BlackBerry (NYSE: BB) once ruled the smartphone world. The Canadian company then known as Research In Motion launched an entirely new smartphone experience with its secure, keyboard-equipped phones that became the choice of business users across the globe. In fact, the company was not only dominating the U.S. smartphone market with a 55% share nearly a decade ago, but was also successfully defending its position from upstart Apple (NASDAQ: AAPL).
The iPhone's U.S. smartphone market share had dropped from 30% in the third quarter of 2008 to 19.5% in the first quarter of 2009, according to market research firm IDC. Consumers were still leaning toward BlackBerry smartphones because of their cachet, aggressive pricing, and focus on cutting-edge security.
But it didn't take long for things to go south. A massive shift in user preference toward flashier devices from Apple, as well as Google-powered Android phones, dealt BlackBerry a major blow. The Canadian company was at fault for not moving quickly enough to capitalize on the market's move toward touchscreen phones.
In short, BlackBerry thought that its loyal customer base would keep buying what it offered, so it didn't feel a pressing need to innovate. That proved to be its undoing, and in an ironic twist, Apple now seems to be going down the same path.
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The problem at Apple
Apple has built a huge user base. Nearly a year ago, Apple announced 1.3 billion active devices around the world, including iPhones, Macs, and other Apple devices. Some estimates put the number of iPhones at 1 billion. That might look like a solid catalyst for iPhone growth as those users look to upgrade their devices, but but that might not be the case.
One estimate says the installed base of new iPhones increased just 6% annually over the past two year years. For comparison, the installed base of used iPhones has increased at a 61% compound annual growth rate over the past two years, according to that estimate. So consumers are clearly looking for value in Apple's smartphone ecosystem and have been willing to forgo new devices.
Apple has kept increasing prices of its new devices in a bid to keep up top-line momentum, but this strategy might backfire as users will continue holding their iPhones for longer periods.
Moreover, premium iPhone pricing will turn off some people who might have jumped to Apple if the price were less. If someone wants to buy a premium device and seeks value at the same time, there are many options besides Apple.
Huawei, for instance, is looking to push the envelope in the premium smartphone space by packing its devices with advanced features that aren't yet available from Apple. The Chinese smartphone giant's strategy of pricing its devices aggressively versus the latest iPhones has reaped rich rewards, leading to solid growth in unit sales and market share.
On the other hand, Apple's strategy of adding incremental features and selling its iPhones at a premium price has led to stagnant unit sales. iPhone unit sales were roughly 47 million in the fourth quarter; flat with the previous year. The company has decided to stop releasing unit sales info in its quarterly reports.
BlackBerry was facing the same stagnation years ago. It focused only on incremental evolution in hardware and software, so users eventually moved on. That was despite the company's long-established brand equity in the corporate world and a global base of over 75 million users over a decade ago, just as the smartphone revolution was beginning.
BlackBerry's strategy eventually cost it the smartphone kingdom despite its early domination, and some may worry that Apple is now slipping down the smartphone ranks with a similar strategy.
In spite of the ominous signs, Apple's still a long way from becoming the next BlackBerry for a couple of reasons.
First, the company has built a solid services business. It got nearly $10 billion in revenue from its services business in the last reported quarter, an increase of 17% over the prior-year period. The services business now accounts for nearly 16% of the company's total revenue, and it should keep growing quickly thanks to Apple's massive installed base.
Second, it isn't just a one-product company like Research In Motion was. Cupertino's product portfolio includes tablets, computers, and fast-growing consumer devices like smartwatches and smart speakers. BlackBerry, by contrast, was highly dependent on its smartphones; its failure to diversify into the tablet market ended a potential turnaround.
This doesn't mean that Apple cannot go the way of BlackBerry -- it still depends on smartphones for most of its revenue. The iPhone produced almost 59% of company revenue last quarter and the iPhone will be the key to growth in the rest of the ecosystem.
For instance, a customer buying a new iPhone is more likely to buy an Apple Watch instead of some other smartwatch. Similarly, an iPhone user will be more likely to buy into Apple's smart-home systems versus those from Amazon.com or Google. So, the iPhone will remain a key to Apple's long-term growth, and a breakdown here could be bad news for other areas.
Things aren't looking great right now
The latest reports suggest that iPhone growth momentum is waning. Popular Apple analyst Ming-Chi Kuo has slashed his iPhone production forecast for the first quarter of 2019 to a range of 38 million to 42 million units. That's nearly 20% below the prior-year period's production. Additionally, Apple's 2019 shipments are expected to decline from 5% to 10%, with Kuo predicting that new devices later in the year won't do much to boost sales because of a lack of any "major upgrades."
It's a long shot that Apple will implode anytime soon. But signs of trouble have started emerging, and Cupertino must act in time if it wants to avoid being the next BlackBerry.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.