Slowing iPhone growth may be function of smartphone industry, not restricted to Apple

Posted:
in iPhone edited January 2014
As year over year growth of Apple's iPhone sales slow, there is evidence that the once-booming smartphone industry is cooling off as a whole.

Taking a closer look at Verizon's latest earnings report, analyst Maynard Um with Wells Fargo Securities said in a note to investors on Friday that he believes slowing smartphone sales are not Apple-specific. He noted that iPhone activations at Verizon were up 25 percent year over year, while other smartphones grew just 3 percent.

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In all, smartphone activations were up 14 percent year over year in the March quarter at Verizon, which is the largest wireless carrier in the U.S. In comparison, Verizon saw 27 percent year over year growth in the previous holiday quarter.

"With Nokia and BlackBerry smartphone units also lower than most anticipated, and combined with Verizon's upgrade data point, we believe the industry may have seen a slowing in (the first quarter of 2013)," Um wrote.

However, any industry slowdown isn't expected by Um to last. He sees smartphone sales accelerating in the second half of calendar 2013, driven by major new product launches, as well as a large number of iPhone 4S buyers' service contracts expiring, thus making them eligible for upgrades.

Verizon reported on Thursday that it activated 4 million iPhones in the March quarter, with Apple's smartphone accounting for more than half of the 7.2 million smartphones activated by the carrier in the three-month span. The iPhone activations reported by Verizon were about in line with expectations, though a 50-50 split between iPhone 5 sales and legacy iPhone 4S and iPhone 4 units was viewed as a disappointment.

Historically, Verizon has on average accounted for 11.1 percent of Apple's quarterly iPhone sales. Applying that same number, Um admitted that there is a chance that iPhone sales for the quarter could disappoint investors when the company reports its earnings next Tuesday.

Um's forecast calls for Apple to have sold 38.7 million iPhones in the March quarter, but if Verizon accounted for 11.1 percent of total sales, it implies Apple could have sold 36 million iPhones.

Wells Fargo categorizes AAPL stock with an "outperform" rating. It is currently advising investors with a share "valuation range" of between $600 and $630.
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Comments

  • Reply 1 of 31
    lilgto64lilgto64 Posts: 1,147member
    Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?
  • Reply 2 of 31

    Quote:

    Originally Posted by lilgto64 View Post



    Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?


    How dare you bring reality into this. Smartphone growth is going to be exponential forever! Same with how AAPL stock was going to grow forever with no bounds! Market corrections never happen! Tim Cook is clearly the worst CEO of all time for not being able to maintain perpetual exponential growth!

  • Reply 3 of 31
    richlrichl Posts: 2,213member
    Cooling off in the US or cooling off globally? I also see data from the US here.
  • Reply 4 of 31
    quadra 610quadra 610 Posts: 6,741member

    Quote:

    Originally Posted by lilgto64 View Post



    Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?


     


     


    Well said.

  • Reply 5 of 31
    bobringerbobringer Posts: 105member
    Captain obvious says...

    We keep hearing about how iPhone growth is slowing... and we keep hearing that Apple is *GAINING* market share. Meanwhile... it's commonly thoughts that Samsung is destroying Apple. 1 1 = 4.

    Back in the real world... 1 1 = 2. 2 = the headline of this article.
  • Reply 6 of 31
    This article is true as Apple is already earning too fast and too big . I believe Samsung will be the next .
  • Reply 7 of 31
    steven n.steven n. Posts: 1,093member
    I am thinking the market is close to saturation in many markets (US, UK and EU) and growth with now come from pulling competitors and a few straggling late adopters. In this fight, I think Apple is better positioned due to higher customer loyalty. In short, Android, WP and BB will have (lets say) 15% (customer defect rate) of a 20% market share to pull new customers from Apple with. Apple, on the other hand, will have a 20% (customer defect rate) of a 80% market share to pull from Android/WP/BB. This will give Android, WP and BB about 3.0% potential market share gains from Apple. Apple will get, however, 16% market share gains from Android/WP/BB (but mostly Android) for a total upside of about 13% market share gain. Given this will take about 4 years to play put, the iPhone should see decent 20-30% YoY growth for the next 3-4 years.

    The developing markets like India and China are big unknowns but I don't see Apple getting huge share in those two countries.
  • Reply 8 of 31
    The impact of cheap and cheerful Chinese Android handsets on HTC and Samsung is becoming interesting.

    Take a look at the popular Chinese website Taobao to see the amount of quality Galaxy Note II clones that have become available, now with fast quadcore processors and high ppi IPS screens.

