Apple's iPhone X delivered a KO punch to cheap Androids: Q1 smartphone demand slumped glob...

Posted:
in iPhone edited April 2018
New data from GfK shows that global demand for smartphones declined by 2 percent year over year in the March quarter while Average Selling Prices grew by 21 percent, totally contradicting the media narrative that customers were looking to save money and would shy away from Apple's premium-priced iPhone 8 and iPhone X.

iPhone X


German research group GfK estimated quarterly global sales of 347 million smartphones in the March quarter, noting that this was "a very different picture to the final quarter of 2017, when smartphone demand records were broken."

Customers are "tending to choose higher priced models"

Slowing demand for smartphones has been projected as a major problem for Apple, which makes (by far) most of the money in the phone industry. However, GfK also noted that while unit sales across the industry were down from last year, "consumers are tending to choose higher-priced models as they embrace the latest innovations offered by smartphone brands."

Noting that dwindling demand in new unit growth was being more than made up for by a shift to premium models, GfK stated that smartphone ASP "grew by an astonishing 21 percent year-on-year to USD 374. This led to 18 percent revenue growth globally, which is exceptional for a maturing industry."

Significant growth in phone ASP has only been associated with Apple. Other phone makers, using Android or any other minority mobile platform, have been locked in a race to the bottom, with ASPs for Android phones incrementally falling over the last decade from a high of around $450 to current ASPs around $200.

In August, Strategy Analytics reported that sales of Samsung's Galaxy S8 had pushed its overall ASP from $227... to $235, the highest its phone ASP has been since Peak Galaxy was reached back in 2013 with the Galaxy S4, (which carried Samsung's ASP to $289).Samsung's ASPs don't even appear to be in the same universe as Apple's iPhone

Samsung's ASPs don't even appear to be in the same universe as Apple's iPhone, which has remained very close to $650 across ten generations of iPhones.

Last fall's release of iPhone 8 and iPhone X propelled Apple's ASP to within $5 of $800, a jaw-dropping shift in average selling prices that indicates that everyone who predicted doom for Apple and its new premium models was dead wrong.

It's obvious that the shift in global smartphone ASPs to $374 was not driven up by Samsung's phones selling at an ASP of around $235. And while other phone makers have aspired to release expensive phones (including Google's record-high pricing for its Pixel 2 models), these models do not sell in high volumes; Pixel 2 was a major flop. The growth in ASP came from millions of sales of expensive iPhones.

Conversely, the incessant reports of iPhone X supposedly experiencing "weak demand" due to its price--as Tripp Mickle has claimed in his articles for the Wall Street Journal--were totally wrong

iPhone 8
Apple released a cheaper new iPhone 8 to stoke demand... wait, no it was just Red.

Regional differences in demand

GfK detailed that smartphone demand in Western Europe declined by 2 percent while ASPs rose by 26 percent (five points higher than global ASP growth), sending revenues up by 23 percent. Demand for new phones in specific countries varied dramatically, with Great Britain dropping the most (11 percent), followed by Spain (7 percent) and France (4 percent). GfK stated that it expects ASPs to continue to grow as unit demand continues to stagnate.

In Central and Eastern Europe, demand for phones actually grew by 5 percent this year. Growth in ASP was even higher, however, with 29 percent growth.

In North America, a smartphone market roughly the same size as Eastern and Western Europe combined, demand declined by 5 percent, more than twice the global figure. Going forward, GfK predicts a slower pace of decline for the rest of the year, closer to a 2 percent contraction. In Latin America, smartphone sales grew by 3 percent but revenue was again up even more: 5 percent.

Sales in China during the closely watched Lunar New Year fell by six percent, or three times the global contraction rate. However, revenue still grew by 14 percent due to a shift toward higher priced models. Given that Chinese domestic brands are not raising their prices, it's clear that growth was driven largely by iPhones.

In the previous quarter, sales of iPhones grew while commodity Androids collapsed. even if Apple were hit by flat or declining unit sales of iPhones in China, its ability to increase in ASP with innovative new technology will enable it to outlive rivals attempting to make up for slim margins with high volume sales.

Apple's iPhone sales in China are focused on affluent urban markets. Kantar recently reported that the top five selling smartphones in urban China were all iPhones. Conversely, over the winter quarter commodity sales of cheap Chinese Android brands (including BKK's formerly fast-growing Vivo and OnePlus; LeEco; Coolpad and scores of others) collectively tanked by 22 percent, dealing a hard punch of reality in the face of analyst who have been recommending Apple sell cheap iPhones for the last ten years.

