) may be a market share loser, but with yesterday's fiscal
fourth-quarter earnings results, it is officially back on top in
the high-end smartphone war.
Let's do a quick rundown of the numbers before we get into the fun
- Earnings were $8.26 vs. the Bloomberg consensus of
- Revenues were $37.5 billion, above expectations of $36.8
billion as well as the top end of guidance.
- iPhone sales were a whopping 33.8 million units vs. Street
estimates of about 32 million.
- iPad sales were 14.1 million units, below expectations of
- Gross margins were 37%, at the high end of guidance and in
line with expectations.
- For fiscal Q1, Apple expects revenues of $55-58 billion, the
midpoint of which is above expectations of consensus of $55.7
billion. And note, that consensus number was rising, as shown in
the charts I posted yesterday.
- Apple forecast Q1 gross margins of 36.5-37.5%, below the
37.7% that Wall Street had been expecting.
Sometimes When You Lose, You Really Win
Sales of Apple's iPhone units were up 26% year-over-year, and
nearly 6% above expectations.
But 26% growth isn't fast enough to gain market share on a global
basis. Research firm Strategy Analytics just reported its
third-quarter industry numbers, and pegged global unit growth at
45%, with Apple's share falling to 13.4% from 15.6% the year
Apple's key rival
(OTCMKTS:SSNLF) is still number one, with 35.2% share, up from
32.9% last year.
But look at this screen grab from Apple's website:
There's still a two- to three-week wait on iPhone 5S orders -- and
the short supply impacted Apple's sales in the quarter.
If Apple had hit, say, 35 million units in the quarter, its
year-over-year growth would have been 30%; 36 million would have
brought it up to 34%.
However, there may be a benefit to pushing some sales out to the
December quarter in the name of smoother quarter-to-quarter
results, especially since Apple was still able to beat
And now let's look at what's going on with the lower-priced (but
not low-end) 5C.
Unfortunately, Apple did not break down sales between the 5S and
5C, but I believe this picture tells an important story:
So Apple can't keep its most expensive phones in stock, while the
less-expensive ones remain plentiful.
That says an awful lot about Apple customers' ongoing willingness
to pay up for the best and most complete mobile device ecosystem --
and that's more important than market share.
Sometimes When You Win, You Really Lose
From a pure market share perspective, Samsung is indeed the winner
-- no question about it.
But look below the surface.
In the first two quarters of the year, Samsung reported that its
smartphone growth was driven by high-end models. And then in the
third quarter, it saw some stagnation in the high end while its
mass-market phones took the lead.
I discussed this phenomena yesterday
. That trend is also expected to continue into the fourth quarter.
This slowdown at the high end came despite the release of the
Galaxy Note 3 phablet, and is possibly indicative of Samsung, as
well as the rest of the
) Android complex, putting out too many phones, which dilutes the
cachet of individual high-end 'flagships.'
And that's why you see the likes of
(OTCMKTS:HTCXF) and the Google-owned Motorola flaming out.
Samsung's not exactly falling apart, but it is becoming
increasingly reliant upon the brutal snake pit that is the low-end
smartphone market -- an area in which Apple is not competing.
But What Does It Mean?
Apple's vision and mission are fully intact. It's not going to bend
to the wills of the masses to build market share, something that
was made clear by two recent product planning decisions:
1. The iPhone 5C was much more expensive than previously thought.
2. Apple priced the new iPad mini with Retina display at $399, a
full $70 over the original iPad mini.
Remember, if Apple caves and starts competing on price, it is
destined to lose because it will give away what really matters:
Apple products are expensive, and that's part of the value
proposition. They appeal to people who want the best, and high
prices reinforce the idea that something
the best. And if it means 26% unit growth instead of 40% of 50%, so
Marketing guru Seth Godin posted
an interesting commentary
on the luxury goods market:
The ring in the blue
) box or the speaker cables that cost more than a car -- these
are purchased as (perhaps perverse) testaments to the (take your
pick) power/taste/wealth of the person buying or owning it.
Discount luxury goods, then, are an oxymoron. The factory
outlet or the job lot seller or the yoga studio that's selling
the "same thing but cheaper," isn't selling the same thing at
all. They don't offer scarcity, social proof, or the
self-narrative of a splurge. What they sell is, "you're smarter
than other people, but you know, you're also a little bit of a
fraud because this isn't actually a luxury good, because it's a
better value." Circular, but true.
Apply his logic to the smartphone market and you'll get what
1. Scarcity. Apple has completely differentiated software and
2. Social Proof. Apple is a cool brand.
3. Splurge Factor. Most Apple products are expensive.
Many people regard Samsung as a cool brand and it does make some
very, very expensive phones (some pricier than Apple's), but
there's no scarcity factor because there are so many other
expensive Android phones out there.
Okay, enough pontification of the psychological joys of buying
Apple stuff, let's look at the elephant in the room.
The iPad Disappoints, Again
Make no bones about it, the iPad numbers aren't so hot.
Units were flat year-over-year, while revenues dropped by 13% due
to a higher mix of iPad minis. Those unit sales were about 3% shy
Now some of the weakness could be explained by expectations for an
October refresh. But don't forget that the iPad was also a big
disappointment in fiscal Q3, as unit sales dropped 14%
And incidentally, last quarter, iPhone sales beat expectations by
17% -- ahead of the expected refresh.
We also have to worry about next quarter's iPad numbers because
again, the iPad mini with Retina display starts at $399, which
could be a stretch for many shoppers.
I am a long-term bull on the iPad business, but sooner or later,
the business has to show some growth. And Apple is facing a tough
comp this quarter, as in fiscal Q1 of 2013, iPad units grew by 48%
For iPads to show year-over-year growth, they'll need a sequential
increase of 62%. And to show year-over-year growth of 20%, Apple
would need a sequential increase of 95%. CEO Tim Cook said the new
minis could face supply constraints, but even with full inventory,
the company has some big hurdles to clear here.
Is that really feasible with such high pricing on the new mini?
1. Apple is clearly not taking Carl Icahn seriously,
as I predicted
. It said it would review its share repurchase and dividend
programs in the new calendar year, which means Icahn's wish for a
$150 billion buyback is not coming true any time soon.
sold off initially on the weak gross margin guidance, but the stock
came back a bit once it was explained that the disappointment was a
result of revenue deferrals related to giveaways of OS X Mavericks,
iWork, and iLife software. This may be correct from an accounting
perspective, but I regard these types of issues as anti-investor as
they are a source confusion with no material benefit in terms of
Yeah, Apple's doing okay. Totally.