    HTC and Samsung have very little to differentiate from these increasingly competitive Android handsets that are appearing for a third of the price. If they can be marketed correctly, they have to hurt Samsung and HTC.
  • Reply 9 of 31
    gwmacgwmac Posts: 1,795member


    Why the 50-50 split between the 5 and 4 & 4S? Over the course of a 2 year contract that extra $100 or $200 saved is peanuts. Also Verizon has the largest LTE network by far so why buy a phone that can't even take advantage of that. I am sure there are many different reasons for example some were for kids, some maybe worried that LTE would push them over their data allotment quicker than 3G since Verizon doesn't give a lot of data, maybe some don't live in a good LTE area or wifi is sufficient, and probably many other reasons but that would be an interesting set of data to look at. I would love to see a breakdown of reasons why they chose the 4 and 4S over the 5. 


     


    The 4S was released around October if memory serves which means all those buyers will be ready to update around the beginning of June. Since Apple has changed the dates on when they release the iPhone the last few years it is hard to predict when that will happen this year. The HTC One and Galaxy S4 go on sale next week so it will be interesting to see how well these two most anticipated Android phones sell. That release roughly corresponds to the S2 and several other popular Android phones so all those people will be eligible for an upgrade soon. 


     


    You will never see the growth you had before as tens of millions went from flip phones to their first smart phones. The smart phone sector is now pretty saturated here in the U.S. and most people that wanted a smart phone already own one by now. Still plenty of room for growth in emerging markets though and even in developed countries with more carriers added. A deal with DoCoMo is Japan with around 60 million and China Mobile with 700 million potential new customers alone would see a lot of increased iPhone sales. 

  • Reply 10 of 31
    As a percentage - iPhone growth in the US is slowing. In absolute terms, iPhone growth in the US is rising - during 2012 - 16.7 million new users, during 2011 - 13.1 million new users. Android is different. During 2012 - 21 million new user, during 2011 - 30 million new users. Therefore, in the US - Android is slowing due to market saturation or user dissatisfaction, iPhone is still growing.
  • Reply 11 of 31
    simtubsimtub Posts: 277member
    I used to replace my iPhone annually upon each new release but the 4S was the first phone I decided to keep for more than a year because it is still performing fast and runs all the latest apps. I will probably get the 5S when it is released but the point I'm trying to make here is people no longer need to upgrade their phones as soon as the next big thing comes out. Smartphones have matured in quality and performance to the point where they have increased longevity. Does this explain the slowed growth of smartphones?
  • Reply 12 of 31
    v5vv5v Posts: 1,357member

    Quote:

    Originally Posted by AppleInsider View Post



     a 50-50 split between iPhone 5 sales and legacy iPhone 4S and iPhone 4 units


     


    Hmm, so less expensive units are selling in numbers equal to the current model. In the United States yet, not India or China. That would seem to contradict those who argue that there is no need for Apple to offer a less expensive handset (whether that be in the form of a new, less expensive device or just a discounted older model).

  • Reply 13 of 31

    Quote:

    Originally Posted by v5v View Post


     


    Hmm, so less expensive units are selling in numbers equal to the current model. In the United States yet, not India or China. That would seem to contradict those who argue that there is no need for Apple to offer a less expensive handset (whether that be in the form of a new, less expensive device or just a discounted older model).



    Yes, two models combined are selling about equal to a single, more expensive model. How does the fact that the 5 is selling just as much as two less expensive models combined equal to validation of the idea that Apple needs to offer some crappy plastic phone to compete?  You might have a point if the 5 was being outsold by either of the two previous models on their own, but it's not.

  • Reply 14 of 31
    cash907cash907 Posts: 893member


    These pieces are starting to sound more and more like excuses than actual news articles.

  • Reply 15 of 31
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by Cash907 View Post

    These pieces are starting to sound more and more like excuses than actual news articles.


     


    That's what happens when you buy into the garbage printed elsewhere.

  • Reply 16 of 31
    christophbchristophb Posts: 1,437member
    Or iPhones last so long and software continues to be upgraded long past end-of-sale that the market is saturated with resold and hand-me-downs. I would hesitate to tie Apple's long term trend with other players in the smartphone market.

    I know my experiences are anecdotal.
  • Reply 17 of 31
    steven n.steven n. Posts: 1,093member
    gwmac wrote: »
    Why the 50-50 split between the 5 and 4 & 4S?

    The most popular Android handset screen sizes are 4" and smaller.
  • Reply 18 of 31
    asciiascii Posts: 5,941member


    The same thing may be happening with phones that happened with computers (they are little computers after all). Namely, people's current phone is fast enough for what they need so there's less and less incentive to upgrade every year. The iPad doesn't suffer from this problem yet, every iPad upgrade I've done I've noticed a dramatic improvement.


     


    New software that is irresistibly awesome and can only run on the latest device would cause a lot of upgrades. But the PC also reached the point where everyone was looking for the new "killer app" (the original being the spreadsheet) and all we get is more and more demanding games each year. But that's ok. I have upgraded my video card every few years just to be able to play the latest games at high fidelity.


     


    Maybe games will drive phone upgrades going forward too. And that's good for Apple because the App Store has lots of 'em.

