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Apple's premium-priced Macs 'defy the laws of economics,' but iPhone does not, Needham says

post #1 of 50
Thread Starter 
Mac sales have continued to grow in the face of a recession and declining overall PC market, but Apple's iPhone could not escape shifting trends in the smartphone space, analyst Charlie Wolf of Needham said on Tuesday.




Wolf's take was detailed in his latest note to investors, a copy of which was provided to AppleInsider. In it, the analyst said that while the Mac "seems to defy the laws of economics," Apple's iPhone "is not so fortunate."

To support this, Wolf noted that Apple has been able to consistently increase its share of the personal computer industry over the last decade. Apple's relatively small share of the overall PC market has given it opportunity to grow, but the Mac's growth has even continued in recent years, while sales of traditional Windows PCs have actually shrunk in the face of tablets like Apple's iPad.

"Our analysis indicates that the Mac is the exception, not the rule," Wolf wrote. "Against a background of progressively rising prices compared to the prices of PCs, the Mac has consistently gained share in the personal computer industry as a result of an outward shift in its demand curve. The only explanation that we see for the shifting demand curve is the now-mythical halo effect."

Apple's so-called "halo effect" refers to the belief that sales of devices like the iPod, and later the iPhone, have helped to tie customers into the company's ecosystem of devices. That, in turn, has helped to boost Mac sales.

Mac shipments have outpaced the overall PC market in 30 of the last 31 quarters, allowing Apple to increase its market share over the last 11 years from 1.82 percent to 5.05 percent worldwide.




And in the last 11 years, while the average price of a PC plummeted from $1,083 to $639, Apple's Mac pricing didn't see as significant of a drop, falling from $1,549 to an average of $1,351. That means the difference in average price of a Mac and PC actually increased, from $466 11 years ago to $712 today.

But while the Mac's market share has continued to grow, the story is different for Apple's iPhone. While the iPhone saw its share rise steadily after its launch in 2007, it peaked in the fourth quarter of 2011 at 23.8 percent.

A year later, in the fourth quarter of 2012, the iPhone's smartphone market share fell to 20.9 percent. And again in the fourth quarter of 2013, Apple saw its total share fall, this time to 17.8 percent after the launch of the iPhone 5s.




However, Wolf noted that when comparing the iPhone's market share to sales of all mobile phones, including so-called "feature phones," Apple has actually continued to gain share, subject to seasonal fluctuations. Following the launch of the iPhone 5s in late 2013, Apple reached a new high of 10.2 percent of the worldwide mobile phone market, according to data from Gartner.

Still, Wolf noted, Apple has lost "meaningful share" of the smartphone space in emerging markets such as Asia-Pacific, the Middle East and Africa. While the iPhone continues to perform well in developed markets, Apple has seen its market share slide in places where low-cost smartphones are driving industry growth.




"The iPhone's loss of worldwide market share, then, is largely a composition effect, with smartphone sales migrating from developed markets, where the iPhone holds meaningful share, to emerging markets, where its share is far lower," he said.

While some have pointed to these market share losses as a major concern for Apple, Wolf isn't that bothered by the trend. He believes the migration of smartphone sales to emerging markets has been driven by what he called "imploding smartphone prices," not changes in consumer behavior.

"In contrast to the Mac, we detect no halo effect surrounding the iPhone that can mitigate the difference in price between an iPhone and a decent smartphone," he said. "Nor do we see any way that Apple could reduce the price of an iPhone to compete in emerging markets."
post #2 of 50

In five months, the price of 5c will drop to $449, the 4S to $349, and the 4 to $249-$299.  Plus, the 5c 8GB will be $349-$399.   This is before any special incentives, either from Apple or from the carriers  

 

In 18 months, the 5c (16GB) will be $349 

 

Apple is developing a robust lower and mid tier offering without anyone realizing it.   My wife still has the iPhone 4S and it is still a kick-ass phone, especially with iOS 7.1 

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post #3 of 50
Number out the door does not equal profitability. Nuff said.
post #4 of 50
Once they come out with a larger screen they will reclaim the many people who defected for that reason alone.

In the developing world, I saw very few iPhones in India, but here in Thailand the 4S is still the hot commodity in the stores. Many accessories stalls only carry iPhone cases.
post #5 of 50
Originally Posted by TokyoJimu View Post
Once they come out with a larger screen they will reclaim the many people who defected for that reason alone.

 

All six of them.

post #6 of 50
Quote:
Originally Posted by starbird73 View Post

Number out the door does not equal profitability. Nuff said.

