Apple Earnings Review: iPhone’s Stellar Performance

Weeteck_looAnalyst Insight by Wee Tek Loo – Head of Consumer Electronics Research

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Apple Inc has announced the financial results for its fourth quarter (ending 27 September 2014), where the company posted quarterly revenue of US$42.1 billion and net profit of US$8.5 billion. Apple also provided a bullish guidance for its fiscal 2015 first quarter results.

iPhone – stellar performance amidst China’s woes

In this quarter, Apple reported that it sold 39.3 million iPhones, of which 10 million were new iPhone 6 phones, sold in the first three days of sales.  Euromonitor International expects the new iPhone 6 and iPhone 6 Plus phones to propel the company’s sales to more than 181 million units in 2015, a staggering 9% growth over 2014.

China is the world’s largest smartphone market, with close to 30% of all smartphone global sales in 2014 coming from the Middle Kingdom. Critically, China Mobile, the world’s largest telco, is selling iPhones to its 288 million mobile subscribers, of which 41 million are on the high speed 4G. That said, Apple faces an uphill battle in China with local manufacturers like Lenovo, ZTE and XiaoMi and Apple’s global foe, Samsung currently dominating. China remains a key market to help drive future growth for Apple, with sales of its iPhone range expected to exceed 20 million units in 2015 and in particular, where demand for larger screens phones is rising fast.

iPad – disappointing

Sales of iPad were down 13% compared to last year’s fourth quarter sales, to 12.3 million. Despite refreshing its iPad line up last week, Euromonitor International forecasts a slight decline of 1% in 2015. Larger screen smartphones are cannibalising iPad Mini sales and the larger iPad Air 2 is not positioned as a laptop replacement. Apple also revealed during its third quarter financial results call that two-thirds of people registering an iPad in the last six months are new users. Essentially, this means that existing iPad users are happy with their current iPads and are keeping their iPads for a longer time. Consequently, sales of tablets are projected to remain relatively flat from 2016, after years of historic double-digit growth.

Mac – a pleasant surprise

Mac sales hit 5.5 million units in the fourth fiscal quarter for 2014, a sharp 25% increase compared to the previous quarter. This is consistent with an opinion piece written in November 2013 where Euromonitor International commented that its Global Consumer Trends survey showed that personal computers are the most common device used by consumers and used almost at least once daily by all who own one. This includes consumers with tablets who continue to leverage on the wider features provided by desktops and laptops.

Diluting the brand

Despite a strong last quarter and a bullish fiscal 2015 first quarter outlook, Apple faces a major dilemma moving forward. Its core products are maturing and as a result, Apple’s SKUs have more than doubled in the past few years in order to fuel growth. iPhone 6 Plus is targeted at consumers who prefers “phablet” and iPad Minis and iPhone 5C are designed for consumers who prefer smaller screens and lower prices. Apple risks losing its logistical efficiencies and diluting its brand name. Staff on the retail floor will be spread thin, with a larger array of products, and customers could be overwhelmed by this diversity, not commonly associated with Apple.

Apple has to ensure that its customers continue to think and feel they are still buying exclusivity in order to command a price premium over its competitors – a strategy it has successfully employed until now. Failing which, Lenovo, XiaoMi and Samsung are waiting in the wings and could wrest Apple fans away.


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