This all happened before

While the global decrease in unit demand for smartphones is a recent phenomenon, Apple has parallel experience in generating growth and profits in declining markets.

Apple has consistently increased unit sales of Macs in an overall PC industry that plateaued and then began to contract substantially. And in tablets, Apple's iPad has found significant new growth while other Android makers jump out of the stagnant market, after years of making little or no money on slate-shaped Android devices.

Microsoft's Surface business, which straddles the PC and tablet markets, has failed to grow across its entire lifespan, and Google has shown no ability to build either Chrome netbooks, premium laptops or Android tablets that anyone wants to buy, let alone making any money at it.

As the maturing global smartphone market begins to look more like PCs and tablets, Apple is set to similarly turn in growth in premium hardware offerings and Services, including subscription processing, that its rivals haven't been able to match. Additionally, Apple has uniquely created and dominated lucrative new markets for accessory products such as Apple Watch and AirPods.
«1

Comments

  • Reply 1 of 36
    badmonkbadmonk Posts: 745member
    Great informative article DED.  Thank you for this information that rebuts the premise that people are unwilling to pay $1000+ for a premium phone.

    It fascinates me that people don’t understand this idea.  People routinely pay more than $1000 for purses and suits, Hamilton and Super Bowl tickets, first class airfare, tire rims and other car options, rugs etc...

    And people don’t give these expenditures a second thought.

    Most telling is that the price of the phone is dwarfed by the price of a cellular contract which is far more expensive than the three year life of a phone.

    For many people, their phone is their most important possession.  And why not?  We use them daily for large chunks of time.  It is the new human reality and necessary for modern existence.
    charlesgresgregg thurmanmagman1979radarthekatStrangeDaysjony0watto_cobra
  • Reply 2 of 36
    After reading the same story in Bloomberg, Quartz, and perhaps the most anti-Apple and general garbage publication Forbes, I was wondering if/when would publish an article like this.   Thank you. 
    magman1979StrangeDaysjony0watto_cobra
  • Reply 3 of 36
    jd_in_sbjd_in_sb Posts: 1,483member
    “Apple's iPhone X delivered a KO punch to cheap Androids” implies sales of cheap Androids have ended or nearly so. I don’t believe this is the case.
  • Reply 4 of 36
    nunzynunzy Posts: 662member
    These analysts just hate Apple.  They will spin and spin to try to hurt Apple.
    magman1979StrangeDayswatto_cobra
  • Reply 5 of 36
    What nonsense. ASP went up because the iPhone X costs more. Apple still sold LESS iPhone Xs than they did previous flagships, but the price being higher brings up the ASP. No need for sensationalism.
    edited April 2018
  • Reply 6 of 36
    badmonk said:
    Great informative article DED.  Thank you for this information that rebuts the premise that people are unwilling to pay $1000+ for a premium phone.

    It fascinates me that people don’t understand this idea.  People routinely pay more than $1000 for purses and suits, Hamilton and Super Bowl tickets, first class airfare, tire rims and other car options, rugs etc...

    And people don’t give these expenditures a second thought.
    Right.  Many people value price over pretty much anything else and just can’t wrap their heads around spending more money on...well, anything.  My mother is the perfect example of this. She will scoff at the “fools” spending $1000+ on a new iPhone X because she can find a flip phone that she will own for under $50, “the same thing”. She loves to find “deals” on things, but fails to realize she isn’t getting a deal, she’s just found something cheap.  I remember in 2012 she was overjoyed while shopping for drinking glasses. She had found “the same” glasses she had purchased years ago but this time they were a fifth of the price. Of course, it turned out the new ones were not “the same”.  They looked very similar from a distance but up close and in-hand the difference was obvious.  Much lighter and thinner, to the point where I feel like the glass will shatter in my hand if I hold it just a little too hard. Meanwhile, the old ones feel weighty and sturdy. But she got “a deal” and will never be convinced otherwise.
    magman1979jony0watto_cobra
  • Reply 7 of 36
    FolioFolio Posts: 441member
    badmonk said:
    Most telling is that the price of the phone is dwarfed by the price of a cellular contract which is far more expensive than the three year life of a phone.

