Apple woos carriers as 2013 challenges persist

Apple CEO Tim Cook predicted, during his high profile trip to woo Chinese partners last week, that the country would overtake the US as the top market for Apple, even though it has remained one of the most US-centric of the major international brands. Faster growth in China and other emerging markets may soon become urgent, as question marks over the iPhone maker's future expansion, which dogged its share price before the holiday, persist in the new year.

According to The Wall Street Journal, Apple is reducing orders for iPhone 5 components, suggesting that, despite strong initial sales, continuing demand is not quite as strong as anticipated. With speculation about an 'iPhone nano' and even 'iPhone 6' already swirling, this also highlights the downside of the perennial fascination with Apple's plans - the early stage at which the public becomes convinced it must wait for the next device, even before that has been launched.

Whatever the underlying factors, the WSJ report says Apple cut its orders for iPhone 5 displays for the first quarter by about half the original targeted level, and reduced deals for other screen sizes too. This adds to the unusual negativity about Apple from some analysts at the end of 2012. For instance, UBS's Steven Milunovich reduced his iPhone forecasts last month, by 5m units in each of the first three quarters of 2013, and also trimmed iPad estimates by 2m per quarter.

Just to make things worse, the iPhone is no longer the device of choice among teenagers, the group all handset makers chase in order to achieve 'cool' and to achieve brand loyalty at an early age. A study by Buzz Marketing, reported by CNet, says that teenagers now crave a Samsung Galaxy device or even a Microsoft Surface tablet. Buzz Marketing's Tina Wells told Forbes: "Teens are telling us Apple is done. Apple has done a great job of embracing Gen X and older (millennials), but I don't think they are connecting with millennial kids."

One way that many supporters want Apple to connect with younger users and emerging economies is to bring out the long-rumored smaller iPhone. The latest reports of this device have gathered pace since the start of the new year, but the vendor's SVP of global marketing, Phil Schiller, told a Chinese newspaper: "A cheaper iPhone? Not for us." He said in an interview with the Shanghai Evening News: "More people are using smartphones in China, some manufacturers are beginning to develop low cost smartphones to replace featurephones, but this is not within Apple's product development direction." He said market share was not Apple's primary metric, and was merely a "by-product" of selling the best products (at a premium).

Of course, steering clear of a featurphone replacement does not mean Apple will not release a somewhat smaller, cheaper smartphone for the midmarket, which would risk the dilution of its brand value, but would, conversely, enable it to keep the larger iPhone in the premium range while still appealing to new markets. This will be a difficult balance, but one Apple has already achieved with the iPod nano and Shuffle, and the iPad mini. And many believe the firm cannot continue to grow with its one-model-per-year strategy for smartphones, in the face of Samsung's multifaceted challenge. And of course, under Steve Jobs, the supplier had a tradition of writing off product rumors and then launching the same form factors later.

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