Apple failed to meet Wall Street expectations this past quarter despite robust profits and revenue, as customers hold their breath for the next iPhone.
Apple's recent earnings report showed less growth than expected in a number of iPhone markets, prompting a 5 percent drop in share value immediately after its release. Here's a few reasons for the disappointing turnout:
1. Europe's Economic Woes
Apple's popularity dipped in Europe, which resulted in a significant financial hit. Growth fell by 6 percent, precipitated by the massive financial tumult in the country coupled with Apple's still-sky high prices there.
Apple executives chalked up its slowing growth in Europe to its financial fluctuations, and pointed at flailing economies for similar problems in economically volatile areas like Brazil. Especially since rivals like Samsung and HTC are putting out cheaper but high quality alternatives, Europeans and others in financial jeopardy may be valuing frugality over Apple's unique draw -- so despite Apple's insistence that the economy alone is to blame, it may be the economy coupled with Apple's pricing policy.
As competitors continue to crank out more affordable smartphones with impressive specs, Apple may have to adjust its pricing to stay competitive in struggling economies like Europe. In the U.S., Apple and its carrier partners offer older models of the iPhone at discounted prices, addressing more consumer price points. But European wireless providers generally do not subsidize phones as heavily, and the company may need to rethink its strategy if it hopes to win back its lucrative share.
2. Samsung's Ascent
Apple's South Korean rival proved a formidable competitor this quarter, and brisk sales of the Galaxy S3 likely cut into iPhone growth in several regions. a situation Apple wants to remedy through legal means.
Apple is rattled by Samsung's success, and it's bringing its case against its Android-based rival to court once again, seeking $2.5 billion in damages for alleged copyright infringement. Considering a judge just ruled Samsung did not copy Apple's tablet design because Samsung's Galaxy Tab simply wasn't cool enough to be a knockoff, Apple's plan to take Samsung to trial about their smartphones may not have the intended consequences.
It is clear Apple views Samsung's rise as a real threat, and the Cupertino, Calif.-based company's lawsuit-based strategy for pummeling the competition may not play out in Apple's favor. To keep a true upper hand in the smartphone market over Samsung, Apple will have to reclaim its lost territory with strong iPhone 5 sales to make up for Galaxy converts from this quarter.
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3. Everyone's Waiting for the IPhone 5
Of course, even though global economic fluctuations and Samsung's strong showing are real problems for Apple, the company still grew its sales in all major regions, just not as quickly as it has in the past. And the iPad continued to experience robust growth, climbing 84 percent this quarter due to high adoption levels in international markets.
Although economic fluctuations and Samsung's successful takeover of parts of the market dragged down Apple's numbers, the main reason for its slow quarter may be customers are simply waiting for the next version of the iPhone.
If the iPhone 5 proves a worthy successor to earlier models of the phone, this slow quarter and the next will be nullified by an influx of customers eager to get their hands on the latest version. And if Apple starts pricing its older models more competitively, they could wreak havoc on sales of Android smartphones from Samsung and other opponents.
However, this quarter showed how quickly Apple's growth shrinks when customers are waiting for the newest phone model, so there's a lot of pressure to keep releasing exemplary product updates or risk losing hold of the market to companies like Samsung that can introduce handsets at a faster pace.
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