Market Insight

Apple's record iPhone results include warning signs for the future

January 28, 2014

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Apple yet again posted record results for the final quarter of 2013, but still managed to fall short of the media's expectations. Apple shipped 51m iPhones globally; the first time Apple exceeded 50m in a quarter. But this modest rise of 3.2m shipments compared with the same quarter in 2012 followed Apple's deals to add Japan's NTT DoCoMo and China Mobile as iPhone distributors, and increasing the size of the operator channel for the iPhone. As these are the last two major carriers left that could adopt the iPhone, Apple will not see a similar uplift in addressable market in the future.

Our take:

IHS does not believe that the lower than expected shipments indicates that Apple's change in strategy by releasing two new iPhones is a failure for three main reasons:

  1.  Samsung also highlighted the softness in the smartphone market in its results. Samsung's smartphone shipments actually decreased in Q4 from Q3 which breaks with the usual seasonality of the handset market. Samsung had previously mentioned slowing sales in the high end segment in its Q3 results as well. This makes Apple's continued growth in the high-end of the market impressive.
  2. The average selling price (ASP) of an iPhone increased dramatically in the quarter, jumping from $577 to $637. Apple is also deferring more iPhone revenue now to account for the increasing amount of free software it provides with the device, which makes this boost in ASP even more unusual. It is possible that by having two new products at the top and in the middle of its smartphone portfolio is squeezing demand for the bottom tier product, the iPhone 4S, which would lead to this jump in ASP. Also the gap between the 4S and the 5C is probably more significant than the gap between previous iPhones due to the larger screen and 4G connectivity. So rather than the 5C failing in the market, the new 5C design may be vacuuming up sales that would have otherwise gone to the 4S.
  3. iPhone sales on China Mobile only started in January, so the impact from China Mobile will only be fully seen in the results for the first quarter 2014. Chinese New Year occurs during Q1 and that is when China's handset market sees its seasonal peak.

But there are clear warning signs for Apple in the slowing smartphone market and the relatively small increase in iPhone shipments year on year. Year on year quarterly iPhone shipments increased just 7%, compared with 29% a year previously, and 128% two years ago.

To counter these trends, Apple needs to increase the degree of innovation with its 2014 iPhone models and make them more markedly different to older models to continue iPhone shipment growth.

Apple Inc.
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