    For many people, their phone is their most important possession.  And why not?  We use them daily for large chunks of time.  It is the new human reality and necessary for modern existence.
    And like we've seen with Macs, and arguably with cars, the longer you keep them the more likely you'll pay up for quality. Any one seen any update on Pixel sales, as construed in Google's latest earnings? Not yet read detailed reports yet, but I can assume with the Nest accounting anomaly this quarter, coupled with Cloud predictions, etc. it seems can discern better how unremarkable Pixel 2 revenue was. I know DED has made many convincing arguments in past, 2000 HTC hired hands, Android predicament, work arounds with Siri, yet part of me is still paranoid. Future AI and machine learning (where you get seamless operations, culling, security, tailorable privacy) is one thing that poses threat to iPhone and iOS ecosystem. If breakthrough capabilities here can be fenced off for a cycle or two, a good part of the moneyed crowd will migrate before too long--whether it's Apple, Google, or some unknown company that offers it. Social network aspects and prior Apple investments offer some moat against switching. That Apple appears to be playing AI catchup here now may be a good thing. Makes a company with many resources hungrier.
    watto_cobra
  • Reply 8 of 36
    There’s some pent-up demand for the Apple SE2.

    When the SE2 is released Apple’s ave. iPhone price will decline.

    Analysts: Apple’s going out of business 🤒
    Apple:  Reports record earnings 🤗
    watto_cobra
  • Reply 9 of 36
    The knockout punch can be explained by the fact that the growth in iPhone ASP and sales is the dominant and perhaps only factor explaining a growth in global ASP revenue because android phones are in a race to the bottom. In other words, it’s the iPhone ASP and sales which drives the 21% global ASP growth leading to 18% revenue growth, not cheap androids.  But for the iPhone, the industry as a whole would not be seeing the aforementioned ASP and revenue growth.  

    It's obvious that the shift in global smartphone ASPs to $374 was not driven up by Samsung's phones selling at an ASP of around $235. And while other phone makers have aspired to release expensive phones (including Google's record-high pricing for its Pixel 2 models), these models do not sell in high volumes; Pixel 2 was a major flop. The growth in ASP came from millions of sales of expensive iPhones. ”
    watto_cobra
  • Reply 10 of 36
    nunzy said:
    These analysts just hate Apple.  They will spin and spin to try to hurt Apple.
    Don't sweat it.  As long as Apple continues to buyback shares, negative news articles that drive down Apple's share price help Apple to reduce outstanding share count.  A lower share count will allow Apple to increase dividends and drive up the EPS, so there is some upside.  It's lousy if fake news can actually drive down Apple's share price, but there's nothing to be done about it.  In a way, it's Apple's fault for relying so heavily on the iPhone for revenue when Apple certainly has the financial means to strengthen its desktop/laptop offerings and even make some key acquisition like other tech companies are doing.  You don't see Amazon standing still and always relying on a single source of revenue.

    Most of this drag on Apple has been created by supply chain rumors which continue to be an annoyance for Apple shareholders.  Not a solid shred of evidence needs to be presented and these analysts can get by with saying the info comes from anonymous sources.  There's always this constant pre-financial quarter chatter for Apple which a lot of stocks don't have to put up with.  I can only assume they're deliberately trying to drive down Apple's share price but that still can be a good thing for those who believe in Apple.  As they say, it creates a buying opportunity for loyal long-term Apple investors.
    nunzywatto_cobra
  • Reply 11 of 36
    croprcropr Posts: 882member
    I've read the original GFK article

    Some interesting points:
     - Nowhere in the article  iPhone or Apple is mentioned. 
     - Only for Europe and to lesser extend China the increase of the ASP is linked to a shift to premium priced models (which could be Apple, but also models of other vendors)
     - In Africa the increase of the ASP is linked to the evolution of feature phones to smartphones.  I doubt we can assume that there are a lot of iPhones involved here
     - In some countries the units sold go down while in to others the unit sold goes up.  For South America: Brazil  -4%, Chile -18%, Columbia +41%, Argentina +6%.  This means that the ASP for South America could change while the models mix in a country remains relatively constant

    For me the conclusion of DED is  speculation, like the media who claim there is a weaker iPhone demand because some of the iPhone component suppliers publish weaker figures.

    We'll have to wait for the Q1 and Q2 results to see whether the iPhone X is a commercial game changer or not.
    muthuk_vanalingamholyone
  • Reply 12 of 36
    avon b7avon b7 Posts: 3,179member
    Dracarys said:
    What nonsense. Just because the profit margins went higher for Apple, doesn't mean that cheap phones are dying. 
    Much less that they delivered the 'KO punch' to cheap Androids.

    "Conversely, over the winter quarter commodity sales of cheap Chinese Android brands (including BKK's formerly fast-growing Vivo and OnePlus; LeEco; Coolpad and scores of others)"

    OnePlus! Since when was OnePlus cheap? Even the OnePlus One debuted at $299 for the cheapest model back in 2014. The OnePlus 6 will probably go for over $500.