While that matters for the company selling the phones, it doesn't matter for Apple. Whether their competitors are profitable or not isn't the issue: whether they're eating into Apple's market is, and that's purely a function of 'number out the door' rather than profitability.

post #7 of 50
Just another ANAL-yst to whom market share is more important than profit. He's a comedian. Of course it is April Fool's Day.
post #8 of 50
Quote:
Originally Posted by Red Oak View Post

In five months, the price of 5c will drop to $449, the 4S to $349, and the 4 to $249-$299.  Plus, the 5c 8GB will be $349-$399.   This is before any special incentives, either from Apple or from the carriers  

In 18 months, the 5c (16GB) will be $349 

Apple is developing a robust lower and mid tier offering without anyone realizing it.   My wife still has the iPhone 4S and it is still a kick-ass phone, especially with iOS 7.1 
If Apple is still selling the iPhone 4 or 4S in 5 months something is seriously wrong in Cupertino. They need to finally be done with 30-pin connector devices. And that includes the iPod Classic. Either get rid of it once and for all or update it to something audiophiles with large music collections would want.
post #9 of 50

Can one of these analysts, just one, come up with a graph one time that says, "iPhone MID TO HIGH END market share?"

 

Or are we going to continue to compare high end/mid tier iPhones to every single electronic device running any variant of Android on the planet?

 

Just a thought.

post #10 of 50
Quote:
Originally Posted by AppleInsider View Post

"In contrast to the Mac, we detect no halo effect surrounding the iPhone that can mitigate the difference in price between an iPhone and a decent smartphone," he said. "Nor do we see any way that Apple could reduce the price of an iPhone to compete in emerging markets."

 

So the Mac is winning based on pricing compared to market share, yet the iPhone isn't?

 

Average cost of iPhone vs average cost of the majority of handsets making up the smartphone market would mirror the Mac graph.

 

What a bozo, blind to the fact that Apple is raking in the lions share of real cash money from the handset market.

 

Is this some kind of April fools stunt?

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post #11 of 50
Quote:
Originally Posted by 512ke View Post
 

Can one of these analysts, just one, come up with a graph one time that says, "iPhone MID TO HIGH END market share?"

 

Or are we going to continue to compare high end/mid tier iPhones to every single electronic device running any variant of Android on the planet?

 

Just a thought.


I'm really not going to be satisfied until we only show graphs of Apple's share of phones with Lightning connectors.

post #12 of 50
Quote:
Originally Posted by SalmanPak View Post

Quote:
Originally Posted by 512ke View Post
 

Can one of these analysts, just one, come up with a graph one time that says, "iPhone MID TO HIGH END market share?"

 

Or are we going to continue to compare high end/mid tier iPhones to every single electronic device running any variant of Android on the planet?

 

Just a thought.


I'm really not going to be satisfied until we only show graphs of Apple's share of phones with Lightning connectors.

in gold otherwise im out!
post #13 of 50
Quote:
Originally Posted by DarkLite View Post
 

While that matters for the company selling the phones, it doesn't matter for Apple. Whether their competitors are profitable or not isn't the issue: whether they're eating into Apple's market is, and that's purely a function of 'number out the door' rather than profitability.

I think your 'eating' analogy can be turned against you.

 

If your competitors are eating all the rancid, tough beef and 'beef-like' markets, and you are still feasting on tender prime rib and filet mignon,   I say let them eat themselves full.'

 

HOWEVER,

 

What I see from the charts is lost opportunity 9 months out of the year.

 

Apple is a one quarter beast.  I used to think the Xmas quarter was one where everyone sold a lot of phones.  But world wide, it appears that Apple sells  higher relative to its competitors this quarter, and it's largely due to 'new' and 'improved' phones.   

(The counter to this is that relative to entire market, Apple is still growing market share year over year, however in the smart phone market it's growth is flattening).

 

I think as some have posted the 5c will erode in ASP over the year to staunch this erosion, but I also thought that the 5c would evolve to have 5s capabilities in a 'tock cycle'

 

IF the rumors are leading to 2 new iPhone form factors, so next selling season there may be 3 or 4 or even 6 form factors (I would imagine 4: 4"c 4"s 4.7"c  5.5"s), this could lead to some distribution of release.

 

However, I think it's 'function' that drives sales... and that's really a OS/HW pairing....  So unless there is a serious '.5' release that pairs up with significant HW changes in at least the 'c platforms'  I can't see any real change to the quarters 1-3 sagging against the market.

