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« Apple quarterly numbers for iPhone stunning, far above expectations | Main | So bloodbath in smartphones continues: Q1 results from Apple, AT&T and Nokia »

April 21, 2010

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Comments

GR

I am not sure that you can make the assumption that the increase is due to Chinese New Year gift giving. I am not familiar with the gift giving customs in China (are you?) but at least WikiPedia thinks that gifts as extravagant as an iPhone would not be culturally appropriate. Perhaps someone with more knowledge of this tradition can weigh in.

http://en.wikipedia.org/wiki/Chinese_New_Year#Gift_exchange

I guess we will see when next quarters results come in. I suspect we will see growth, which would do damage to your holiday hypothesis (again).

KenC

One, where is your mea culpa for being wrong in your excessively wordy prediction?

Two, he didn't say iPhone sales, he said Apple sales, which includes everything Apple sells.

Three, he said the the China market, which refers to the Greater China market, including Taiwan and HongKong.

Four, the iPhone estimates overly relied upon Steve Jobs' comment that they had sold over 50M iPhones at the iPad launch. As some but not everyone knows, Steve likes round numbers. He would rather say 50M, than 51M, even if 51M were more accurate. 50M is a clearer and easier to remember number, also correct, just not up-to-date.

Here is TIm Cooks's actual response to a question about China expectations:

"China has been interesting. If you look at greater China which we define as mainland China, Hong Kong and Taiwan, the iPhone units were up year-over-year over 9 times. We added another 800 points of distribution in China. The revenue, we have never released this number before but I will do this in this particular case, through the first half of the fiscal year that we just completed for the six month period our revenue from greater China was almost $1.3 billion and this is up over 200% year-over-year. So we are well pleased with how the company is positioned to take advantage of the growth in greater China."

Tomi T Ahonen

Hi GR and KenC

Thank you for your comments.

GR - Yes, China has 1.3 Billion people and by far most of the gifts given during Lunar New Year are to distant relatives of very modest value and usually given in 'red envelopes' containing cash. That does not mean they do not give more valuable gifts for close loved ones, wives, husbands, children and parents. As the 'traditional' Western Christmas is not the gift-giving period, this is the time when China has its biggest sales period. We see it here in Hong Kong too, when the non-Chinese and tourist population create big Christmas sales in December, but the local Chinese population shop till they drop just before Lunar New Year with bags full of gifts stuffing the subway etc.

KenC - First on the mea culpa on my 'excessively long prediction' - the blog has 3 purposes - 1, to celebrate the iPhone's contributions specifically beyond just becoming the most-copied phone. I stand by that part of the blog totally. Secondly it offers my advice to Apple for future sales growth. This past quarter suggests they do not need my advice but I contend that they would sell better if they took muy advice. It doesn't matter, they are the most profitable mobile phone maker in the world with growing sales. They are doing just fine as it is. Nonetheless, it does not in any way invalidate what I wrote.

As to my forecast - perhaps you didn't read my addition - I did not say my forecast was off - I said it may have been premature. We will see, as the numbers come in this year. Apple is still 'least prepared' to gain market share of any of its main rivals: Nokia, RIM, HTC and Samsung. We already know RIM and HTC did not have 'flat' sales of units of smartphones from previous quarter but rather reported growth. So there already are rival smartphone makers who grew market share. And until we hear how many smartphones were sold overall, it is still possible Apple lost market share.

None of the published major analysts saw this level of sales for the iPhone, so it took all of us by surprise. It is possible that Apple actually gained market share with this dramatic growth. It is equally possible that the whole global smartphone market is so strong that Apple only held onto its market share. And - some signs suggest smartphone unit sales in the first quarter were greater than that for the Christmas sales (HTC specifically suggests this, as does Google) - in which case Apple's market share would have declined.

I am not about to retract my forecast - I still stand by it - but I warn my readers that the evidence is not currently supporting that view as strongly. I am honest to my readers and said this surprising sales level suggests we have to observe the data more, for the upcoming periods.

As to total China sales, thanks. So it includes Macs and iPods and the TV stuff too? Obviously Mac sales are very modest in all of Asia and specifically China. iPod market share according to Apple is 70% in the USA and out of the total world market it will be far less for the rest of the world. So yes, not all of 1.3 B dollars was iPhones, thats good. Perhaps 1B or 1.1B? Thats still 2B iPhone unit sales.

Thank you both for writing

Tomi Ahonen :-)

kevin

Pinning this surprise on China just confirms my point, written in my comments on previous posts, that iPhone launches in new countries, still matter greatly in forecasting iPhone growth. In many countries, iPhone sales are steady or tapering off in subsequnt quarters after the launch, but there are boosts from launch countries. And note, it repeats with each new iPhone.

Altho overall I think you are right that China was a large portion of the growth, there are some errors in your explanation.

