Apple’s massive valuation isn’t about scale. While iPhones and Macs are popular they are nowhere near as ubiquitous as Android phones and bog-standard PCs. What has kept investors in thrall to Steve Jobs and latterly Tim Cook is its ability to generate massive profits, because its products are so eye-wateringly expensive.
But every luxury brand hits a ceiling eventually. There are only so many middle class people on the planet who are willing to pay top dollar for a new smartphone (or a £1000 handbag) every year. Which might explain why in January, after years of thundering expansion, it reported quarterly iPhone sales growth of just 0.7% - its lowest ever - and warned that sales would actually decline in the following quarter. Cue ominous headlines about the fall from grace of the most valuable brand ever.
Tonight the world is set to get a glimpse of Tim Cook’s plans to turn things around. Apparently Apple is going to launch a new, smaller, phone called the iPhone SE, which will come with a more agreeable price tag. It will reportedly be based on the design of 2012’s iPhone 5 but with updated features including Apple Pay.
Targeting more price-conscious customers could help sweeten the company’s finances at a slow time of year. But luxury brands that do this run the risk of cannibalising sales of their more expensive products. If customers can get an Apple phone for ‘just’ £300, why bother shelling out more than £600 for an iPhone 6s Plus?
Apple has been here before. In 2013 it launched the iPhone 5c, which came with a ‘polycarbonate’ (some might say plastic) case and fewer features than the 5s, which was released at the same time. By most accounts it seems to have been a flop, selling around 66% fewer handsets than its more expensive counterpart.
After being entrusted with a company built by Steve Jobs, a man whose visionary leadership has (rightly or wrongly) become legendary, Cook is surely feeling real pressure to get its prospects back on track. Going a bit downmarket might improve the numbers but he needs to ensure that doesn't damage Apple's image, else it could quickly lose its lustre for investors and consumers alike.