 

All in all, it's less about how many phones are sold, it's how many are in use and how many are driving increased iTMS sales....  To that end, I think the iPhone is just 'part' of the solution, and I do think the iPad mini and eventually a 'pro' (12") are the critical sales drivers of games (mini), content (movies), and productivity (air, pro) apps that garner a premium in price.

post #14 of 50

All it means is there is a group of consumers who do not buy on price alone, they put value other things, These people buy what they value not what is being sold. Too bad for Apple this group of people is not that large. But these people do spend lots of money thus the reason Apple has so much money in the bank.

 

it also mean that people learned their lessons with PC, so they no longer want to deal with this PC issues. If apple allowed OSX to be clones and put on lower end products they would dominate that market as well, since you know once people use the mac they would not go back.

post #15 of 50
I don't see that the Mac's continued growth should be surprising. The PC market is declining overall, yes. But there are two things I don't see being accounted for in this article. First, they are talking about the PC market overall; Apple only competes in the high-end of the market. Is that segment still growing? I don't know, but you can't compare Apples to oranges (or low-end PC's). Also, content must still be created. That's much easier to do on a high-end computer and especially on a Mac. The content creators are going to continue buying at the higher end of the computer market.

Tablets are a great way to consume content and they will continue eating into the lower end of the computer market and probably the mid-range market, as well. But for content creation, the high-end computers are going to be around for a long time.
post #16 of 50

~~Our analysis indicates that the Mac is the exception, not the rule," Wolf wrote. "Against a background of progressively rising prices compared to the prices of PCs, the Mac has consistently gained share in the personal computer industry as a result of an outward shift in its demand curve. The only explanation that we see for the shifting demand curve is the now-mythical halo effect." Apple's so-called "halo effect" refers to the belief that sales of devices like the iPod, and later the iPhone, have helped to tie customers into the company's ecosystem of devices. That, in turn, has helped to boost Mac sales.

 

Or the Macs are just kick arse machines! 

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post #17 of 50
Proof enough that Charlie Wolf does not understand economic theory.

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post #18 of 50
I have spent SO much less on my mid-to-high-end Macs than my "bargain hunting" PC friends, who buy more of them (a.k.a.replace them sooner), get little/no resale value, and burn money on support/virus cleaning when their own middle-of-the-road tech skills are defeated. And all the while they suffer through with a poor experience, unreliability, and cheap, cracked, plastic cases. Penny wise, pound foolish.

Of course, Macs having longer usable lives means Apple sells fewer, but I'm quite happy with that!
post #19 of 50
I'd like to know in the "smartphone" market what's considered "smart" (i.e. where's the data). These graphs are lovely but if one looks at graphs alone without the backing data, they mean nothing.
post #20 of 50
The Mac is gaining share because the PC market reached saturation and is now in decline, the iPhone is losing share in the smartphone market because the smartphone market is growing (but it's still gaining in the more saturated phone market). Once smartphones are saturated, the iPhone will be gaining share again (you can already see this in the US, Japan and some EU countries).

The thing to learn from this is that both the Mac and the iPhone grow independently of their respective markets. It has nothing to do with the "halo effect." Apple grows independently of the market because it sells Macs and iPhones and not simply PCs and smartphones. Their products form their own category.
post #21 of 50
Well, cheap smartphones in developing companies merely introduces customers to those devices that will switch to I-Phones later as those markets develop (and the cheap smartphones do help emerging markets develop).

Apple increasing market share of the PC market is one thing. But if Apple is increasing the number of PCs sold, that is another.

If Apple sold 25 PCs an hour and Wintel sold 75 PCs an hour in 2001, then that gave Apple a 25% market share.

If Apple sells 25 PCs an hour today and Wintel only sells 50 PCs an hour, then Apple substantially increases its market share without selling more machines.

Even more so, if Apple sells 20 PCs an hour today and Wintel sells 50, that is an increased market share while selling LESS machines.

So Apple increasing their market share but selling the same number of units is only mixed news at best. And if Apple is increasing their market share while selling fewer units, then that is not good news at all. Apple isn't as vulnerable to losing market share to tablets and ChromeOS type devices because they were never in the low end PC market to begin with, but they are still to a degree vulnerable.

Also, I wonder about the sales of high-end Windows machines. The $400-$500 Windows machines are not selling, but I wonder if the $800-$1200 Windows machines that are used by gamers, enterprise customers and professional users still are.
post #22 of 50
Quote:
Originally Posted by Tallest Skil View Post
 

 

All six of them.

