Can Apple escape phone fatigue?

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Can Apple escape phone fatigue? - CNET

Apple has offered new products in its stores -- including Apple Watches like at this location in Palo Alto, Califoia -- but most of its sales still come from the iPhone.
Shara Tibken/CNET

iPhones -- heck, phones in general -- don't get you revved up like they used to. That's a problem for Apple.

The Cupertino, Califoia-based electronics giant has been expanding its offerings over the past few years, getting into wearables, enlarging its phone and tablet lines, 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. What happens when demand starts to slacken?

The company's fiscal first quarter, which ended in December, and which Apple announces financial results for on Tuesday, may mark the start of that slowdown.

Disappointing results would reaffirm the belief that we're suffering from phone fatigue, or the idea that new phones no longer excite us and that we're increasingly content with the one we own. Rival Samsung has already waed of continued weakness in its smartphone business, and some worry that Apple may no longer be immune.

We'll see if that's the case come Tuesday. It'll be tough to top last year, when Apple saw merely the highest profit for 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 the first quarter, and most analysts polled by Fortune agree. 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, don't add enough new features to get customers in places like the US to upgrade. And the economy in China, one of Apple's most important markets, has struggled, which may put a damper on the willingness of people there to snap up a new phone.

Analysts expect iPhone sales to rise only 2.8 percent from the previous year, to 76.5 million units, below the earlier forecast for 78 million units, according to Fortune. Many believe unit sales could actually decline in the next quarter and in the full fiscal year, which would be 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 for the first quarter, followed by a 3 percent revenue drop in the second quarter, a rare decline for Apple.

The company declined to comment.

Reading the tea leaves

Apple isn't alone in dealing with waning enthusiasm. Rival Samsung waed that its fourth-quarter profit and sales would be weak. Even superhot Chinese startup Xiaomi has struggled and may have sold fewer phones in 2015 than anticipated.

Gartner said last week that while shipments of mobile phones will rise 2.6 percent this year, overall spending will decline. Customers in places 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 waings. That includes 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 waed 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 weak financial results at its suppliers don't necessarily translate to its own condition. But it's getting pretty tough to ignore the waings that things are slowing down.

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