    Huawei announced months ago that it would be pulling out of the low ground to focus on the middle, high and ultra high end. Long before the iPhone X appeared.

    https://www.channelnews.com.au/huawei-announces-move-away-from-low-end-smartphones/

    Seeing as it is one of the world's top three manufacturers I'd say it had an impact.

    Ironically, now that it has had major success with its push into the higher end and increased pricing by around $100 on many models, it has recently announced a controlled return to lower end phones. It's part of their roadmap and I very much doubt the iPhone X had anything to do with it.

    More likely the lowest end Android market was already moving in that direction as early as Q1 17 all by itself:

    https://www.counterpointresearch.com/affordable-premium-smartphones-grew-49-annually-in-q1-2017/

    That showed a 12% drop in low end handsets but a 49% leap in the 'affordable premium' segment which of course, isn't in the cheap segment either.






    jcs2305
  • Reply 13 of 36
    cropr said:
    For me the conclusion of DED is  speculation, like the media who claim there is a weaker iPhone demand because some of the iPhone component suppliers publish weaker figures.
    It's not really that speculative. For example, DED's article points out that ASP growth has always been primarily associated with Apple, and the main point GfK was making is that ASP was strong while overall demand declined slightly. It's actually more speculative to think that Android devices suddenly became the drivers in ASP. 
    edited April 2018 radarthekatStrangeDayswatto_cobra
  • Reply 14 of 36
    avon b7 said:
    Dracarys said:
    What nonsense. Just because the profit margins went higher for Apple, doesn't mean that cheap phones are dying. 
    Much less that they delivered the 'KO punch' to cheap Androids.

    "Conversely, over the winter quarter commodity sales of cheap Chinese Android brands (including BKK's formerly fast-growing Vivo and OnePlus; LeEco; Coolpad and scores of others)"

    OnePlus! Since when was OnePlus cheap? Even the OnePlus One debuted at $299 for the cheapest model back in 2014. The OnePlus 6 will probably go for over $500.

    Huawei announced months ago that it would be pulling out of the low ground to focus on the middle, high and ultra high end. Long before the iPhone X appeared.

    https://www.channelnews.com.au/huawei-announces-move-away-from-low-end-smartphones/

    Seeing as it is one of the world's top three manufacturers I'd say it had an impact.

    Ironically, now that it has had major success with its push into the higher end and increased pricing by around $100 on many models, it has recently announced a controlled return to lower end phones. It's part of their roadmap and I very much doubt the iPhone X had anything to do with it.

    More likely the lowest end Android market was already moving in that direction as early as Q1 17 all by itself:

    https://www.counterpointresearch.com/affordable-premium-smartphones-grew-49-annually-in-q1-2017/

    That showed a 12% drop in low end handsets but a 49% leap in the 'affordable premium' segment which of course, isn't in the cheap segment either.






    Indeed. The title makes it sound like nobody's buying affordable Android phones anymore (which is a straight up lie). ASP does not equal more sales necessarily.
    muthuk_vanalingam
  • Reply 15 of 36
    cropr said:
    I've read the original GFK article

    Some interesting points:
     - Nowhere in the article  iPhone or Apple is mentioned. 
     - Only for Europe and to lesser extend China the increase of the ASP is linked to a shift to premium priced models (which could be Apple, but also models of other vendors)
     - In Africa the increase of the ASP is linked to the evolution of feature phones to smartphones.  I doubt we can assume that there are a lot of iPhones involved here
     - In some countries the units sold go down while in to others the unit sold goes up.  For South America: Brazil  -4%, Chile -18%, Columbia +41%, Argentina +6%.  This means that the ASP for South America could change while the models mix in a country remains relatively constant

    For me the conclusion of DED is  speculation, like the media who claim there is a weaker iPhone demand because some of the iPhone component suppliers publish weaker figures.

    We'll have to wait for the Q1 and Q2 results to see whether the iPhone X is a commercial game changer or not.

    Hardly speculation. When it comes to flagships, Apple and the iPhone own the market. There aren't enough flagships from Samsung and others to make this much of an impact in the ASP.