Way more than that. I personally know some 6-10 people who went to android for that. I myself have begun to think about it because I am looking to stop getting a tablet (except for any work issues me) and just carry one device to do all. If the iPhone goes to 4.7'', I will likely keep an iPhone. 

 

Apple and I are going through a little marriage issues since the screen on my Macbook Pro Retina 15.4 (mid 2012) started showing IR only 3 months out of warranty. I had to foot the bill for that one despite being reassured by the sales team that the issue would not show up. 

post #23 of 50
Quote:
Originally Posted by DarkLite View Post

While that matters for the company selling the phones, it doesn't matter for Apple. Whether their competitors are profitable or not isn't the issue: whether they're eating into Apple's market is, and that's purely a function of 'number out the door' rather than profitability.
sorry, more to the point, Apple doesn't compete in the low end. Without a problem or not remains to be seen. But counting those android numbers there does have an impact
post #24 of 50
where did my comment go?
post #25 of 50
These endless and banal market share comparisons are all meaningless because they lump everything and anything claiming to be "smartphone" into a SINGLE market segment. This is blatantly ridiculous even for first semester marketing or economics students. This completely ignores 3 out of the 4 basic Ps of Marketing 101. A freshman student turning in this "analysis" as homework would receive a failing grade.

Do you think Mercedes, Lexus, and Audi are driving their luxury product roadmaps and assessing their product performance based on their luxury branded products market share in the worldwide car market when you have cheap econoboxes from China, Korea, and India streaming into emerging markets? No, they look at market share in the market segment that they are specifically selling into, along with the number of units sold and the selling price. That's what you do when you build products to make a profit.

Adding fancy graphs and charts around meaningless analysis and off the mark fundamentals is just chaff to deflect and obscure the fact that the analyst is either clueless or is trying to get credit for adding absolutely nothing to the subject at hand. Nice try but it's still a failing grade. Try harder next time.
post #26 of 50
Quote:
Originally Posted by poke View Post

The Mac is gaining share because the PC market reached saturation and is now in decline, the iPhone is losing share in the smartphone market because the smartphone market is growing (but it's still gaining in the more saturated phone market). Once smartphones are saturated, the iPhone will be gaining share again (you can already see this in the US, Japan and some EU countries).

The thing to learn from this is that both the Mac and the iPhone grow independently of their respective markets. It has nothing to do with the "halo effect." Apple grows independently of the market because it sells Macs and iPhones and not simply PCs and smartphones. Their products form their own category.

 

Exactly right!  The transition to "smartphones" is something that carriers are doing and is happening very quickly.  Consumer choice is happening much more slowly.  Growth in the mobile-phone market is much more meaningful, because you don't have these two different effects mixed together: growth in the overall mobile phone market is slow, so you can see Apple's share there growing steadily.  

 

Wolf is also making the usual mistake in saying there's nothing that will allow Apple to continue to sell a premium priced phone.  How about the entire history of the company and its customers that want something better?  And an iTunes ecosystem that is, by itself, more profitable than Google?

post #27 of 50
Quote:
Originally Posted by starbird73 View Post

Number out the door does not equal profitability. Nuff said.

The problem is that Apple is forced to literally burn profits to buyback and avoid AAPL falling. Several tens of billion of profits burned to sustain (not to increase) AAPL value.
post #28 of 50
N/A

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post #29 of 50
Originally Posted by AppleInsider View Post
... driven by what he called "imploding smartphone prices," ...

 

Without quoting any specific numbers.  Just FUD-ishly provocative adjectives.

 

Hey Charlie, you'd better crank out a crapton of hysterical hand-wringing iPhone stories.  While you still can.

The economy is gradually turning around.  Just imagine iPhones sales when the economy is *hot*.

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post #30 of 50
Quote:
Originally Posted by Rogifan View Post

If Apple is still selling the iPhone 4 or 4S in 5 months something is seriously wrong in Cupertino. They need to finally be done with 30-pin connector devices. And that includes the iPod Classic. Either get rid of it once and for all or update it to something audiophiles with large music collections would want.

Why, specifically?

iOS 7.1 performs flawlessly on it

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post #31 of 50
Quote:
Originally Posted by 512ke View Post
 

Can one of these analysts, just one, come up with a graph one time that says, "iPhone MID TO HIGH END market share?"

Or are we going to continue to compare high end/mid tier iPhones to every single electronic device running any variant of Android on the planet?

 

Similarly, show us a chart of % market share of computers costing over $900.  And profit share of same.  I think we'll see Macs are in the 90% range for both.

post #32 of 50

iPhone dominates smartphone profits. By a large margin.

