Can Apple’s [AAPL] share price mount a recovery as rivals encroach on smartphone revenues?

Apple [AAPL] has sparked speculations around the reinvention of its flagship product – the iPhone – after it filed a patent for a foldable device last week, amid competitors revealing their own 5G-ready, foldable smartphones at Barcelona’s World Mobile Congress. 

The bull run that propelled the company’s stock up 12% after its first-quarter earnings announcement on 29 January looks to be running out of steam, as its share price has been hovering around $173 for the past two weeks.Powered by CMC Markets, as at 01 March 2019

While investors and traders rejoiced over Apple’s strong revenue growth in payments and entertainment subscription services, it was short-lived as Huawei and Samsung [5930] unveiled their own premium smartphones, putting the spotlight back on to falling iPhone sales and its eroding market share.

Fears that iPhone sales had peaked returned with a vengeance this week after analysts at Gartner estimated iPhone sales fell 11.8% to 64.5 million in the fourth quarter of 2018, and that the devices’ market share in China, a key market, fell from 14.6% to just 8.8%.

Apple appears to be struggling to come up with new features to incentivise iPhone owners to upgrade to the latest iteration, and competitors are encroaching on the premium smartphone territory. Both Huawei and Samsung, which gained in market share by selling devices that could rival Apple’s at a fraction of the price, plan to launch 5G-capable foldable smartphones this year, at prices of $2,000 and $2,600 respectively. Huawei had a global market share of 19% in 2018, while Samsung also took a significant 19% share.

What now?

As iPhone sales continue to fall, Apple wants investors to focus on its growing sales of services to its current iOS users, which number over a billion, with 900 million from its iPhone users alone. The tech giant plans to launch its own original-content video streaming service with CBS and HBO, a revamp of its news subscription service and even an iPhone-linked credit card with Goldman Sachs this year.

But iPhone sales remain the company’s main revenue pipeline, and still accounted for 60% of device sales revenues in the first quarter. As Apple’s market share in the global smartphone market continues to dwindle, particularly in China and at a time when global smartphone sales in general are cooling, it’s hard to tell if the company’s market value will reach the $1tn mark it hit last October.

Apple stock vitals, Yahoo finance, as at 01 March 2019

Analysts are worried that Apple’s smartphones may fall behind due to a lack of innovative features / features that, while not necessarily revolutionary, make good marketing hooks. Huawei and Samsung are set to beat the company both to 5G and foldable screens, and analysts see mixed potential for an upcoming “eSIM” feature in iPhones, which removes the need for a physical SIM card.

Some analysts are not convinced with the company’s expansion into content production and distribution. KeyBanc Capital Markets analyst Andy Hargreaves called the upcoming Apple TV streaming service “uninspiring”, and unlikely to attract any significant uptick in users to the Apple ecosystem. “While this will likely usher in an era of Apple originals, the overall effort appears likely to be sub-scale, years behind key competitors, and lacking in meaningful differentiation,” he wrote.