Digital Jamboree Continues: Now Apple Q1 - iPhone sells 35M Units, drops to 22% Market Share (Corrected)

So the Digital Jamboree Year 3 of the Smartphones Bloodbath continues, and the earnings season brings us more news. We already had the devastating Nokia news. Now what happened with the world's largest smartphone maker of last Quarter? Apple's iPhone sold 37 million iPhones in Q4 (we talk in Calendar Quarters here in this blog, not the Fiscal Quarters, so obviously I meant the Christmas Quarter with Q4). Now for Q1 how did Apple do? I expected growth because of the pattern Apple established 2 years ago with the Chinese New Year sales. But it didn't happen. Apple actually declined in iPhone unit sales from Q4 and only sold 35.1 million iPhones now in Q1.

Why? I think mainly one reason two reasons - partly Q4 was exceptionally big sales because the iPhone 4S was delayed from June launch to September launch so Q4 was the first full Quarter of iPhone 4S sales. Thus Q4 was 'unusually strong' above average annual sales for iPhone.

And now Q1, China was unusually meek in iPhone sales. (Normally, past 2 years, iPhone sales have grown sequentially from Q4 to Q1, powered explicitly by China sales. This year breaks that strong iPhone sales growth pattern. As Apple CEO himself pointed to a 5-fold increase YoY on iPhone sales in the Greater China region, the decline was not caused by any weak China sales, as I originally thought. I had good 'excuses' to explain why not to worry about the unanticipated China decline. But there WAS no China decline. I am puzzled. It means suddenly there are other iPhone regional problems that were significantly bigger than expected. I will have to go hunt for where those might be. This is surprising, but is not cause for alarm for the future. There were exceptional reasons why China iPhone sales in 2012 were unusually meek. And don't post comments here talking about how great China overall Apple results were. That is not the point. I read the same reports, obviously Apple had a phenomenal Quarter, also in Greater China region. But in iPhones, they disappointed China performance. That is my only point. And I am here as your mobile industry analyst to tell you why this is not permanent loss to Apple, only a one-year special occasion).

So what happened in China this time to the iPhone. Why were iPhone sales so meek this time? That was for many coincidences and reasons. The Chinese New Year gift-giving season was unusually early in January due to the Chinese Lunar Year (sometimes its well into February) and worse for Apple, the iPhone 4S was not approved until very late before the gift-giving season peak sales. I think Apple had just one week of iPhone 4S sales at the peak time. Plus there were initial store opening problems with some mobs and security fears.

What does this mean in terms of market share? My preliminary market share for iPhone is 22% for Q1, down from 24% in Q4. Not bad, but it is down. And usually the pattern then follows into Q2 with a further decline, unless Apple can launch its next iPhone model (rumored as iPhone 5) in the last few days of June. That was also what Apple CEO Tim Cook said in his guidance for Q2 performance.

I know Apple is the most valuable company on the planet and made so massive profits in just one quarter, that it could go and buy all of troubled Nokia with just its quarterly profit now haha. So its truly difficult to be honestly critical of this level of massive performance excellence. But lets be honest here. Apple did see declining market share and very likely will see more of a decline in market share again for Q2 before the next iPhone starts to sell. I have been urging Apple to split its product line, it would help a lot to expand Apple's unit sales, market share and profits. Nonetheless, Apple did generate a very healthy profit in its smartphones unit, this is very good performance for Apple's Q1. Not perfect, but very good.

And why do we care about the modest decline over this Quarter? Because Apple's reign at the top, as the world's biggest smartphone maker has been a few temporary blips. Apple toppled Nokia in Q2 of last year. Then in Q3, Samsung lurched past Apple. Apple retook that position in Q4. But now with the decline in sales and with the already promised numbers from Samsung that its handset unit has had phenomenal growth in Q1 (the full Samsung numbers are not out yet) means Samsung has again retaken the lead once again, as the world's biggest smartphone maker, but now it may be for good. Because Samsung offers a wide range of smartphones on various price points, at far more carriers/operators and on more technologies including China Mobile's TD-SDMA standard of 3G, Samsung has far more ability to capitalize on the market opportunity than the iPhone on one new model per year, and on only two technologies and not on all carriers/operators.

