All eyes will be on Apple's iPhone sales numbers Tuesday, as the company reports its earnings amid grim predictions that the wild growth of the iPhone may be coming to an end.

Some analysts project that Apple will report iPhone sales as high as 77 million, up from a record 74.5 million for the 2014 holiday season. But Apple's past is not what investors are looking to hear about on this call. Instead, they will probably be paying closer attention to the company's forecast for sales in the next quarter -- which many analysts think could show the first-ever drop in iPhone sales since the smartphone was introduced in 2007.

Any hint of weakness in its iPhone business is bad news for Apple, which relies on the smartphone for at least 60 percent of its revenue. Hints of softer sales have dogged Apple for months, as several companies in the tech firm's massive supply chain have warned that the firm is ordering fewer parts for iPhones than ever.

AD
AD

Those reports have weighed on Apple's stock for months, which has fallen about 25 percent since July and was trading around $100 per share on Tuesday.

Apple's rumored woes, in part, reflect the troubles of many other smartphone companies, said Ramon Llamas, a mobile analyst at IDC. As more people across the world buy smartphones, the market for new buyers inevitably shrinks.

But, he said, Apple is also facing fierce competition in the all-important Chinese market from local firms that are offering low-cost phones.

In fact, the rise of cheaper phones has driven the average price of a smartphone overall way down, according to the Consumer Technology Association. That price is forecast to dip below $300 for the first time in 2016, down seven percent from the previous year to $263.

AD

"The classic innovator's dilemma is playing out in front of us," said Shawn Dubravac, an economist with the Consumer Technology Association. "Manufacturers who were garnering attention at the lower end continue to move up."

AD

These devices can't match the performance of iPhone, but are good enough for most consumers at a much lower price.

"Today's low-cost Android phones aren't like last year's," Llamas said.  "The inexpensive ones are mid-range Android phones masquerading with low-end prices. Does Apple have a competitive answer to that? Not really."

To be clear, Llamas said, it's not as if Apple is withering in China. "Saying that Apple is falling behind or bowing out is an incredible misconception," he said, noting that Apple's consistently shown year-over-year sales growth in China for the past seven quarters.

AD

But Dubravac said that what Apple will need to focus on is building up its ace in the hole: the iOS ecosystem. Continuing to build out its App Store and features will help the company improve the appeal of all of its devices -- not just smartphones -- and is the main way that the firm distinguishes itself from its competitors.

AD

"Apple continues to focus on within their ecosystem --  the Watch, the smartphone, the tablet. Getting all of those components to ensure interoperability between all of those is good," he said.

In fact, he said, getting the balance between hardware and software is a key for any company looking to distinguish itself in the industry as the links between devices become as important as selling point as the gadgets themselves. "The same story will play out in lots of different corners of tech," he said.

AD
AD