News You might have missed: Week of November 2nd, 2017

Apple Earnings

On Thursday, Apple announced financial results for its fiscal 2017 fourth quarter ended September 30, 2017. The Company posted quarterly revenue of $52.6 billion, an increase of 12 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.07, up 24 percent. International sales accounted for 62 percent of the quarter’s revenue.

Via Apple 

  • Every part of the Apple business recorded a growth this quarter
  • iPhone sales came in at 46.7 million – higher than Wall Street expected. Greater China, after struggling for a few quarters, returned to growth in the September quarter
  • During the earnings call, Tim Cook highlighted that iPhone 8 and 8 Plus became the best-sold models in the lineup. Although some people have expressed concerns about these two new models for lacking enough differentiation over the iPhone 7 and 7 Plus, I was expecting the mix of buyers in the first week to skew more early adopters and therefore favor the new models. In the quarters to come, as more mainstream consumers will look to upgrade older models I am expecting the iPhone 7 and 7 Plus to gain some more traction due to their price advantage.
  • iPhone ASP was flat year on year which should not be a surprise given the new iPhone models only had one week in the quarter to make an impact
  • We did not get any details on what kind of mix Apple is prepping for, but Cook stated several times that they are very bullish about iPhone X. Such a statement would indicate that they are also somewhat confident they can meet demand. Today some buyers reported changes in the shipping dates for iPhone X from December to earlier dates which would indicate that supply is getting better already. something similar happened when AirPods first started shipping and were in short supply.
  • Apple sold 10.3 million iPads in the quarter, up 11% YoY for the second consecutive quarter with double-digit growth. Quoting NPD research, Apple stated a market share in the US of 54% up from 47% in 2016. There is really no competition for Apple in the tablet business
  • The question for Apple is can they be successful in positioning the iPad Pro as a Mac and or PC alternative? This I think is still a work in progress and while early tech adopters are sold on it other buyers, including millennials still need convincing.
  • Mac had its best year ever, with the highest annual Mac revenue in Apple’s history. Mac also had the best September quarter ever, with sales of 5.4 million and revenue growth up 25%. This is at a time when the overall PC market is at a 1% growth.
  • Q4 represents an all-time record quarter for Mac sales in mainland China.
  • Apple Watch grew more than 50% and I would expect sales to be strong in Q4 as well given the highly gift-able nature of Apple Watch. I also expect AirPods to be popular over the holidays and this item is counted under wearables.

Lenovo buys Majority Stake in Fujitsu’s PC Business

On Thursday, after long speculations, Lenovo announced they took control of 51% of Fujitsu Client Computing Limited (“FCCL”). A joint venture was created between Lenovo, Fujitsu and Development Bank of Japan Inc., which now controls 5% of FCCL. The transaction is expected to be closed in 1Q FY2018. After the JV is established, FCCL products will continue to be distributed and sold under the Fujitsu brand name. Fujitsu will continue to serve corporate customers worldwide directly or indirectly through its valued channel partner network and provide the related after-sales support and services. FCCL will serve the consumer market in Japan either directly or indirectly through mass retailers and provide product support and services.

Via Lenovo 

  • Fujitsu has been trying to sell its PC business for years now. The deal with Lenovo was first rumored in 2016 and then again in June this year.
  • In the past, Fujitsu had also been in talks with Toshiba and Vaio to merge their three brands after Sony span off its PC business but negotiations failed to materialize in a deal
  • Although the release focuses on boosting World Wide and Japanese PC sales and Lenovo being very keen to regain its top spot in the worldwide PC ranking, I am skeptical this will actually be the outcome considering that the Fujitsu brand has not really been a top global player for years. Of course accounting for Fujitsu’s sales under the Lenovo brand will immediately boost market share but this does not mean that the actual business will benefit
  • The deal will result in a restructuring that will result in up to 3200 job losses and will likely see the Fujitsu business focus its resources into its IT services which is doing well.
  • Lenovo made the announcement during its earnings call when it also said that its global PC unit shipments rebounded 17 percent from the previous quarter but its PC market share over six months dropped 0.2 percentage point to 21 percent. Lenovo also warned market conditions would remain challenging in the short term, but said component costs would likely stabilize
  • It seems clearer and clearer that the PC business is Lenovo top priority over mobile. The Motorola acquisition brought no gains for Lenovo both in its China home market and worldwide.
  • For this, I blame a lack of clarity and focus not a lack of good products. Lack of big marketing budget makes it hard for Motorola to compete in markets like the US. Confusion in branding strategy changing from Motorola to Moto and then back to Motorola does not help either.
  • Mostly, however, it has been disappointing to see how very little synergy there is between the PC and the mobile business. While I understand some of it is necessary as Motorola remains a self-standing entity, there is certainly more that could be done especially when it comes to the enterprise business where Lenovo has a strong channel presence.
  • Sadly I see many similar signs to the Microsoft/Nokia acquisition with the mobile company being seen as a mistake and left to shrivel up to eventually be killed.

Published by

Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

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