Can Apple escape iPhone fatigue?

A year ago, the iPhone 6 helped Apple report the best quarter in its 38-year history. This time around, the company must deal with consumers who don't race to buy the latest smartphone like they once did.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
3 min read
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Apple Watches are available in the company's stores, such as this one in Palo Alto, California, but most of Apple's sales still come from the iPhone.

Shara Tibken/CNET

iPhones -- heck, phones in general -- don't rev you up like they used to, and that's a problem for Apple.

The Cupertino, California-based electronics giant has expanded its horizons over the past few years, entering the wearables market, broadening its phone and tablet lineups, and launching a streaming-music service. But its fortunes are still closely tied to the iPhone, which is responsible for two-thirds of its sales and much of its profit. So what happens when demand starts to slacken?

The outcome of the company's fiscal first quarter, which ended in December, will be released Tuesday. It may mark the start of a slowdown.

Disappointing results would reaffirm the belief that we're suffering from phone fatigue, meaning that new phones no longer excite us and that we're increasingly content with the one we own. Rival Samsung has had to contend with sputtering smartphone sales, and some worry that Apple may no longer be immune.

We'll see if that's the case come Tuesday. It will be tough for Apple to top last year's results, when the tech giant posted the highest profit of any public company ever, thanks to the larger screens of the iPhone 6 and iPhone 6 Plus.

Can Apple do it again and sell more iPhones than ever before? In October, CEO Tim Cook said the company's iPhone sales would rise in its first quarter. Most analysts polled by Fortune agreed, but they've also grown more cautious over the past few weeks.

The problem is that the latest iPhone models, the 6S and 6S Plus, didn't add enough new features to prompt customers in places like the US to upgrade. In addition, the economy in China, one of Apple's most important markets, has been struggling and may have put a damper on the willingness of consumers there to snap up a new phone.

Analysts now expect iPhone sales to rise only 2.8 percent from a year earlier, to 76.5 million units, below the earlier forecast of 78 million units, according to Fortune. Many believe unit sales could actually decline in the quarter ending in March and in the full fiscal year, which would mark the first time iPhone sales have dropped since Apple started selling the device in 2007.

Wall Street analysts polled by Thomson Reuters also expect a modest 3 percent rise in revenue in Apple's first quarter, followed by a 3 percent revenue drop in its second quarter, a rare slip for Apple.

The company declined to comment.

Reading the tea leaves

Apple isn't alone in dealing with waning enthusiasm. Samsung has warned that its December-quarter profit and sales would be weak. Even super-hot Chinese startup Xiaomi struggled and sold fewer phones in 2015 than anticipated.

Market researcher Gartner said last week that while global shipments of mobile phones will rise 2.6 percent this year, overall spending will decline. Consumers in countries like China are buying cheaper phones instead of shelling out hundreds of dollars for high-end models.

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"Local and Chinese brands are delivering more-capable basic smartphones with appealing features at a lower price," Gartner said, "which means that there is less of a need for users to upgrade to a premium smartphone."

Some of Apple's key component suppliers and partners have issued their own warnings. They include Analog Devices, which makes components for the iPhones; Cirrus Logic, which provides audio chips; Dialog Semiconductor, which makes power-management chips; and Qorvo, which provides radio frequency processors.

Intel, which supplies processors for Apple's Macintosh computers, reported disappointing quarterly results, and Chief Financial Officer Stacy Smith warned about the conditions in China. Taiwan Semiconductor Manufacturing Co., which builds chips for Apple's mobile devices, said demand for high-end phones has been weak.

Apple has said in the past that faltering financial results at its suppliers don't necessarily translate to its own condition. But industry watchers say it's getting tough to ignore warnings that sales are slowing down.

Said JP Morgan analyst Rod Hall: "The drumbeat of bad news from Apple suppliers keeps building."

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