Quarterly report Apple released last week, left a mixed impression. For July-September 2018 the company reported revenue of $62.9 billion — 20% higher than a year earlier. Net profit per share is estimated at 41%.
On the background of the overall positive results a nasty surprise hiding in the breakdown of revenue by product. 0% in the graph of the increase in the number of sold iPhone showed that the company almost for the first time is practically not increased smartphone shipments compared to last year. The revenue is not affected — Apple’s revenue from iPhone grew by 29% due to the sales of new, more expensive models and reduce the cost of their production. However, the impact of this trend on the company’s business in the long run?
Profit in the details
Every business or otherwise working for profit. But can definitely be called a business efficient if the profit is there, and it even grows? In the technology market, the answer to this question is not obvious. A classical example is Amazon which the first 6 years in the status of a public company received the net profit, however, was considered to be one of the most successful technology companies. By the way, Amazon profit in the last quarter was above expectations, but shares fell amid modest forecast for the preceding quarter.
Therefore, the financial statements of the company are important not so much what has been done in the past, as the designation of the vector of development of the company and the market in which it operates. For 9 months of 2018 217,7 Apple sold million iPhone is little more than 216.7 million in 2017 and 211,9 million in 2016. However, this is less than 231,2 million iPhones sold during the same period of 2015. If you look at the bigger picture, it is the third year the number of sold iPhone is stagnating.
Of course, investors can’t ignore these statistics. Immediately after the announcement of financial statements Apple’s stock lost 6.6 percent for the day. The company was ready to such turn of events: on call for the quarter, the CFO Luca Maestri announced that Apple will no longer disclose the breakdown of revenue by device.
The company has already adopted a similar measure in September 2016, when he announced that he will not disclose statistics of iPhone sales for the first weekend after the release on the market. These results, as a rule, brought Apple a lot of publications, and the refusal of public disclosure could only mean one thing: time is a resounding of records passed. The current solution meets the same problems: less transparency means that Apple wants to reduce the degree of negativity and to focus investors ‘ attention not on how much iPhone it sells, and what kind of revenue they make. This, in turn, an alarm bell for those who base their forecasts primarily on the Apple segment device. The market has already responded sarcastically remarks that now the companies “have something to hide”.
What is the reason
It is possible that in the current holiday quarter, Apple is still able to beat its own record with iPhone innovations Xs, Max Xs and Xr. New devices launched at the end of September and October, as part of the user traditionally has refrained from buying the iPhone before the release of new devices. However, the iPhone 6, the record also entered the market only in late September 2014, so the factor of “additional time” here.
Where the difference is, this in a market environment in which they sell. According to analysts from IDC, the trend in the decline of global sales of smartphones continues. For July-September 2018 on the market was supplied only 355.2 million smartphones — 6% lower than a year earlier. Smartphone sales falling the fourth consecutive quarter, and against this background, the ability to sell at least the same iPhone as last year, can be viewed as a certain achievement.
However, much more interesting to look at the breakdown of sales by producers. A leader, Samsung, sold by 13.4% fewer smartphones than a year earlier, and lowered its market share from 22.1% to 20.3 percent. While in the premium segment of the launch of the Galaxy Note 9 has been successful, Samsung is losing ground in the middle and lower price segment. Plans to rework the product portfolio and introduce new features in a non-flagship model can potentially help to overcome these difficulties.
While top Chinese manufacturers that do not yet compete with the same Apple in the segment of $1000+ for a smartphone, while successfully going against the tide. Huawei grew shipments by 32.9% and was fixed at the second position, and Xiaomi with the increase of units sold 21.2% comes on the heels of Apple in fourth place.
What Apple plans to respond to the negative market trend, in addition to hiding statistics of units sold? First, the increasing marginality of the iPhone, which helped her to maintain the pace of revenue growth in this segment. The company gradually perjorative strategy from mass-market to luxury segment, where the numeric result of sales is not as important as the ability to convince the buyer to pay a premium price for a new device. This is confirmed by the breakdown by geography: sales increase in more solvent regions (USA and Europe), but are stagnating or declining in China and developing countries.
The average price sold during the quarter, iPhone was about $800, and in the pre-quarter it can go up to $1000, considering the price of the new model. Such a result is unattainable for the competitors of Apple among most Chinese manufacturers. In this sense, the failure to disclose the breakdown for the number of sold devices is clear: the basic functions of Apple’s smartphone can be found in cheaper devices of competitors, but a closed ecosystem and brand power make it an advantage.
Second response — focus on segment of services. If you can not sell more iPhones, then you can earn more on post-sales — here is one of the tenets of the new strategy of Apple. Services revenue during the quarter rose 17% to a record $10 billion, i.e. more than a quarter of income from the iPhone. It is logical that Apple will split the results in reports only on two counts: devices and services.
Finally, Apple earns points investors program of dividends and buybacks. For the quarter, the company has returned to investors $23 billion, bringing the program to return capital to nearly $90 billion for the fiscal year.
The company’s efforts did not remain fruitless. Apple this year became the first company in the U.S. with the estimation of capitalization more than $1 trillion. However, whether Apple can stay on this level since the December quarter, is still unknown. The revenue forecast for the Oct-Dec $89—$93 billion came in below analysts ‘ forecasts.
In any case, the January report Apple will be the center of attention of the market. At the General segment of the devices can positively influence the product lines of iPad and Mac, though the company surprised the market by high prices on updated MacBook Air. However, the current report is another signal the transformation of the technology industry, which edition of Wired describes as follows: “farewell, a desire to change the world; Hello, earn on it”.
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