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Apple's revenue declines as modularity, digitalisation rise

Posted: 01 Feb 2016 ?? ?Print Version ?Bookmark and Share

Keywords:Apple Iphone? digitalisation? Internet of things?

Apple has projected its iPhone sales to take a plunge this year, its slowest since its first release in 2007. Observers were in shock as the mobile industry giant predicted its first decline in revenue in the last 13 years.

Currency fluctuation and the cooling of China's economy notwithstanding, Apple's predicament is a reflection of tough times across the board in the mobile phone industry.

Back in 2011, a Beijing start-up mobile phone maker named Xiaomi developed a social media platform to engage millions of Chinese, turning young consumers into casual programmers to enhance its mobile phones' operating system. In less than four years, Xiaomi saw its revenues soar, surpassing Samsung and Apples market share in China. It became the country's largest mobile phone maker, and the world's third.

Yet in 2015, Xiaomi's short-lived glory was snatched up by Huawei, another telecom giant in China which historically billed itself as a low-cost provider. Why so much turbulence in the mobile space? Two underlying forces, modularity and digitalisation, have been the main cause; and they are, it turns out, also affecting other sectors.

Modularity

Ever since Western companies began outsourcing manufacturing to Asia in search of low wages, engineers have been devising clever ways to standardise components. From micro-processors and memory chips to LCD panels, components have become interchangeable and have been for the most part made in the Far East (South Korea, Taiwan and Singapore). A mobile phone today is highly modularised, and compared to 15 years ago, has become far cheaper and more flexible to manufacture. Consequently, the barrier to enter the industry has dropped. Xiaomi, unlike Apple and Samsung, doesnt run a single factory; all of its assembly and component fabrication are outsourced.

Digitalisation

What destroyed Kodak and Polaroid isnt confined to photography. Digitalisation also inflicted mortal wounds to Sony (Walkman), Toshiba (CRT TV) and Hitachi (video recorder). As our computing power improves apace, product features are increasingly driven by software. Hardware has become commoditised. The seamless consumer experience delivered by iPod has little to do with cutting-edge hardware technology (those were off-the-shelf by third parties), but cutting-edge software design. Again, it was this influx of the two interwoven forces, modularity and digitalisation, that contributed to the displacement of old timers. Out Nokia, Blackberry and Motorola, in Samsung, Google (Android) and Apple.

Inexorably, the coming onslaught of the Internet of Things will only further speed up digitalisation and information transfer to the cloud. Services and offerings are becoming ever more modularised as new industry standards emerge. The speed of change and toppling of industry leaders we have observed in the mobile space will naturally spread elsewhere.

Now, is your industry next? Are you ready?

- Prof. Howard Yu





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