  • Reply 19 of 31
    v5vv5v Posts: 1,357member

    Quote:

    Originally Posted by Applelunatic View Post


    [...] How does the fact that the 5 is selling just as much as two less expensive models combined equal to validation of the idea



     


    We don't have breakdown figures for 4 vs. 4S -- could be 90%/10% or 50/50 for all we know -- but it doesn't really matter. The point is that cheaper units are selling just as well as the expensive unit. If that's not a solid indicator of demand for a less expensive Apple phone, I don't know what is.


     


     



    Quote:

    Originally Posted by Applelunatic View Post


    [...] the idea that Apple needs to offer some crappy plastic phone to compete?



     


     


    Why do you automatically assume "crappy?" Was the 3G crappy? How about the white MacBook? A plastic back is hardly the ultimate arbiter of a device's durability, utility or performance.


     


    Actually, why do you assume plastic? Apart from not knowing whether or not Apple even plans to make a new, cheaper phone at all, we have no idea what it will be made of.


     


    My point was (and is) that the sales figures stated in the article clearly justify the existence of an inexpensive iPhone, whether it be a discounted old model or a new, lower cost model. Personally I think people would be more inclined to buy a new, plastic "iPhone Lite" than last year's model, especially if it offered some distinctive characteristic like a choice of color. If it happens we'll see if I'm right or wrong. If it doesn't, it's a moot point.

  • Reply 20 of 31
    MarvinMarvin Posts: 14,195moderator
    v5v wrote: »
    We don't have breakdown figures for 4 vs. 4S -- could be 90%/10% or 50/50 for all we know -- but it doesn't really matter. The point is that cheaper units are selling just as well as the expensive unit. If that's not a solid indicator of demand for a less expensive Apple phone, I don't know what is.

    There's an estimated breakdown here:

    http://appleinsider.com/articles/13/02/20/apples-iphone-5-and-iphone-4s-are-worlds-two-most-popular-smartphone-models

    Total iPhones noted by Apple: 47.8m
    iPhone 5: 27.4m
    iPhone 4S: 17.4m
    iPhone 4: 3m

    Sometimes figures like this are based on ad networks. The 50-50 split in the article is just one carrier in one country so not an indication of a worldwide 50-50 split. Even if it did, the iPhone 5 at 50% is still more than either of the cheaper models, so people are primarily going for the more expensive model.

    The analysts are spreading misinformation (lies) about the iPhone 5 because they think they can pressure Apple into building a cheaper iPhone. Because of the slowed growth, they've been telling investors that there are growth opportunities if Apple just makes a cheaper phone, more colors, a TV and a watch. So to try and make this a reality, they put out lies about how big the potential markets are for a TV and watch, claiming that Apple is leaving an $80b opportunity on the table and they try and twist stats to suggest that cheap phones outsell the expensive ones. This is so Apple builds a cheaper phone to target 'emerging markets'.

    If Apple does any of those things, these analysts can claim that they were right about all their predictions. What doesn't seem to sink in is that they need to listen to Apple instead of trying to tell them what's best and advise investors on what Apple will do, not what they think they should do. Apple has all of the sales data and they're not stupid. They know what sells and what doesn't. If they see a growth opportunity, they'll take it wherever it presents itself but as they've stated quite explicitly, it will not be for volume just for the sake of it:

    http://thenextweb.com/apple/2013/01/10/apples-schiller-says-that-despite-the-popularity-of-cheap-smartphones-they-will-not-be-the-future-of-apples-products/

    "Apple SVP of Worldwide marketing Phil Schiller gave an interesting interview to Chinese newspaper Shanghai Evening News. In the interview, he directly addresses the rumors surrounding a potential cheaper iPhone, saying:

    "Despite the popularity of cheap smartphones, this will never be the future of Apple’s products. In fact, although Apple’s market share of smartphones is just about 20%, we own the 75% of the profit"

    Apple contacted them to edit the content and the conclusion was that "Schiller was not specifically saying that Apple wouldn’t produce a less expensive iPhone, but would stay away from making one that is ‘cheap’ in either build quality or materials."

    It's obvious they can do this quite easily as you can see from the Apple Peel, which turns an iPod into a phone:

    http://www.peel520.net

    The iPod Touch 4G is $199 and the shell is about $100. The iPod Touch is a decent quality device. According to AT&T, the iPhone 4 is $450 so a $299 iPod Phone would be a fair bit cheaper. Most likely it would be based on the $299 5G iPod but they can drop to 16GB storage and the cost of the phone parts wouldn't be $100 so it could be $350 or something.

    They could have:
    iPod Touch Phone - $350
    iPhone 4 - $450
    iPhone 4S - $550
    iPhone 5 - $650

    The problem is, the 5G iPod is faster than the iPhone 4 so it drives people down instead of up.
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