The iPhone is so hot right now. But what about next year?

Apple has just one killer app. The iPhone.

Sales of iPads are falling, sales of iPods are a footnote. App store sales growth is remarkably low (13%) given how fast the phone market is booming. Macs are selling steadily but in small numbers.

Apple sales

But the iPhone keeps on giving. In 2014 it sold 169 million units, up from 150 million in 2013. This is quite amazing. And in the first quarter of 2015 it sold a record-beating 74.5 million units. My earlier prognostications that Apple was over-priced look a bit silly now. But there are signs my enthusiasm to call an end to Apple’s rise were just a bit early.

Most of Apples 2014 revenue growth was in China, where prices are falling and entry-level iPhones are popular:

Screen Shot 2015-01-28 at 11.16.59 am

Here in the first world, I feel like the iPhone has lost its lustre. Sure enough, sales for “rest of Asia Pacific” were down by 7 per cent. Sales in the Americas rose just 4 per cent. I see my friends buying Android Phones, because they’re cheaper and just as good. Apple’s iPhone is old news.

Screen Shot 2015-01-28 at 11.13.20 am

So can Apple make itself last?

In some product categories, early market leadership can create decades of dominance. Gillette was the top brand for shaving goods 100 years ago and is still today. Ford similarly for cars. Apple first rose to prominence 30 years ago and is still going strong.

Screen Shot 2015-01-28 at 11.57.35 am
Apple’s share price (USD)

Apple is the biggest public company in the world by market value, especially since the recent oil price fall has hit its main competitor Exxon Mobil. But so much of that value rests on the iPhone.

And the iPhone is more vulnerable than its sales figures would have us believe. Sales have been driven by the continued release of new models. In China 2014 was the year of the iPhone Five.  The iPhone six has sold well, (although Apple is not keen to say how many of its record total sales were the new phone). but its big feature is simply a bigger screen. In this case Apple is following Samsung, not leading. What more can they do?

After a certain point, a product can’t be improved much more technically, and become commoditised. Think of your flat screen TV. That product now competes on price, not features.

That’s why the rise of Xiaomi, which undercut Samsung, is so important in this market. Apple can retain its status by being the luxury phone maker, but it can’t continue to do that and sell billions and billions of dollars worth of product.

And Apple’s next big product launch is the watch, which I believe will bomb horribly. Apple has a big pile of cash, but as its burns through that that in pursuit of the next big thing, its share price must fall.

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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