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Blog - Published 27th April 2016

Siri are you scared of the future?

Apple inc sales fall for the first time

Even the greatest product from the greatest brand has a lifecycle that will end. For a generation the iPhone has been seen as the ultimate product. Since its launch in 2007 there have been 10 new releases and sales have gone from strength to strength. Over 700 million units have in fact been sold deliver growth quarter on quarter for Apple almost without fail … until now! 

The macro economic factors of a strong US$ and slowing growth in China have had an impact, alongside the ongoing competition in the Smart phone offering as others have played catch-up.

Apple – is everything still rosy and bright?

Well not quite. Whilst earnings have still delivered a profit in the the first quarter of 2016 of $10.5bn, it is a real concern.  The share price has declined by 20% in the last year. It’s other products such as the iWatch and iPad that have come along since the iPhone have failed to make an impact in the same way.  As one of the strongest brands on the planet with a reputation for innovation, Apple will undoubtedly be working on their ‘next big thing’.  However, there are lessons every business can learn here.

Every product does have a life cycle.

From seed to fruit: The product life cycle
At the introduction point of a new product there is usually a period of heavy investment, with a slow increase in sales. The product needs developing and refining and when it does hit the market, it takes time to establish its market position. However, there comes a point, no matter how much ongoing development is made, where every product reaches maturity and sales begin to plateau. This is not necessarily an immediate problem as sales of the product remain steady, but it’s a warning that change is on the way. Due to completion, advances in technology or market saturation, sales eventually begin to fall away and revenues decline.

product-life-cycle

Cooking or Eating: Same Apple different result.
So what does this mean for a business overall? The product lifecycle goes through stages which have important characteristics. The initial development stage requires heavy investment but if the product is achieving success it enters a rapid growth phase. More cash is required to manufacture the product to meet the growing market demand.

boston matrix

Image sourced from Food Service Warehouse

As the product grows it becomes a ‘star performer’ and achieves significant market share.  At this point cash is being generated but production costs are still high. The product is still relatively new and economies of scale in production are still being sought. Investment in sales and marketing is also still high.

Finally, the product becomes a ‘cash cow’! At is point the product is so well established and in high demand that production and marketing costs fall away whilst sales maintain with a steady growth rate.  But nothing stays here forever. Eventually demand starts to slide and the product is no longer capable of delivering the value it once was.

Planning for your businesses ‘harvest’.

In order to manage a business through this, it is vital to understand where key products are in their lifecycle. By reviewing this it is possible to forecast more accurately working capital requirements. It is important to know when products need investment; where to focus sales and marketing and when ultimately it’s time to call it a day.  This type of analysis enables you to plan ahead with greater strategic control; knowing when to expect any peaks and troughs in cash flow.

Is the best fruit yet to come?
While the iPhone is probably not set for the scrapheap just yet, there are signs that it could now be moving towards the end of its lifecycle. And like every business, Apple now needs a NEW RISING STAR.

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Posted in Blog, Technology

Sarah Hallam - FCCA

Director

Sarah Hallam is a Menzies Director with a wealth of audit and compliance experience. Sarah also provides international accountancy & tax advisory.