iPhone Quarter - We are perilously close to Peak iPhone now (also lets do Huawei)

So Apple results out. In Q3 calendar quarter (not fiscal Qtr) iPhone sold 48.0 million units, up 1% from Q2. this was achieved by launching in China on the launch weekend, where 3M iPhones were sold. So an Apples-to-Apples comparsion would be 45 milllion sales which is down 6% from Q2 which brings the 'normal' back to the unit sales quarterly sales pattern to roughly what it was before the long-awaited phablet screens finally launched as the 6 series last year. So now we are about 'normal' again. And then... those 3M iPhones that sold in China, which would have been counted in Q4 last year, were now already reported in Q3. The Christmas Quarter 2015 will have an 'artiticial hole' of 3M compared to last year. As we've already seen lots of warning signs, from Apple cutting supply orders, to China stats reporting new iPhone activations of the first weeks at 10% below last year same number of days - all this suggests we are very likely right now, Christmas Qtr 2015, witnessing a peak iPhone moment. That Q4 of 2015 will end up seeing less iPhone units sold than same quarter 2014. That would be quite a dramatic shock to Apple and the market. And yes, I am still confident that Apple will see (a modest) further decline in its annual market share. So what does 48.0 million iPhones get you in terms of global market share now? Apple has roughly 13.0% market share in Q3. Apple continues unchallenged as the second largest smartphone maker, far too small to challenge number 1, Samsung in market share.

And then we have Huawei's numbers. Huawei, not Xiaomi, is the third largest smartphone maker and the largest Chinese smartphone maker in the global market. They reported 27.4 million smartphones. They stand at approx 7.4% market share and very likely hold onto their third ranking for the third quarter in a row. Lenovo and LG are the strongest challengers to that ranking.

More smartphone wars as we get data...

Comments

[Michael Scharf]

The real issue driving new records for iPhones in the US in calendar Q4 will be the introduction of the two things. First, the simply silly lease rates from T-Mobile ($1/month) and Sprint ($5/month). These two carriers are determined to steal share from the two large carriers and are riding the iPhone wave to do so. Second will be the new Apple lease program.

[abdul muis]

"The Christmas Quarter 2015 will have an 'artiticial hole' of 3M compared to last year."

I wonder what Apple gonna do about this... What kind of "magic trick" will they used to cover up the 3M hole.

[Per "wertigon" Ekström]

So, 48M, that's actually lower than I expected (around 50M).

Trajectory seems to be set for 70M *and* again market share loss for calendar year (though yes, they did briefly gain market share during the 6 cycle). :)

[Tester]

Gonzo, you are really stupid and just ogling at some numbers without proper context. Par for course for the iCrowd, I have to say.

Well, continue ogling, but those with clear vision make the better projections.

[Catriona]

Warning signs? Seriously? Apple's quarter was fine. ASP was $670. 48 million was about in line with expectations (47.8-48.2 million). Their forecast for the current quarter is revenues slightly higher ($75.5-77.5 billion), which they said would have been even higher if not for the quarter.

Remember, true, they did pull a few million units of China sales forward, but this past quarter included only 2 days of iPhone 6S sales vs 9 days of iPhone 6 sales in the launch countries last year. China sales were up 99%, and no, 2 days of iPhone 6S sales aren't the sole reason. For someone as data driven, Tomi, you aren't very good at taking these into account. You just cherry pick the data that supports your pre-determined conclusion.

This is also an "S" year. People weren't supposed to want to upgrade and we were going to see falling sales, remember? In reality, we are seeing decent sales considering last year was the "mother of all upgrade" years. I think Apple gets one more big boost with the iPhone 7 next year, and then we see it becoming a cash cow. That's why we see them moving to the iPhone upgrade program. It keeps people coming back year after year, and is a good program for keeping sales from falling (i.e. "plateau" iPhone rather than peak iPhone).

Samsung will continue to bleed market share to the smaller Chinese companies unless they do something drastic.

[chithanh]

It included 2 days of sales and two weeks of pre-orders. And not any two days, mind you.

[Catriona]

@Tomi, I'm sure Apple sold more than 3 million iPhones during the 7 extra days in FY2014 that the iPhone 6/6S were on sale vs. the 6S/6S+ in FY2015. So that "hole" you were worried about is already filled. Remember they sold 13 million during launch weekend, only 2 of the 3 days of which were during FY2015. Even if only 1/6 of those were sold on Sunday (since pre-orders, etc. arrived on Friday), that's 2/3 of your "hole" of 3 million China phones filled just during the launch weekend.

