[IDC Estimates Apple IPhone Sales In China Fell 20 Percent YOY In 2018 Holiday Quarter
Iberio Ralda
While skeptics question whether the company's future is tied too much to one product, the iPhone's popularity was the reason Apple turned in another blow-out financial report Monday. The results far surpassed most analysts' expectations for the first three months of the year, when sales traditionally fall from their holiday-season peak.
IDC estimates Apple iPhone sales in China fell 20 percent YOY in 2018 holiday quarter
Download Zip ☆☆☆☆☆ https://t.co/FnZDCMj8yd
Apple sold more than 61 million iPhones in the quarter, accounting for more than two-thirds of its $58 billion in revenue for the three-month period and the lion's share of its $13.6 billion in profit.
As expected, the numbers were down from the previous quarter, when holiday shoppers bought a record 74 million of Apple's new iPhone 6, 6 Plus and older models. But the 61 million was a 40 percent increase over the number of iPhones sold in the first three months of 2014.
"We're seeing great results all over the world," Apple Chief Financial Officer Luca Maestri told The Associated Press, adding that iPhone sales grew 72 percent in China, where the company has big hopes for expansion.
Apple didn't report any results for the new Apple Watch, which it began selling this month after the quarter ended. CEO Tim Cook told analysts on a conference call that he was "thrilled" with customer response, but added that it's difficult to gauge demand because initial supplies are limited. Analysts estimate about 2 million have sold to date, suggesting early demand is healthy but not of blockbuster proportions.
The iPhone is another story. Since it began offering models with bigger screens last fall, Apple has vied with South Korea's Samsung for the No. 1 position in the global smartphone market. By some estimates, Apple outsold Samsung in the quarter that ended in December, and analysts will be watching closely when Samsung reports its latest results this week.
As iPhone sales have surged, so has Apple's stock. Apple shares have gained more than 50 percent over the last year, making it the world's most valuable company. The stock closed Monday at $132.65, up 1.8 percent for the day, and was rising another 1 percent in extended trading.
Market researchers, however, expect smartphone growth to slow down worldwide this year, particularly at the higher price range where Apple competes, as most consumers in industrialized countries have already bought one. That could make it difficult for Apple to maintain its recent pace.
"They're extremely dependent on the iPhone," said investment analyst Colin Gillis at BGC Partners. "At some point, the market dynamics change," he said, adding that the question is what could replace the iPhone if sales begin to slow.
Cook said he's optimistic about new markets such as China, where Apple has made a strong showing against Samsung and China's Xiaomi by appealing to a growing middle class. He also said only 20 percent of iPhone owners have purchased the newest models, which he painted as a sign that many more will eventually upgrade to the 6 or 6 Plus.
Maestri, meanwhile, said the company is diversifying with new products like Apple Watch and Apple Pay, which on Monday added Discover to the list of payment cards that work with the service. While he acknowledged these currently provide minimal revenue to Apple, analysts say they have big potential. And they are designed to work closely with the iPhone, which means each may bolster the other's popularity in the future, Gillett said.
Apple also announced Monday an expansion of its 2-year-old effort to give investors a bigger share of the company's huge profits. Maestri said Apple will raise its quarterly dividend by 11 percent, to 52 cents a share, and has increased a $90 billion stock buyback program to $140 billion. In total, he said the program will return $200 billion to investors by the end of March 2017.
Apple ended the quarter with $193.5 billion in cash and short-term securities. But since most of that is parked overseas to avoid paying higher U.S. tax rates, Maestri said Apple will likely take advantage of low interest rates to borrow money for the program.
Apple's premium strategy for eliciting interest among smartphone buyers will have to continue to depend on jaw-dropping technology to make iPhones attractive because the commodity volume leaders are all in a race to the bottom in a market where prices are plummeting and growth has disappeared. Sound familiar? It's like the second coming of the PC.
Estimates by Strategy Analytics show that Samsung's smartphone sales fell 4 percent YoY on shipments of 74.4 million units, giving it 18.6 percent market share globally in calendar Q4 2017. The firm noted that this performance was "up slightly from 18 percent share a year ago," when the company was in full panic mode during the peak of its Galaxy Note 7 fire season.
That's particularly noteworthy because Apple's iPhone 8, 8 Plus and X models pushed the company's ASP within five bucks of $800 while selling against Samsung handsets offered at an ASP of less than $250.