These numbers do mean, that Samsung is now in Q1 again the world's biggest smartphone maker. Quite a big month for ole' Sammy, as they also have toppled Nokia as the world's biggest handset maker for the first time ever, this same Q1. But with iPhone sales down, and Nokia catastrophic collapse, and HTC sales decline and Blackberry woes, just how darn good will Samsung's Q1 be? We may be in for a Quarterly Results press conference of a lifetime haha.. 

UPDATE - after that China mistake, I wanted to go try to find where the lost iPhones are (if the industry grew only by 60% in a year, but iPhone China grew 5x, then there are many millions of excess iPhones which should have pushed Apple to iPhone growth, not decline. As iPhone total shipments fell by 5% and China grew so strongly, it means some other regions have had very big drops in iPhone sales. In the range of 20% to 40%. And now the first obvious answer comes from AT&T which reports that in Q1 they saw a 40% drop of iPhone sales from the Christmas Quarter, down from 7.6 million to 4.3 million. That 2.3 million would explain the overall decline for Apple, but not the huge jump in China that still needs to be explained. Another clear case is Verizon, which saw a 25% drop, down from 4.3 million to 3.2 million. I will go hunt for more info. The US market seems to be taking it heavily on the chin. That is not the full picture yet, but at least partially an answer is starting to form. I would now guess, that European carriers/operators will have similar after-Christmas blues for the Apple..

Comments

[tcb]

The fear of the iPhone "fragmentation" apparently came from Jobs himself, which is a nonsense theory, since the mac/iPod lines always offered different price points and form factors.

Its really shooting themselves in the foot insisting on just one form factor.

Jobs in all his genius, could be very wrong, like he was on the third party app issue.

[tcb]

However, except in the iPod market, Apple has always positioned itself as a premium brand, and mobile is no exception, so it does not care about the market share as long as it keeps getting 80% of the industry profits. They may lag behind HP in laptop sales, but they make 7 time more profit on each sold computer than HP does.

No one at BMW/Mercedes cares about Fiat selling more cars, and GM outselling them 6:1.

Also interesting was a continuation of the major increase of Apples R&D budget over the last year or so, where they've traditionally been on the cheap, which is pointing to the Apple TV thing getting some major traction.

[tcb]

@Baron95, its just that tomi is viewing Apple through a mass market manufacturer lens, which its not... They don't care about the market share numbers as long as they get most of the industry profits and the app store brings the most money thus drawing in the best developers and apps.

They don't care about making non-premium products just so they gain market share they cant massively capitalize on. In short, they dont care about the poor peoples, their demographic is the upper middle class and the upper class, and its the distinctively elitist values they are promoting in their products.

They could make a 300$ laptop like HP does, but the cheapest macbook is 999$.

[Hoista]

@Baron95 I'm assuming Tomi is saying it's unusually meek vs his expectation that the numbers could have been better. As with any analytical forecast, you measure against expectation, even if the result appears great, if it doesn't meet expectation, then it can still be considered disappointing. However, people hold different expectations and this seems to be the area of disagreement.

[Tomi T Ahonen]

Hi all

I removed a couple of comments by people who did not read the blog (or pay attention to what I wrote). But because the 'China iPhone sales meek' statement attracted some silly heat, I added a clarifying paragraph into the original. Lets hope it keeps the stupid comments away from here and we can stick to the point about whats happenin' to the iPhone (not whats going on with Apple overall).

Tomi Ahonen :-)

[st7761]

Apple depends on Qualcomm. Because they cannot support CDMA and TD-SCDMA from different company. Samsung, they can work with many chipset company. CDMA - via telecom, TD-SCDMA - spreadtrum. And they have in-house Lte-only chip which is CMC221. Samsung's HW chipset chain is so flexibe but apple and nokia is not flexibe in their HW chipset chain.

[cycnus]

@Tomi,

The decline of Apple maybe because samsung succeeded in promoting Samsung Galaxy Nexus, Samsung Galaxy S II & Samsung Galaxy Note as a more premium brand than iphone 4S.

[cycnus]

@Piot

regardless China, iphone still ship less iphone than last quarter...
is this a sign that Apple were starting to see the cliff too?

[Louis]

This is total tanking. Their best Q1 ever, a 5x increase in China too. 35m+ iPhones shipped. Tim Cook must be removed so Apple can ship Symbian in bulk.

