Apple had the kind of quarter companies long for. The established new record number of sales in iPhones and iPads and had the best of any technology company. Yet the iPhone sales will remain a focal point for most. While Apple sold 51 million iPhones, more than any other previous quarter, that number was a bit short of most estimates. The reason for this is an important one to understand.
Much of it had to do with the US market. Carriers moved to a 24 month upgrade cycle from a 20 month. The implications on this were speculated but what I believe it resulted in was an even longer extension of the phone life cycle. We saw a little bit of this with Verizon’s recent revealing that their fourth quarter smartphone activations declined in 2013 vs. 2014 1 million units. Verizon has a significant number of consumers on their network that fall into the late majority and laggard category of consumers. These consumers upgrade more on a need vs. want basis. Up until recently the mobile phone category in general (not just smartphones) has continually kept pace with the 20-24 month cycle. One of the things we believe we are seeing is the lifecycle extension of smartphones in the US. So many late adopters who have come into the market the past few years may impact the annual cycles more than some realize. This will be a key thing to watch.
The 5s turned out to be the hot ticket item and it was wise for Apple to re-shuffle the manufacturing mix. One wonders how many iPhones they would have sold if the mix was anticipated correctly from the beginning and Apple was not supply constrained with the 5s.
Ultimately Apple lost smartphone share in the global market. Apple is now the second company besides Samsung to to ship 50 million units in a quarter. However, Apple did it with a much more focused lineup and a much higher margin. Both impressive feats in my opinion. However, Apple’s market share of the global smartphone market is now 15% which is down from 20% in 2012. This is a key growth statistic to watch. The iPhone needs to remain a growth business and Apple must focus on grabbing new land (like China to do this.) I estimate Apple to grow market share in 2014 perhaps back to and even beyond their previous 20% of 2012.
The Mac did well in Q4 which is impressive given how poor the PC category is doing and has done. I maintain the Mac remains a growth story for Apple over the next few years. Macs are now nearly 7% of the global PC install base and this percentage will be a key area to watch.
The iPad remains a bright spot and given seasonal trends of the PC industry are shifting to the tablet category this is of no surprise. The iPad represented 31% of the total PC sales for Q4. While the iPad may not be considered a PC that statistic reveals the volume of the iPad compared to the PC. A further point is that the iPad’s 26 million sales was more volume than any PC vendor shipped of all their PCs in Q4. Lenovo who shipped the most PCs in Q4 shipped 14 million PCs.
I stick to my growth story points for Apple in 2014 as key narratives to watch. I appreciate and understand the desire for Apple to start to add new segments or categories to add further revenue growth but also highlight the reality that there is still ground to gain in every category they currently compete.
The wording Apple executives choose to emphasize ultimately underscore the priorities. They spent time talking about iOS usage share, customer satisfaction, loyalty rates and even discussed their ecosystems momentum in commercial accounts. All are designed to highlight that Apple has confidence that once people get into their ecosystem they rarely leave. This is key as we grasp the global growth story still ahead for the technology industry and Apple’s role in it.