Apple's premium-priced Macs 'defy the laws of economics,' but iPhone does not, Needham says
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."
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."
Comments
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
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.
All six of them.
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.
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.
"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?
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.
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.
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.
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.
~~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!
Of course, Macs having longer usable lives means Apple sells fewer, but I'm quite happy with that!
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.
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.