Apple iPhone Q2 Sales fall to 26M, market share falls to 16%, but this is normal sales pattern

So then we have Apple's turn in Q2 results of Smartphone Bloodbath, year three: Digital Jamboree. We expected the iPhone sales to fall from the level it had in Q1 (and remember, these are calendar quarters, not fiscal quarters, so Q2 is obviously the April-June calendar quarter). I expected iPhone sales to come in somewhere in the 30s, but the iPhone only sold 26 million units in Q2. Somewhat disappointing yes, but in terms of pattern, while the sales declines at RIM, HTC and Nokia are all severe causes for distress, over at Apple the 26% decline from Q1 sales is not a cause for alarm. This is normal for Apple, as it only makes one annual product release and after that new product sales peaks, we get flat and even declining sales into the last quarter(s) before the next iPhone. I have been writing for a long while now, that Apple could avoid this see-saw sales pattern, if it released more iPhone models per year to balance out the sales (and also gain significantly more sales, market share and profits). 

26 million iPhones in Q1 gives a preliminary market share for the iPhone of 16% (down from 24% in Q1). But when we take the rolling 12 month period to cancel out the launch peak seasonal sales pattern, we still find Apple increasing its market share, although at very slow pace. The 12 month moving average market share for Apple is now 20% of global smartphone sales.

I would make a mild note of caution. The decline was far bigger in this Q2 than we've seen before. There are a few easy reasons why this is happening, but they suggest Apple may face tougher times ahead. First, obviously and very visibl, Samsung is on fire. The Galaxy S3 alone sold 10 million units in just two months from launch. Samsung is expected to sell about 50 million smartphones in Q2 and might even sell 52 million by which it would be twice the size of the iPhone. The Samsung surge is powered by a wide portfolio across very wide and strong distribution, with superphones like the Galaxy Beam (the one with the pico projector) to glamorous smartphones like the massive-screen Galaxy Note, to low-cost bada based smartphones that sell well in many markets in the Emerging World. Remember that two years ago, Samsung smartphones were one third the size of the iPhone, now they may be twice as big.

Samsung is the clearly visible reason why the iPhone is under pressure. The other reason is more subtle, but many carriers/operators with handset subsidies have been working to extend the time span of their contracts. AT&T in the USA for example has pushed its average contract length up by 2 months. We learned also from Britain that the median contract lengths are increasing, as reported in the annual telecoms report by the regulator, Ofcom. Apple has exceptional loyalty, and can rely on not bleeding much market share to rival brands. But as those contracts now become longer, it means that Apple's replacement sales suffer. We may well be seeing the early signs of a pattern here. I do expect for Q3 the iPhone sales to dip again from the current levels, until we get the new iPhone model launched. But that launch will then rocket the iPhone sales level to a whole new level once again. Apple is incredibly profitable, the iOS ecosystem with robust iPad sales only grows stronger, and there is the inevitable waiting for what will the next iPhone have. There are no major stumbles here, and the loyalty of the Apple users continues unmatched. This sales decline in Q2 is no cause for alarm. Only lets monitor these little signs, they may take some of the peak sales performance away from the iPhone going forward.

Comments

[CN]

@B95

Agree. Apple doesn't need to look at it since there is nobody challenging them on this one.

My point is that if operators see any opportunity to introduce something that makes Apple's life tougher in terms of the subsidies, they surely use it.

Sprint is the second one recently coming out in public, complaining about the subsidies. Verizon did it some time back.

Having said this, I fully acknowledge e.g. TMO US, who openly said they need to reduce their own staff by 1,900 people, blaming they didn't have iPhone and lost market share due to that.

Nevertheless, if someone says there's no room for another - call it ecosystem or whatever - I tend to disagree.

And naturally, fancy HW/SW is needed and I'm not sure if anyone is able to deliver it.

[CN]

@B95

I guess Nokia's adventures in Japan, along with Vodafone (who years back bought J-Phone and is known today as Softbank) tell the story how Japan is different. In both operating in there as well as for them operating outside Japan. Based on this history, I'm not sure if a Western culture CEO would survive the challenge. ;-)

Then about China Mobile. Let's remember that the LTE they will be using is the "China originated" TD-LTE, not FDD LTE like in most countries of the World. Surely, TD-LTE has already penetrated globally further than TD-SCDMA ever did or will ever do, but still, it remains smaller that main stream LTE (of the 89 commercial LTE networks, just 9 are based on TD today). Apple has promised a device for TD as well, but when is the need? CMCC says 2013, Government says later. Does CMCC remain an opportunity to come up only later - in terms of LTE?

[eduardo]

Nokia ends Meltemi

http://www.techweekeurope.co.uk/news/meltemi-nokia-feature-phone-software-87408

[eduardo]

Nokia abandons Meltemi -- two more links

http://www.phonenews.com/reuters-nokia-abandons-meltemi-linux-feature-phone-initiative-20792/

http://www.reuters.com/article/2012/07/26/us-nokia-software-idUSBRE86P0CD20120726

Interesting quote in the second article:

"The important factor for Nokia is driving Windows Phones prices low enough to bridge the gap with the feature phones Asha range -- that should happen in 2013," said Cunningham.

I thought the hardware requirements for WP 8 were too high for the feature phone price range.

[kevin]

I believe the Qualcomm chip expected to be used in the next iPhone will incorporate China's TD standard, and make it much more likely that a China Mobile deal results in a released product. Apple's DNA of minimizing models has likely led to Apple's lack of urgency to meet China Mobile's financial demands. I'm sure Apple has already worked on TD-SCDMA phones the last two years, and probably found that they needed a specific China Mobile model in order to avoid making "unacceptable-to-Apple" iPhone compromises.

Tomi, I find it ironic that as you finally see this Apple pattern as normal, and suggest the need to look at rolling 12-month sales when analyzing Apple, that I start to be concerned with the sales result. I don't really buy the Apple excuse of rumor-impact as most rumors have pointed to Sep-Oct this year. Last year, there were more June release rumors. Rather, I see the lack of new carriers and markets, and possible saturation of old markets as the cause for just 28% yoy growth. Last year, the 3rd quarter after iPhone release (Jan-Mar) received two boosts- Chinese New Year and Verizon. I still expect a huge Oct-Dec quarter, but it will fall short of 100% yoy growth due to supply issues. I just don't see how Apple can maintain both secrecy AND 50m unit launch quarters as the supply chain will need to ramp and become a source of leaks, but maybe they will surprise me.

[KPOM]

My guess is that Apple sells 20 million iPhones in Calendar Q3 and 50-55 million in Calendar Q4.

[Mark]

@vinicius

The wife and I have ZTE Android phones (Blade and Skate respectively). 600MHz, 512MB, 1250mAh. Both work fine, not a ball of fire by any means but more responsive than a Windows 7 PC. 800x480 screens on these budget phones. Battery life several days unless wi-fi is turned on.

[RyanZA]

Dilbert on Nokia. ;)

http://www.dilbert.com/2012-07-30/

[vladkr]

Excellent Ryan! :)

[maxxfi]

@vladkr: brilliant idea! ;-)

[anti]

Nokia, strong buy!

[battery]

I like iphone 4s.My point is that if operators see any opportunity.

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if it released more iPhone models per year to balance out the sales (and also gain significantly more sales, market share and profits).

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