[Catriona]

"Their forecast for the current quarter is revenues slightly higher ($75.5-77.5 billion), which they said would have been even higher if not for the quarter."

I meant to say currency, not quarter. I believe they said growth would have been 8% higher last quarter if not for the pesky strong dollar. That also factors into this year's forecast. So I'm forecasting 77-80 million iPhone sales in the current quarter. Here's how I get there:

Last year, iPhone was 68.6% of Apple's Q1-15 revenue of $74.6 billion on unit sales of 74.468 million (ASP $687). Let's say Apple hits $77 billion this year (lately Apple seems to be hitting the high end or slightly exceeding its published estimates). That implies iPhone revenue of about $52.8 billion. If Apple hits the same ASP, that would be 76.9 million iPhones. But I think the ASP might be slightly lower this year, since the iPhone 6 and 6 Plus are available at the lower price points, and could be popular given the rising dollar. Tim Cook said that the iPhone 6/6Plus are doing better than the 5S did last year.

Let's compare notes at the end of January when Apple releases Q1-16.

[Catriona]

"It included 2 days of sales and two weeks of pre-orders. And not any two days, mind you. Posted by: chithanh"

We already know Apple sold 13 million iPhone 6S/6S Plus over launch weekend vs. 10 million of the Phone 6/6 Plus. However, all 10 million fell into FY 2014. For that matter, so did 6 days AFTER the launch in Phase 1 countries, and 2 days in the Phase 2 launch the following weekend. This year, only 2 of the 3 days that made up the 13 million were in FY 2015, and none of the Phase 2 launch was in FY 2015.

So iPhone 6/6S almost certainly made up more of Q4-14 than iPhone 6S/6S Plus did of Q4-15.

[Catriona]

"It included 2 days of sales and two weeks of pre-orders. And not any two days, mind you. Posted by: chithanh"

And the iPhone 6S/6S Plus sold 13 million on launch weekend vs. 10 million on launch weekend for the iPhone 6/6 Plus. However, the entire 10 million was in FY 2014, and only 2 out of the 3 days of iPhone 6S/6S Plus were in FY 2015. FY 2014 even included 2 days of the second phase of the iPhone 6/6 Plus launch the following week.

[Catriona]

(ugh, apologies for the triple post. Network issues again).

[chithanh]

We already know that the post-launch drop was bigger than anticipated. Phonearena have reported that Apple had to reduce component orders due to lagging sales. Whether this means that enough people got their fix in that extra week of preorders I'll leave for you to decide.

http://www.phonearena.com/news/Apple-said-to-reduce-component-orders-in-response-to-weak-iPhone-6s-sales_id74756

[Catriona]

@Chithanh, Apple wouldn't be guiding revenue at $75.5-$77.5 billion if sales were lagging. Tim Cook has warned lots of times not to believe supply chain detail because it is unreliable and Apple switches suppliers.

Back to Phone Arena, here is what the article said:
"According to Pacific Crest Securities chip analyst John Vinh, Apple has reduced component orders by about 15% following weaker-than-expected sales in the week following the launch. This information was allegedly obtained from multiple sources within the chip-making industry. Vinh writes that his company now expects Apple to sell about 67 million iPhone 6s and 6s Plus units in the fourth quarter of the year, significantly below the 75-80 million unit shipments that many market analysts predict."

So if Apple sold 67 million iPhones instead of the 77 million I'm predicting, that's $6.7 billion less of revenue, yet they are still projecting flat to increasing revenue. Just what do you think would account for $7-9 billion of revenue? That difference is more than Mac, iPad, or the combination of Services and Other. Clearly Apple thinks that they will sell far more than 67 million iPhones.

Besides, Vinh is assuming that the 75-80 million is all iPhone 6S. Analysts were predicting total iPhone shipments (and there is no way that 67 million is iPhone 6S/6S Plus - older models will be a lot of that total given that the ASP is just a few dollars above the cheapest iPhone 6S). I'm assuming Vinh meant to say total iPhone sales. But even then, his numbers are completely inconsistent with Apple's forecast.

If you want to argue that there is no way Apple has such a strong Fiscal Q2-16, I'll hear you, but Q1-16 is looking strong, despite a currency that is not cooperating.

[Catriona]

@Chithanh, whether Apple took 2 weeks or 2 months of pre-orders doesn't matter. They still can only ship so many to customers on a single day. Those sales don't count until they reach customers' hands, and Apple didn't do any channel stuffing to carriers (inventory levels were slightly below the target).

As for those pointing out Greater China fell slightly sans iPhone, remember that Greater China includes Hong Kong, which WAS included in the initial iPhone 6 launch.

