Pressure builds for Apple to overhaul or expand product portfolio

  • Article by: CHRIS O and AMP;#X2019;BRIEN , Los Angeles Times
  • Updated: January 29, 2014 - 8:18 PM

After disappointing earnings, the pressure is on for a hot new product.

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FILE - In this Wednesday, Nov. 20, 2013, file photo, the Apple logo is illuminated in the entrance to the Fifth Avenue Apple store, in New York. Apple Inc. reports quarterly financial results after the market closes Monday, Jan 27, 2014. (AP Photo/Mark Lennihan, File)

Apple iTV? The iWatch? Bigger iPhones and iPads?

Rumor-mongering about such mythical products is a regular spectator sport for many Apple watchers.

But after the company said it could post a year-over-year decline in revenue this fiscal year for the first time since 2002, conjecturing is turning into high-octane pressure for the company to do something, anything, to reboot growth.

“Apple needs to have more products it can sell into its high-priced customer base,” said Colin Gillis, an analyst at BGC Partners. “You should have a degree of urgency here.”

Concerns about the weak outlook for iPhone growth sent Apple’s stock plunging this week after the company reported disappointing fiscal first-quarter earnings. Apple sold 51 million iPhones over the holiday quarter, a record, but also fewer than the 55 million units analysts had predicted.

More ominous for many investors was a lower-than-expected projection for revenue in the current quarter. Although Apple said there were technical reasons behind its guidance, such as changes in inventory and accounting for revenue, analysts had still assumed that a deal to sell the iPhone through China Mobile, the world’s largest carrier, would give Apple a boost.

Instead, analysts wondered whether the disappointing outlook was part of a broader signal that the smartphone market, especially the high end that Apple dominates, is becoming saturated. Indeed, rival Samsung also recently reported disappointing sales, and Verizon Wireless said smartphone activations were slowing.

“Apple is fighting an uphill battle in this market,” said Brian White, an analyst at Cantor Fitzgerald. “The smartphone market overall is having problems.”

Major ramifications

Considering that Apple still makes most of its profits and revenue from the iPhone, the potential for such a slowdown is troubling. As a result, analysts increasingly believe that a dramatic overhaul of existing products, or entering a new product category, is essential if Apple wants to keep growing.

Apple remains mum as always on the subject of new products. On a conference call Monday, analysts asked only timidly about the topic, knowing that it was futile to expect a comment from management.

“I would just say innovation is deeply embedded in everybody here, and there’s still so much of the world that is full of very complex products,” Apple Chief Executive Tim Cook said in response to one such query. “We have zero issue coming up with things we want to do that we think we can disrupt in a major way. The challenge is always to focus and to do the very few that deserve all of our energy.”

But those remarks did nothing to dampen speculation. One option for Apple may be to adjust the size of its iPhones.

Rumors have Apple working on an iPhone with screens as big as 4.7 inches, and possibly an iPhone/iPad hybrid (awkwardly dubbed a “phablet”) with a 5.7-inch screen. Either would be bigger than the 4-inch screen on the iPhone 5s and 5c, and a nod toward the growing popularity of larger smartphones worldwide.

“Arguably, they need bigger screens,” Gillis said. “The market wants bigger screens.”

Rumors unreliable

Such gadgets may even debut as early as late spring or summer, according to some reports. Of course, runaway rumors last year that Apple was working on a cheap iPhone turned out wrong.

Talk of an iWatch has cooled after running hot much of last year, though many observers believe it’s natural for Apple to get into the wearables business as a way to extend its ecosystem of products.

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