[Frank]

Apple is Marketleader in Profits, thats all thats matters. We have a two Horse-Race, Tommi forget Nokia, they are obsolete now. Realize that!

Greets

[Vikram]

World's biggest handset maker is a question of which number that you are looking at - handsets sold or revenues & profits. Apple makes 5x that of Samsung in terms of profit. Selling a bunch of $80 Android phones in India & China doesn't mean anything relative to Apple. Nokia sells many more phones than Apple.

Revenues & profits matter the most. Apple isn't slowing down any, and when the next iPhone comes out...they'll start roping in Samsung

[Louis]

"@Baron95, its just that tomi is viewing Apple through a mass market manufacturer lens, which its not..."

Um, 60% of all phones sold by AT&T were iPhones. Without a pink model for girls. That looks mass market to me, unless you define mass market as "not Apple". Note that is Apple can reach similar numbers on other carriers in the same number of years, the growth potential is huge.

[Frank]

Tommi you bet on the wrong horse.....

[cycnus]

@Baron95

Because, Tomi, Unlike you, were using statistic to predict the future, and Tomi spot that Apple starting to lose...

You, on the other hand, have unproven theory, that make me puke!!!

[tcb]

@Louis, your speaking about the US market, I'm talking globally, where standards of living and income are much lower. You wont see street kids in Philippines and Ecuador with iPhones, but you will see them with Samsung's, because they have a smartphone for every demographic.

There are 7 billion people in the world, and while you and I can can easily spend 100$ a day, the vast majority lives under 2$. These people cant pay for fat data-plans that subsidize iPhones, and they especially cant pay for the unsubsidized iPhone.

Also in the developed world, Samsung managed to plug itself into market holes Apple left for them (the demand for a larger screen size), they are not competing directly with iPhone (in the 3,3 inch screen size market), but have differentiated themselves.

[Tomi T Ahonen]

Thanks guys. My bad. I hadn't seen the Cook comment. I will correct the blog article. Yes, 5x growth of specifically iPhone in specifically China, is magnificent. It then makes me wonder why the big fall in sales?? That does not compute. I will explain in the blog.

Tomi Ahonen :-)

[ds]

Louis, Apple has great growth potential in the USA where 3 factors reinforce each other: well developed, sizable upper middle class, carrier setup that successfully extracts ranges of $100 and above per month from majority of customers and hyperactive vc funded mobile software companies market that serves US market exceptionally with innovative apps using vast and complete databases covering various aspects of live in the US. Any countries that reproduce those 3 factors can deliver similar growth potential to the IOS ecosystem.
What are those countries?
No doubt this means countries with big wealth levels and that somehow validates Apple decision to leave lower price tiers for competitors. The synergy that rewards them now is not t
here.

[Tomi T Ahonen]

Ok, posted correction to the blog, left the original text so it can be seen.

But now I truly am puzzled (what else is new, haha). If the world market only grew 60% in one year, and iPhone grew 5-fold in the past year in the China Region, and overall iPhone lost 5% - there is a lot of declines to explain, in the rest of the world? Where are the drops. They can be in the scale of 20% or 30% drops in some regions. Gotta go snooping around to see what I can find. Any discoveries you readers can find, given carrier/operator data and national data for Q1 that show iPhone declines will help find where the many million missing iPhones were lost, that were compensated by the huge jump in China sales.

Time to turn into a detective again. Apple always does this to me, haha, messing up my cleanly organized world plan for mobile handsets haha

Thanks guys for pointing out the mistake. You don't have to yell and be that mean about it, but yes, obviously, the original blog posting text was purely my mistake and a mistaken jump to a conclusion.

Tomi Ahonen :-)

[tcb]

Tomi, its simple, iPhone filled in the higher price brackets in the markets where it wasn't previously available (or at least its 4S incarnation), while android continued proliferating in the cheap smartphone segment for the global masses.

iOS still dominates Andorid in mobile usage, which illustrates this point, globally most Androids don't come with fat data-plans that finance carrier subsidies.

[anobserver]

From Tomi's post I take that there are actually _two_ "mysteries" to clear up:

1) The drop in iPhone sales/market share that everybody is discussing. Fair enough, it is a significant point.

2) The 5-fold increase of sales in China -- have we ever seen such a growth of iPhone sales in the past in any other country? What are the reasons?