[Catriona]

Tim Cook also explicitly said "we believe iPhone will grow in [fiscal] Q1" during the analyst call today. So that PhoneArena article seems like complete bunk to me. Maybe they cut iPad orders.

[Correctionsforyou]

"Apple exited the quarter with iPhone demand outstripping supply"

[Tomi T Ahonen]

Hi Michael, abdul, Per, Tester, Catriona and chithanh

Lotsa comments, thanks (oh and do ignore the obvious trolls or anyone bringing the profit or share price angle to the discussion, you know I will delete those)

Michael - good point and we have to see how that plays. Note, it will also be watched quite closely by the global carrier community (the lease program) and may result in carrier backlash against it.

abdul - haha me too. But certainly Apple's PR team will spin it as best they can. There will be plenty of record-breaking news apart from the iPhone peak, so they will at least partly try to distract with other good news. Might give us an Apple Watch cumulative sales number or something other, shiny new thing, to distract.

Per - yeah I agree and nice of you to acknowledge that guess that went a bit too high. I am also expecting yeah about 70M or a bit over for Q4

Tester - thanks, I removed the troll

Catriona (first comment) - come on, you know better. This blog IGNORES those stupid 'expectations' that is the Wall Street game. It is utterly irrelevant if the PR game was able to create an impression of an expectation correctly for Apple to hit. That is utterly irrelevant. That is the PR war with Wall Street and investors. What matters is - did the market share grow. 48 million is not enough. Even with the 3 million switched from China sales into Q3, they still did not do enough in Q3 to keep the annual market share flat vs 2014. It is coming down. THAT is the only thing that matters on this blog. I have NEVER said that Apple was about to die (but I had warned about Palm, Nokia, Blackberry, HTC etc). I have NEVER said that Apple will stop being the MOST PROFITABLE COMPANY in HISTORY. That is not the point here. We don't care. As long as Apple makes SOME profit, it is VIABLE. That is all that matters and beyond that, who cares what investor goals they reach. It is irrelevant to the app developers, service providers, suppliers, etc who work in our industry. Those - my readers - care about the platform wars and the major handset brands, because those are business opportunities. That is why we want to know, is Windows Phone dead or not. And will Apple fight honestly for the world lead with Android on iOS or is this a game and they never will be a mass market platform. I am here to guide my readers. You know this. I am REPEATEDLY saying Apple is the best-run company with the highest customer satisfaction and highest loyalty and highest profitability of anyone in our industry - and that it is not in any way under threat. That is and never has been ANY argument here. What we talk about, is that hypothesis of mine, that Apple share will approach 10%, roughly the peak of what Macintosh PCs have done at their best. THAT is the point. And that is why I rushed this blog out today, because yes, these numbers are still clearly consistent with a declining annual market share. As its been for many years now.

Now, you doubt my math (seriously, you STILL doubt it, after all the history here?). Lets take Apple's view. In Q3 Apple just generated 51 Billion dollars of revenues and it was done with 48 million iPhones sold. If we assume the ratio of iPhones out of the total Apple portfolio remains about the same for Q4, then the TOP END of Apple's guidance for Christmas, 77.5 million dollars would correspond with... 72.9 million iPhone units. A DECLINE from last year same quarter.

Note, Catriona, that in reality the iPhone ASP is going UP as the S models are going mainstream and the base 6 model is replacing the cheaper 5 series iPhones. So the REVENUE growth is partly from higher-price iPhones so it means LESS THAN 72.9 million iPhones for Christmas. This is the TOP END of Apple's own guidance. They are pretty good at hitting the range of their guidance and usually nearer the top than the bottom. But clearly Apple own guidance is in line with a decline in iPhone unit sales compared to same quarter last year.

Then on the 7 model next year.. don't hold your breath. The large screen phablet was the last major area where Apple had not offered a product. Their only way to grow now, is down-market with cheaper models... I do not expect the iPhone 7 to cure cancer or have time travel or teleportation.. But the competition is ever more fiercely offering rival products of more functionality and at better (ie somewhat lower) prices. See the strong growth at Huawei for example and the slew of Chinese second tier manufacturers like Oppo, Vivo and Meizu.