    We don't need to wait until the next earnings call. We have Apples guidance, which is $7-9 billion MORE than last year, and will also be a record for the company. Unless you think those record numbers will be from sales of Macs and iPads, and not the iPhone.
    tmaymagman1979radarthekatStrangeDayswatto_cobra
  • Reply 16 of 36
    A whole analysis on prices and not a mention of the USD tanking over the last year vs major currencies. In Europe, if you bought a phone for the same price today as you did a year ago, it'd look like you bought a 20% more expensive phone in USD.
    [Deleted User]muthuk_vanalingam
  • Reply 17 of 36
    nunzy said:
    These analysts just hate Apple.  They will spin and spin to try to hurt Apple.
    You don't see Amazon standing still and always relying on a single source of revenue.
    Take away AWS, what’s left for profit?
    magman1979radarthekatStrangeDayswatto_cobra
  • Reply 18 of 36
    FolioFolio Posts: 441member

    If we dip somewhat with SEs, and also greater sales in India, wealth of services may compensate. Below, starting at boldface, is excerpt from Friday April BAML report (20 plus pages) on Apple Services, which didn't see reported elsewhere. Among tidbit from tables, forecast in 2020: App Store 18.8B; iCloud 7.2B; Licensing 6.4B; iTunes Store 4.9B; Apple Care $4.3B, Apple Music 4.0B, ApplePay 811 M, iBooks 277M, Other 2.3B     TOTAL SERVICES = 2020E $49.1B

    Survey provides insight into services engagement trends

    Our survey of 2000 respondents (US only) suggests Apple’s services monetization has a lot of room to grow. InourrecentAppleservicesdeepdive(seelink),wehighlightedthe key bottom-up drivers of the services business. In this note we present the results of our survey in the US which was designed to gauge iPhone users’ engagement with Apple services. Similar to our prior estimates, the survey suggests that the App store, followed by iCloud, drive the bulk of Apple services engagement, while Apple Music, iBooks, and Apple Pay have significant room to grow. Additionally, given the better gross margin profile of services, we see potential upside to our gross margin estimates. We maintain our Buy rating on Apple as we view the story pivoting to capital return and services from the boom-bust of iPhone cycles over the next several years.

    App store, iCloud are key drivers of Apple’s eco-system

    Services increases the switching cost to competitor smartphones particularly as more functions are added (including features in healthcare in the long run). Survey results note that the App store (79% of users engaged), followed by iCloud (65% of users engaged), drive the bulk of iPhone users’ engagement with Apple services. Approximately 85% of app store users download at least one app a month, 60% download paid apps (60% of whom pay on average less than $2per app) and 65% utilize iCloud for data storage.

    Capacity utilization drive iCloud demand, iPhone upgrades

    Well over half of iPhone users utilize over 50% of the current storage capacity of their phone, while the majority owns the bottom tiers of storage capacity options for the iPhone. This could drive users to purchase higher data capacity iCloud plans as well as larger storage configurations of the phone on the next upgrade.

    High growth potential for Apple Music / Apple Care

    According to our survey, approximately 40% of Apple Music users have been subscribed for less than one year, signaling high growth potential. High percentages of trial plans and student plans should lead to higher ASP going forward. Most respondents consider Apple Care with every product purchase. 

  • Reply 19 of 36
    Folio said:
    badmonk said:
    Most telling is that the price of the phone is dwarfed by the price of a cellular contract which is far more expensive than the three year life of a phone.

    For many people, their phone is their most important possession.  And why not?  We use them daily for large chunks of time.  It is the new human reality and necessary for modern existence.
    And like we've seen with Macs, and arguably with cars, the longer you keep them the more likely you'll pay up for quality. Any one seen any update on Pixel sales, as construed in Google's latest earnings? Not yet read detailed reports yet, but I can assume with the Nest accounting anomaly this quarter, coupled with Cloud predictions, etc. it seems can discern better how unremarkable Pixel 2 revenue was. I know DED has made many convincing arguments in past, 2000 HTC hired hands, Android predicament, work arounds with Siri, yet part of me is still paranoid. Future AI and machine learning (where you get seamless operations, culling, security, tailorable privacy) is one thing that poses threat to iPhone and iOS ecosystem. If breakthrough capabilities here can be fenced off for a cycle or two, a good part of the moneyed crowd will migrate before too long--whether it's Apple, Google, or some unknown company that offers it. Social network aspects and prior Apple investments offer some moat against switching. That Apple appears to be playing AI catchup here now may be a good thing. Makes a company with many resources hungrier.
    Good point.
    edited April 2018
  • Reply 20 of 36
    FolioFolio Posts: 441member
    Followup to my Pixel 2 comment. There was no breakdown on Google phone in Merrill Lynch's report of Google's Q1. Not significant enough. Analyst Justin Post only had this gem: "we still don't fully understand Google's Pixel business goals." He also lowered price target on Google. FWIW, BAML in house now reporting a slower CAGR on Google 14 percent to Apple's 17 %
    minisu1980watto_cobra
Sign In or Register to comment.