First, Oppenheimer's numbers were for Greater China. Apple defines Greater China to include Hong Kong and Taiwan. Also, iPhone 3G launched in 7/2008 in Hong Kong and 12/2008 in Taiwan. iPhone 3GS launched in 7/2009 in Hong Kong and 8/2009 in Taiwan. The China Unicom iPhone 3GS launch was on on 10/23/2009.

Second, Oppenheimer's $1.3B in Oct 09-Mar 10 revenue is for Greater China, not just China. And it is not just iPhones, but also Macs and iPods. Oppenheimer said that was up over 200%, or about $900M from the prior year.

Third, some of the $400M in prior year revenue includes Hong Kong and Taiwan iPhones. iPhonasia.com estimated that 1.5-2m gray market iPhones were operating in China at the launch. Most of these were bought in Hong Kong (where iPhone is sold carrier-unlocked) between 7/2008 and 10/2009. So let's assume steady-state sales since 10/2009 in HK and Taiwan.

Then, if we assume most of the added $900M in revenue is likely iPhones, maybe about 1.3m iPhones. iPhone passed 100K units sold on 12/9/2009 and 300K units on 12/28/2009 at China Unicom (reported by Marbridge Consulting, see iPhonasia.com), so that leaves about 1M China Unicom units for the Jan-Mar quarter.

I don't think it has much to do with Chinese New Year's; I think it's just iPhone momentum and growing number of storefronts in China. It took 40 days to sell 100K, but only 20 days to sell the next 200K. In a country with so many people, it's more than reasonable to sell the next 1M over the next 90 days. And that momentum could still be ongoing.

Johan R

Hi all,
May I add another potential explanation to the overall lower analyst predictions? US based analysts have again focused too much on US data, Apple retail sales, US shop visits and AT&T indications. If analysts, and Tomi (surprisingly), had looked more into the postpaid and smartphone sales figures of the major European operator groups they would have seen very strong iPhone-centric sales continuing after christmas. This is evident when visiting European operator stores, listening to Internet buz and just walking around European cities. Orange, T-Mobile, Vodafone UK, TeliaSonera - They are all selling loads of iPhones.

Johan R

Hi again,

Please replace "European operator groups" with "European and Asian operators" in my previous comment. :)

Tom Ross

Tomi,

I think KenC quite clearly pointed out that your premise for this article is incorrect. Did you read the Tim Cook quote carefully?

- Apple sales grew "over 200 %" year over year, to $1.3 bn, ie in the former period sales were in the range of $326 to $433 mn and in the latter period growth was by around $900 to $950 mn.
- Sales include all Apple products. All Apple products equally have a 45/55 US/international split. To suggest that the Mac and iPod do not sell in Asia is unfounded.
- Sales include Taiwan and Hong Kong. Unless you allege that Apple was completely stagnant in these countries (against the mainland and worldwide trend), some of the above mentioned growth of $900 to $950 mn will come from Taiwan and Hongkong.

So from the $1.3 billion, deduct 2008 sales, deduct Mac and iPod, deduct Hong Kong and Taiwan and you will arrive at a much lower figure for mainland China iPhone revenue. My back of the envelope estimate would be that no more than 1 million iPhones went to mainland China in the last 2 quarters, which would still be impressive, given that by the end of December Apple had announced that 200.000 iPhones were sold in China.

--

If you're looking for other explanations why Apple grew against the trend, consider the end of exclusive deals. Consider the UK. Vodafone started selling the iPhone in January, selling 50.000 units on day 1. Now 3 UK carriers offer the iPhone, up from 1 carrier last year.

If France is any indication (where exclusivity fell last spring), Apple could soon have above 50 % market share with UK smartphones. The remaining exclusive deals in Germany, the US and Spain are to fall later this year (or 2011, 2012 at the latest), adding 3 to 5 million in quarterly iPhone sales.

You can certainly argue that Apple's market share will erode at some point in the future. But the iPhone hasn't peeked yet, and its true market share potentional is not fully visible as long as the remaining exclusive deals (especially in the US) are still in place.

Any weighting of the opposing market forces would have to mind that hidden potential and reckon with an iPhone that will be more dominant than it is today.

sami

I agree with you guys that Tomi underestimates the effect of ending the carrier exclusivity has on Iphone sales. It's the factor that best explains Iphone sales growth. We should really move on from arguing whether it is or to discussing what it means...

Is this because there seems to be a lot more people who are willing to switch to Iphone when it's available on their network, or is it because the carriers begin to offer better deals when the exclusivity ends? Probably the latter, but maybe those who live in regions where exclusivity has ended can provide experience and insight?

Johan R

Yes, Sami,
Reporting from Sweden, onse such region, I would argue that we see both effects, but the former is smaller. We have noticed increasingly competitive deals for the iPhone as exclusivity was lifted. Leading dealers are reporting that they have supply shortages for the two iPhone competitor-operators (3 and Telenor), while supply is matching demand for the incumbent iPhone operator (TeliaSonera). The largest Swedish phone retailer (Phone House with 15% market share) reports that iPhone 3G S was the #1 seller in March 2010. TeliaSonera shops (the largest telecom shop network in the country) doubled iPhone sales in 2009 and also reported the iPhone as the #1 seller in January 2010).

