Press Release

IHS News Flash: Analysis of Apple’s Special Event

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This is a news flash from IHS Technology (NYSE: IHS) providing quick analysts of Apple Inc.’s September 2014 Special Event held today in Cupertino, Calif. The comments below are from Ian Fogg, senior director, at IHS.

The new iPhone 6 and iPhone 6 Plus expand Apple's reach into new businesses. The iPhone acts as a critical bridgehead to acquire new customers, and as a foundation for new ventures such as Apple Watch and Apple Pay. The more new customers Apple can win with the iPhone 6, the greater the chance of success the company will have with Apple Watch and Apple Pay.

Apple is raising the competitive threat to other smartphone makers with a new stronger portfolio, including two new large-screen iPhones. By launching multiple products together, Apple is opening multiple fronts to build on the success of the iPhone. Apple has shipped more than 551 million iPhones to date. And despite competitive pressure, Apple shipped 15 percent more iPhones during the first half of 2014 than in the same period in 2013.

As a result of the iPhone 6 launch, IHS forecasts Apple will overtake Microsoft—the former Nokia devices unit—to ship the second largest number of mobile handsets in 2014 after Samsung. This includes all kinds of mobile handsets, not just smartphones.

The introduction of larger-screen iPhones eliminates a key differentiator that has insulated Samsung, Sony, HTC and LG large-screen flagship smartphones from iPhone competition. Shrewdly, Apple has prepared the ground to make sure its app ecosystem will be available quickly on the new iPhones by providing developers with the tool to easily support different screen sizes in iOS8, which was unveiled to developers three months ago at the WWDC.

Apple also is expanding its iPhone portfolio this year. By continuing to sell both the iPhone 5C and iPhone 5S, Apple is increasing the number of consumer segments it is able to address. 

Apple aims to reset the wearable market and make 2014 year zero for wearables, much like 2007 became the start of the true smartphone market because of the debut of the iPhone. However, moving into a new category is a bold, expensive and risky effort. This Apple Watch is a first-generation device and whether it is successful or not, Apple will aim to iterate and make it a must-have companion for every iPhone owner.

Apple Watch stands on the shoulders of Apple's iPhones. Significantly, the addressable market for Apple Watch will be tied to the installed base of iPhones. While Apple has shipped 551 million iPhones cumulatively through the end of June, the iPhone's global installed base will be slightly less than 400 million at the end of this year. But of those, only a little more than half—or more than 200 million—will have an iPhone 5 or newer.

Apple rarely invents new markets, despite its reputation. But when Apple launches a new product category, it attempts to redefine the market. Examples of Apple's ability to enter an existing market and transform it include the iPhone, iPad and iPod.

In each case, Apple changed the competitive dynamics and forced existing players to move fast to remain competitive. Current wearable makers must raise their game to respond to Apple or risk a similar market trajectory because today's Apple is considerably stronger than it was at the launch of the iPod, iPhone or iPad.

Unlike Apple's original iPod strategy which sought compatibility with the MP3 standard and with Windows PCs as well as Apple's Macintosh computers, Apple now has a large enough installed base to target only its customers with its new Apple Watch.

IHS expects Apple will extend Apple Pay internationally as soon as it can. Apple's product strategy is globally focused and as a result keeps variation in products, models and services to a minimum in order to maximize global-scale economies. Apple has already started conversations with key financial players.

Even when it launches in one country first, Apple ensures its product design is suited to selling worldwide as soon as Apple has overcome launch hurdles.

But the iPhone has been so successful in the United States, the installed base is large enough to create a viable target market for a new product. IHS estimates the iPhone installed base is more than 100 million units in the US.

There are several precedents for U.S.-only Apple product launches for four major reasons:

  • Content rights. Both the iTunes music store and its movie sales business launched initially in the United States. The iTunes music store is now available in 119 countries while Apple's movie store reaches 109 countries.
  • Scaling new hardware production. The original iPads launched first in the U.S., before a wider rollout, as Apple sought to ensure that in the countries the iPad was available it was able to meet demand.
  • Securing partnerships and distribution. Apple used the six months from the first iPhone announcement to it going on sale with AT&T in the U.S. to connect with more mobile operators and secure distribution. Having originally launched in one country, Apple made 2013's iPhone models available in over 60 countries within 6 weeks of launch. The Apple App Store that distributes iOS apps for iPhone and iPad is available in 155 countries.
  • Regulatory barriers. These include barrier for a medical or financial services product where there is tight country-specific legislation.

Mobile payments and wallet services have been launched by device manufacturers numerous times in the past and, so far, none have succeeded in gaining mass-user adoption. Unlike many other services, Apple holds a number of advantages:

  • It already has millions of user credit-card details on file from Apple IDs, which users can choose to simply add to Apple Pay. 
  • Its tight software and hardware integration: Apple Pay uses the company’s proprietary Touch ID to verify purchases and iOS app Passbook to store information.
  • Apple is primarily focused on hardware sales, which means it does not need Apple Pay to generate additional revenues, user information or for other services such as advertising. This enables Apple to focus on user experience rather than generating revenues.
  • Apple also boasts a strong list of U.S. retailers that plan to support Apple Pay, which ties in to the existing U.S. contactless payment infrastructure.

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