Special Feature
iPhone sales’ importance remains
How does Apple get its mojo back?
IPhone sales hit 37.4 million units during Q2 — a rise from 35.5 million over the same period of last year — whilst iPad sales rose from 11.9 million to 19.5 million which surprised some analysts who had not expected that particular product’s share of revenues to grow so quickly to this extent. Nevertheless, the iPhone continues to dominate sales and is definitely the most important product for the company. Sure, the iPad is becoming more important with time as the tablet market continues to grow, but this is at the cost of the notebook market which will likely decline further and so crimp Mac sales.
In terms of next quarter’s guidance, Apple forecast $33.5 - $35.5 billion in revenue — quite a reduction from prior consensus estimates of $38.25 billion. This not only shows the difficulties the company currently faces in terms of competition, but also that no new “killer” product will be introduced any time soon.
Apple had been growing more than the competition for many years. Back in 2007 when the iPhone debuted it was a huge success and indeed was considered one of most important and valuable innovations of the last few decades. Not long after that, Apple introduced the iPad in 2010 — another big success. Its innovative stance gave Apple an edge over its competition which at that time was almost none.
Further, the market for smart phones, and to a lesser degree tablets, is now entering the first phase of the maturation stage — ‘first mover’ supernormal margins are being eroded away and this is precisely the dynamic that has been pressuring the Apple share price over the last eight months as the market begins to take this on board. Apple may need to change its strategy to regain market share.
“The company’s top line revenue growth seemed to rise exponentially as no one could come close to them for consumer appeal. Then Samsung’s resurgence happened.” The company’s top line revenue growth seemed to rise exponentially as no one could come close to them for consumer appeal. Then Samsung’s resurgence happened. Before they began eating Apple’s lunch, Apple’s gross margins were in fact higher than 50%, translating into a very healthy profitability and almost untouchable return on investment and equity. Unfortunately, one year in the tech industry is like ten years in others... Six years after the introduction of the iPhone, the product line hasn’t changed that much. The iPhone is lighter, faster and has a long-lasting battery for sure, but it’s pretty much the same product, and each re-edition of it will probably have less and less impact on the public and thus on the profits.
40 | www.financial-spread-betting.com | May 2013
The company’s bitter rivals at Samsung are offering cheaper products with increasing numbers of features and some fear that Apple’s inertia may turn the company into a Nokia. We expect, however, that a cheaper iPhone specifically for the Chinese market will arrest the EPS decline as although such a product will retail at a lower margin than its existing iPhone, it will bring a whole new mass of sales from such a large consumer market. I also wouldn’t bet against Cook or Ives (widely seen as Job’s protégé) actually having a “rabbit” in the hat to silence his critics — a new and innovative product that captures the public’s imagination. With 72,000 employees brainpower at his disposal and $150bn he certainly has the resources.