On top of Apple besting Samsung not just in profits (as it always has) but even in volumes of smartphones shipped during the holiday quarter, Apple was also facing a bleak global market for smartphones.The holiday quarter was "the biggest annual fall in smartphone history"
"Global smartphone shipments declined 9 percent annually from 438.7 million units in Q4 2016 to 400.2 million in Q4 2017," the firm reported, referring to the drop as "the biggest annual fall in smartphone history."
Strategy Analytics blamed the drop on "a collapse in the huge China market, where demand fell 16 percent annually due to longer replacement rates, fewer operator subsidies and a general lack of wow models."
Across all of 2017, global smartphone shipments were estimated to have grown just 1 percent, reaching a record 1.5 billion units. However, it's clear that Chinese makers who had been posting huge shipment gains of cheap commodity handsets are no longer going to be able to continue to do so in a climate of such stagnant saturation.
On a weekly basis, as Mike Wuerthele and Malcolm Owen wrote this morning iPhones sold in the latest holiday quarter generated more than a billion dollars per week more in revenue compared to the previous year. However, because last year's reporting quarter was an extra week longer than this year's, Apple's sales in the quarter "fell" 1 percent YoY over the arbitrary reporting period.
The difference in time between 13 weeks and 14 weeks is nearly 7.7 percent, so citing the two numbers without noting that is like comparing an athlete's time running a 400 meter dash with the time needed to run 430 meters, and suggesting that any difference in the actual number of seconds means the performance was "disappointingly slower," even if the runner was actually running at a faster pace.
Strategy Analytics Executive Director Neil Mawston was among those who ignored this, describing Apple's performance only as "slipping 1 percent annually." He added that "iPhone volumes have actually declined on an annual basis for 5 of the past 8 quarters," and added, "If Apple wants to expand shipment volumes in the future, it will need to launch a new wave of cheaper iPhones and start to push down, not up, the pricing curve."
At the same time, he also noted that "Samsung dipped 4 percent annually [in Q4]," despite selling phones with an ASP that is now less than a third of the average of Apple's entire iPhone lineup (including its new, lowest-ever priced iPhone SE). Samsung has a vast selection of cheap phones that didn't prevent a decrease from occurring, and its drop resulted over 4 million fewer sales, versus 1 million fewer iPhones YoY on the same quarterly basis.
Lower prices helped Samsung to expand unit shipment volumes slightly across the entire year; its total sales for 2017 reached an estimated 317.5M, compared to 215.8M iPhones sold by Apple. But as Mawston also noted, "Samsung is under pressure from Chinese rivals in some major markets, like China and India." And unlike Apple, Samsung doesn't have an iPhone X to effectively "push up the pricing curve." In fact, Samsung was forced to slash the price of its premium flagship in the quarter.
Chinese manufacturers have issues of their own. Strategy Analytics noted that Huawei sales slipped 8 percent in the quarter YoY while facing an inability to enter the U.S. market related to fears that it's trying to sneak in Chinese spyware.
OPPO, the low-end brand of BKK Electronics, has previously been heralded for huge volume increases of phone shipments globally, but it's now flatlined. Strategy Analytics estimated that OPPO shipments remained flat at exactly 29.5M units, the same as the previous year-ago quarter.
Xiaomi "soared 87 percent annually," but that was on sales of just 27.8M units in the winter quarter. The firm noted, "Xiaomi is outgrowing almost everyone for now, but we expect its breakneck speed to slow this year, as rivals such as Huawei fight back with improved or cheaper new designs."
Other brands in China (which would include BKK's formerly fast-growing Vivo and OnePlus brands) collectively tanked by over 22 percent, with total shipments falling from 193.6M in the year-ago holiday quarter when iPhone 7 debuted, to just 150.2M in the most recent holiday quarter.
Another problem for cheap commodity phone vendors is that while they can "grow" in the short term by offering cheap models, their repurchase loyalty rate is half that of iPhone buyers. So regardless of how long the buying cycle is, it is only half as likely to ever benefit them.
The current quarter ending in March includes China's Lunar New Year festival, a gift-giving season that has previously bumped up Apple's performance. This year, however, Apple's guidance appears to express a conservative anticipation of an increasingly difficult competitive environment in China.
For Apple to be price-competitive with Chinese Androids, it too would have to begin selling low-end iPhones at cost, a practice the Chinese government is unlikely to want to subsidize, given that Apple is an American company. Further, given Apple's profitably in an overall market rife with cheap commodity, it's hard to see why Apple would want to join Chinese companies in failure rather than remain the leader in sustainable profitability.
795a8134c1