 

What else is there to say?

post #33 of 50
Quote:
Originally Posted by AppleInsider View Post

"Our analysis indicates that the Mac is the exception, not the rule," Wolf wrote. "Against a background of progressively rising prices compared to the prices of PCs, the Mac has consistently gained share in the personal computer industry as a result of an outward shift in its demand curve. The only explanation that we see for the shifting demand curve is the now-mythical halo effect."

Doesn't he mean the once-mythical halo effect?

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post #34 of 50
Quote:
Originally Posted by TeaEarleGreyHot View Post
 

 

Similarly, show us a chart of % market share of computers costing over $900.  And profit share of same.  I think we'll see Macs are in the 90% range for both.

Apple has always had over 90% market share in computers over a thousand dollars. I think since around the year 2000, and still to this day.

 

Which says a lot. It means people that are actually buying machines to do real work, that require processing power and graphics, are almost all buying Macs. When I price out PCs, machines with comparable specs to a MacBook Pro or Mac Pro are all around the same prices.

post #35 of 50
Quote:
Originally Posted by Tallest Skil View Post

All six of them.

That's twice the number of people who threatened to buy a Windows 8 PC laptop if Apple stopped selling the 17" MBP.

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post #36 of 50
Quote:
Originally Posted by Suddenly Newton View Post


That's twice the number of people who threatened to buy a Windows 8 PC laptop if Apple stopped selling the 17" MBP.

.....Or ditched the Matte screen.

post #37 of 50

I don't think the Halo Effect is the only explanation. Another one is that the PC market in general is not shrinking, it's specifically the low-cost PC market that is shrinking (being displaced by tablets). So the Mac is not escaping the shrinking of it's market, because it's not in the low-cost PC market in the first place. And since it's not escaping anything, there's no need to hypothesize Halo Effects and such to explain why it is escaping.

post #38 of 50
Quote:
Originally Posted by Tallest Skil View Post
 

 

All six of them.

Seven. You missed me.

And happy with the very pocketable Moto X I bought.  Phones are my least valued computing platform anyway.  I just keep chafing for more screen real estate and targets I can reliably hit.  So getting all I expect and need for a very nice price.

I will be adding an iPad to my stable of devices (including a Mac notebook and a PC Desktop) with the next iteration this fall, though.  No comparison in the tab segment yet. 

Forget the tech religious wars and focus on value delivered for price.  Once you understand modern computing metaphors and aren't thrown by the diff's between OS's, platform agnostic's the way to go.... 

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post #39 of 50
Quote:
Originally Posted by bradipao View Post


The problem is that Apple is forced to literally burn profits to buyback and avoid AAPL falling. Several tens of billion of profits burned to sustain (not to increase) AAPL value.


Do you often try passing-off nonsense as fact?

post #40 of 50
Quote:
Originally Posted by DewMe View Post

These endless and banal market share comparisons are all meaningless because they lump everything and anything claiming to be "smartphone" into a SINGLE market segment. This is blatantly ridiculous even for first semester marketing or economics students. This completely ignores 3 out of the 4 basic Ps of Marketing 101. A freshman student turning in this "analysis" as homework would receive a failing grade.

Do you think Mercedes, Lexus, and Audi are driving their luxury product roadmaps and assessing their product performance based on their luxury branded products market share in the worldwide car market when you have cheap econoboxes from China, Korea, and India streaming into emerging markets? No, they look at market share in the market segment that they are specifically selling into, along with the number of units sold and the selling price. That's what you do when you build products to make a profit.

Adding fancy graphs and charts around meaningless analysis and off the mark fundamentals is just chaff to deflect and obscure the fact that the analyst is either clueless or is trying to get credit for adding absolutely nothing to the subject at hand. Nice try but it's still a failing grade. Try harder next time.

 

Excellent post. This mind-numbing analysis is insanely idiotic in more ways than one, not to mention that it excludes the fundamental premise that the smartphone market is still rapidly growing, while the PC market (that macs are included in) is shrinking- anyone with 2 braincells can understand why Macs would be increasing in share, while iPhone decreasing when you lump all "smartphones" together (nevermind the stupidity of making no distinction from a $700 iPhone and a $50 phone running some variant of Android). It has nothing to do with "defying laws of economics" or "being fortunate"- it's fucking common sense, that anyone with even a mild understanding of the industry should grasp. I'm always in awe of how these people are well paid for their vomitted out "analysis" and "conclusions", that is not fit for toilet paper. 

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