The global tech cycle depends on iPhones, IMF claims

Apple’s iPhone has become a key factor for global economic growth, claims the International Monetary Fund -- but the boom times may be over, it warns.

Apple, iOS, iPhone, wearables, smartphones, mobile industry

Apple’s iPhone has become a key factor for global economic growth, claims the International Monetary Fund (IMF) — but the boom times may be over, it warns.

'An iPod, a phone, Internet Communicator and economic saviour'

Noting that in 2017, global smartphone sales reached 1.5 billion units (one smartphone for every five people on the planet), the IMF World Economic Outlook April edition makes lots of observations around Apple, the iPhone, technology, and the post-smartphone era.

You’ll find them in Chapter 1 (pdf).

One of the key observations is that Apple isn’t just important in terms of technology innovation, but it now also has strong importance to the economic future of some nations.

Smartphone production and sales contributed $3.6 trillion (4.5 percent) to the world economy in 2017, the IMF explains. In fact, smartphone components and sales account for one-sixth of the growth in global trade.

The industry contributes 5.7 percent of Chinese exports.

It’s not just China; Korean semiconductor exports accounted for 17.1 percent of total exports. In Ireland, the IMF’s latest estimates claim iPhone exports account for one-fourth of the country’s economic expansion in 2017. Related data from the GSMA claims the mobile industry now contributes 4.5 percent of global GDP.

Boom to bust

“In a recent paper (Carton, Mongardini, and Li 2018), the new tech cycle is shown as being captured by non-seasonal factors. It critically depends on the release dates of iPhones as Apple Inc. flagship models drive global demand,” the IMF states. “In fact, iPhones topped global sales in the fourth quarter of 2017, surpassing Samsung Electronics phones.”

Apple’s power brings great responsibility.

When making decisions, Apple management must now reflect that any slowdown in smartphone industry growth may have a major impact on the global economy, particularly across its complex APAC component supply chain.

That one in five people on the planet has a smartphone in 2017 could hint at some kind of ceiling to industry growth — and that barrier could impact global GDP.

There is a future to the industry, of course, given that as people get their first smartphone, they become more likely to want to replace the device over the next three years or so, but the IMF warns that global smartphone sales may have plateaued.

“By decomposing the cycle from trend for Chinese exports of smartphones, regression results show that the trend is nonlinear and may have reached its peak in September 2015, suggesting that future global demand for smartphones may grow more slowly (driven more by replacement demand than new acquisitions),” the organization said.

Be prepared

To be honest, Apple saw this coming.

In the short term, Apple’s move to raise prices on iPhones has helped maintain growth for itself and its many manufacturing partners. The IMF notes that GDP growth was mainly driven by rising smartphone prices — the average selling price (ASP) for iPhones climbed from $618 in 2016 to $798 in 2017.

Recognizing the ceiling of smartphone growth means iPhones (as I’ve said before) won’t matter anymore, the company is already developing next-generation solutions (Apple Watch, AirPods, and its focus on services) that management must hope will help it hold its place in the winner’s enclosure during the next stage of tech industry growth.

A smartphone replacement mindset

Given that the replacement market is becoming so important, it seems likely to me that Apple’s focus will shift to a smartphone replacement mindset. I see three factors here:

  1. Maintain leadership

Apple’s existing strategy seems to be to focus on R&D and new technology advances (such as ARKit and Face ID) that give its products unique technology advantages. In doing so, it has created a scenario in which its high-end devices now define the future of its most valuable market.

  1. Widen the market

Given that cheap smartphones seem to drive the fragmented Android market, Apple may do well by introducing lower-cost devices that retain enough of its cutting-edge technologies to still remain aspirational. In this I’m thinking the now-expected iPhone SE2 with 3D Touch, AR Kit, M2, and much faster processors will prove to be Apple’s stalking horse to claim a larger chunk of future smartphone replacement sales.

  1. Get more aggressive

Apple will become more aggressive than ever in persuading Android owners to buy an iPhone next time they replace their device. It will focus on what you can do with its solutions that you can’t do effectively on others.

The bottom line? The wealth and future of entire nations may now depend on the decisions emerging from Apple Park. No pressure, then.

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Copyright © 2018 IDG Communications, Inc.

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