mobile device,” he said. He predicted that this development will trigger a “biometric banking revolution”, which spells the death of the password as we know it.

Matthew Finnie, CTO at cloud services platform provider Interoute focused on the enterprise angle: “The question isn’t whether biometric security makes the iPhone 5S enterprise ready. The reality is that the smartphone is now intrinsic to how people work, so it’s time for businesses to change. Rather than focusing on the security merits and nuances of the devices, attention should shift to how businesses should secure and control corporate data and make relevant parts securely accessible from anything, anywhere.”

He said that enterprises should assume instead that employees live on the internet and it is the job of the enterprise to make the corporation accessible to employees in their world, rather than the other way round.

“The resistance of many enterprises to smartphones has come from a mix of enterprise IT’s refusal to accept a changing world, [which is] their problem, and the very scary thought that their users could download any of the billions of apps outside of their control.

 


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