AAPL Apple Inc

Apple prepares to introduce new versions as sales shrink and competition heats up

By Robert McMillan 

As it nears its 10th year, the iPhone is maturing.

Apple Inc. on Wednesday will introduce new versions of its flagship smartphone, but they likely won't include the kind of significant new features that Apple consumers have come to expect every other year.

The new models will arrive at a critical juncture: iPhone sales are shrinking for the first time; consumers are waiting longer to upgrade their phones; and Apple faces fresh competition from rivals including Samsung Electronics Co. and Huawei Technologies Co.

The Wall Street Journal reported earlier this year that Apple plans to eliminate the 3.5-millimeter headphone jack, which will make the phone thinner and improve its water resistance. Critics panned the idea.

The Journal said Apple plans more radical changes for next year's models, the iPhone's 10th anniversary.

Apple on Monday declined to comment on "rumors" ahead of Wednesday's announcement.

The iPhone propelled Apple's extraordinary growth in recent years, making it the world's most valuable company.

Apple sold nearly six times as many iPhones in the year ended Sept. 26, 2015, as five years earlier. The phone accounted for nearly two-thirds of the company's revenue.

The glow from Apple's initial large-screen models, introduced in 2014, has faded. Revenue from the iPhone fell 23% in the quarter ended June 25, and Apple shares are down 4.9% over the past 12 months.

"The easy growth is starting to disappear," said Neil Cybart, an independent Apple analyst. Research firm International Data Corp. estimates that iPhone sales will grow only 1.5% a year between 2015 and 2020.

In response, Apple has ratcheted up research and development spending, which reached $8.1 billion in the year ended September 2015, from $2.4 billion in 2011.

The company is exploring new products, such as an Apple-branded vehicle, code named Project Titan. And while the Apple Watch -- which could also see an upgrade at this week's event -- has been a modest success, Chief Executive Tim Cook is still looking for another breakout hit to rival the iPhone.

It is a tough act to follow.

The iPhone proved particularly popular in China, where Apple's sales totaled $58.7 billion in the year ended September 2015. As elsewhere, though, Apple sales in China have cooled, falling 33% in the most recent quarter, compared with the prior year. During a July conference call with financial analysts, Mr. Cook said he was "very encouraged" by Apple's prospects in China and India.

Analysts are less sanguine, noting that Apple's surge in China followed its introduction on China Mobile, one of the nation's biggest wireless carriers.

"You don't have another China Mobile out there," Mr. Cybart said. "You don't have another pocket of a couple hundred million people who could buy an iPhone over the next couple of years."

Analysts and Apple watchers don't anticipate a radical iPhone redesign this week, breaking with Apple's tradition of offering a significant hardware overhaul every two years. Instead, they expect the device -- likely to be called the iPhone 7 -- to resemble the iPhone 6, introduced in 2014. Screen sizes will likely remain 4.7 inches and 5.5 inches.

Apple could eliminate the phone's home button, add a fingerprint reader directly into the screen and even change the phone's display to an edge-to-edge organic light-emitting diode (OLED) screen, people familiar with the matter said.

"The technology is maturing to the point where the advances aren't nearly as large as they were in the past," said Jan Dawson, chief analyst with Jackdaw Research.

Still, Mr. Dawson said Mr. Cook will have one objective when he takes the stage Wednesday: "They need to make sure that the people who bought the iPhone 6 or 6 Plus two years ago see the iPhone 7 as a meaningful upgrade," he said.

Write to Robert McMillan at Robert.Mcmillan@wsj.com

(END) Dow Jones Newswires

September 06, 2016 02:48 ET (06:48 GMT)

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