With regards to more people willing to switch to iPhone that is applicable to a certain degree to the enterprise segment, in which Telenor by tradition is strong. As Telenor started to sell iPhone we have seen stronger take up of iPhones in the enterprise segment. For competitor 3, the iPhone has to some extent been a tool to fight churn in its young customer base.

Unoffical operator statements indicate that if price was not an issue, approximately 40% of the customer base "would like an iPhone".

Granted, Sweden is a rather small pond in the overall iPhone number game, but it may be indicative of some other markets.

Tomi T Ahonen

Hi all

Two quick comments. I will return with full replies to all later of course.

First, thanks for the corrections on Apple statement. I was in a hurry this morning when I wrote the original blog, went back re-read the Apple statements and yes, clearly China Region and all Apple product sales. I have appended to the blog story with clarifications and re-calculated.

Also some seem to say 'a bigger reason' for the Apple growth is this or that. That is fine, we know Apple sold 8.75 million iPhones. Clearly China was not the majority of that. China was perhaps the 'missing million'. The points raised about changes to carrier exclusivity will certainly matter etc. But that would typically hit continuously over a full year, on 'normal' patterns with replacement cycles. The January - March quarter 'missing million' was totally off the scale, totally unanticipated and not predicted by anyone. I think it therefore was an unusual pattern and the China reason is far more likely to explain expressly the missing million. I am not saying that a bigger overall impact is from carrier exclusivity ending. But that explains 2009, not Q1 2010.

If that does not make sense, please read my update part to the blog. I will be back with directed replies, please keep the discussion going.

PS isn't this industry cool, you learn something new every day? I'd hate to be selling laundry detergent for a living haha..

Tomi Ahonen :-)

Mark

Interestingly AT&T's results show a decrease in iPhone activations from 3.1 million to 2.7 million - a drop of 13%. It's clear then that the increase in iPhone sales does indeed come from new markets and carrier expansion.

Tomi's theory does seem to make sense wit this in mind.

NookSurfer

I'm interested to see what the numbers will be like once they report on the sales of the iPad. Anyone want to take a guess as to whether the iPad will take sales away from other products?

Mark

Well it looks like you nailed it Tomi.

Nokia's results show the expected post Xmas quarter decreases in all regions... except China where there's a 17% increase.

Good spot.

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Nokia is bestselling phone brand and bestselling smartphone brand of China. If Nokia's current smartphone lineup - which includes many far cheaper smartphones than iPhone - was popular this New Year as gifts in China, could bode well for Nokia numbers as well. We have to see, Nokia reports in two days.

Tomi T Ahonen

As a final comment to this thread - now July 27 CNBC has confirmed that China Unicom has passed 2 million iPhone sales. They were at under 400,000 by January 1, 2010. And as Apple's international sales numbers declined 14% from Q1 to Q2, its safe to assume most of China Unicom's 1.6 million new iPhones sales were in Q1, not in Q2.

So my thesis that the surprising 'missing million' sales were due to Chinese New Year celebrations was proven true. Thank you to all who so vocally doubted me haha..

Polly

As to my forecast - perhaps you didn't read my addition - I did not say my forecast was off - I said it may have been premature. We will see, as the numbers come in this year. Apple is still 'least prepared' to gain market share of any of its main rivals: Nokia, RIM, HTC and Samsung. We already know RIM and HTC did not have 'flat' sales of units of smartphones from previous quarter but rather reported growth. So there already are rival smartphone makers who grew market share. And until we hear how many smartphones were sold overall, it is still possible Apple lost market share.

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Just want to say what a great blog you got here!I've been around for quite a lot of time, but finally decided to show my appreciation of your work!

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China is a country of migrants. I saw a modern city with a very large population become quiet over a fortnightly period. Streets usually bustling with people were strangely, at such a festive season, quietened. Restaurants I was used to frequenting, closed. The train and bus stations were fit to burst with an annual magnitude far exceeding reasonable fore planning.

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There are certainly a lot of details like that to take into consideration.

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both of roughly 20 million inhabitants just in those metro areas - are as wealthy as Taipei or Hong Kong. But nonetheless, these are important clarifications.

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there have been concerns voiced on the quality of wireless signals and that of several handsets flooding the market.Currently, India is the fastest growing mobile phone market in the world, adding around 6 million subscribers every month. The total mobile phone user population in the country is now in the region of 250 million, or half the number estimated for 2010.

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Even me here in Hong Kong am hearing more about the pirated clones of the iPhone in China than actual 'dramatically growing' iPhone sales. http://www.dogaltasmarket.com

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But as this is China, it means its 'Christmas bump' in sales is nearly meaningless, thus the October-December sales of iPhone in China is 'far below the world average' for the Christmas quarter

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