On FY 2014, no. iPhone 6 phablet series were delayed by one MONTH for their launch in China due to problems with tech approvals with the local regulator (bad Apple management, rush job). So none sold in FY 2014 in China. So the 3M hole is very real - if we are considering Q4 sales now vs last year. Apple shifted part of the big China boom launch sales, conveniently to Q3, so that Q3 looked better. It means, those sales cannot be counted twice, it means very literally, that Q4 is correspondingly exactly as much less good looking. A hole of 3M. That is math. ITs conceivable that had this not happened, that Apple market share is down this year BUT the peak iPhone Quarter would not yet happen this Christmas ie sell only 45 million now ended Q3, then sell say 76M in Q4. The annual market share would still be down, but in that case, the Christmas Q4 sales would be slightly up from last year, and 'Peak Quarterly iPhone' momment would be postponed by one year. That is now very very unlikely to be avoided. It is very likely that we've seen both Peak iPhone quarterly sales AND the decline in annual market share that I already earlier forecasted.

On your forecast Catriona, thanks. Very smart thinking there and plausible certainly. We have you on record now for 77-80 million. If Apple hits the bottom of that range, you win both that there was not yet any peak iPhone and (very likely) also that the iPhone market share did not decline, it would have a slight rebound in fact. I do hope you get to win that forecast but I am pretty sure it isn't gonna be that rosy. I said I believe its close to 70M, maybe a million or two above that, very similar to what Per had earlier, and consistent with my annual forecast I gave a year ago, that this year also 2015, iPhone will see decline in market share because the phabet 6 series was not enough to stop the rot, they had to also offer a new lower cost model to replace the iPhone 5C model and reduce its base price. But yeah. Ww have competing forecasts, we will see who gets it right, Per, you or me :-)

Anyone else want to get on record for what they think iPhone unit sales will be now for the October-December quarter globally in millions of units?

Tomi Ahonen :-)

[Correctionsforyou]

"PhoneArena article seems like complete bunk to me. Maybe they cut iPad orders."

They do cut processors orders meaning that they have just introduced new processors and "old" ones will not be produced in that magnitude as the new ones. Tim Cook is the operational wizard behind Apple's success. Nobody does it better than him and EVERYBODY should listen what HE says.

[Tomi T Ahonen]

Catriona

Oh, sorry, I missed the 99%... I think that was pretty nifty by the Apple PR people. Always when you get a growth PERCENTAGE treat it with caution. Remember ALWAYS that growth RATES favor the smaller numbers. Same growth in absolute terms is a tiny percentage from a large number. If the growth is 1 unit. And we sold 1 unit last period, the growth rate is 100% (we doubled our sales). The identical growth of 1 unit, if we sold 100 units, is only 1% growth essentially flat growth. What is VERY suspicious of that China sales number is the 3 million shifted sales.

Growth rate of 99% sounds awesome, doesn't it. In reality it means almost doubling sales. Now. How big was TOTAL iPhone sales in Q3 of last year? 39 million. Remember, that the iPhone phablets were severely delayed and China was the largest market for phablet size smartphones. Then there were rumors that the phablet was finally coming. The sales of iPhones in China by Q3 of the 5 series with the smallish screens were pretty horrid. Lets say 10% of Apple sales of iPhones were in China that quarter in units. 4 million units. Now take the 3 million 6S models sold now. With far higher prices. Its very easy where 3 million more sales of clearly more expensive phones, resulting in 7 million total, would mean almost doubling the revenue of iPhone sales out of China. Take always VERY cautiously any company when they talk about growth rates - its most likely that they are embellishing a modest story and trying to make it seem bigger, for ignorant journalists who failed basic statistics.

Tomi Ahonen :-)

[Catriona]

@Tomi, yes, I do doubt your math, because you cherry pick data. I don't see the ASP going up by that much in the current quarter. True, the 6 Plus will sell for a higher ASP than the 5S did last year, but that's maybe 20-25% of mid-range sales. So it vs. the 5S accounts for maybe $8-10 of Apple's ASP. I bring up the analysts because those guys have a vested interest in getting their unit projections right. So Apple's actual vs. projected performance gives us an indication into whether or not we should believe the PhoneArena articles.

Anyway, you saw my calculation. Let's see how you got to 72.9 million iPhones and we'll compare notes in January when Apple releases earnings, OK? Remember, iPad is going to sell less than it did last year (iPad Pro won't have a big impact). We do have the Watch, but at best that's $2 billion incremental. Mac had a spectacular September quarter but there were no new upgrades announced, so I expect fairly flat revenue this year.

As for your larger point, whether Apple's market share settles at 10%, 11% or 13% doesn't matter much in the grand scheme of things. It clearly will occupy about 90% of the top of the market (just as it does with Mac, but of a MUCH larger market - enough to sustain a viable ecosystem), and the two flavors of Android (Google vs. Open-Source) will carry the volume. To me, where that market settles is interesting. Google is still experiencing growth, but non-Google Android could be Google's biggest single threat, particularly in China.