There is no shortage of summaries on Apple earnings, but there are two specific things that struck me I wanted to share.
iPhone SE Irony
While management commentary that the iPhone 11 is the volume seller the surprise, to me at least, was the clarity that the iPhone SE was a significant contributor to iPhone revenue in the quarter, as well as the biggest contribution to the unit volume upside that exceeded nearly every financial analyst’s expectations.
There are several things worth mentioning about the iPhone SE. First, that Tim Cook mentioned the iPhone had seen a return to momentum in switchers from Android to iPhone. This dynamic had not been mentioned in several years, and from nearly every smartphone user survey I see, the switching dynamic had all but gone cold. The poignant observation here is an ironic one.
If you recall, Apple moved smartphone screen sizes larger to compete with the growing market for a larger sized smartphone. Yes, that is still the case, but now that we look at the success of the SE, particularly with Android switchers, is the lack of quality Android offerings in that form-factor. Mostly because the vast majority of Android device competition is in large screen sizes, so it is ironic, somewhat, that Apple sees success in the device form factor many felt they needed to abandon to better compete with Android.
The price point is also key, not just the size. The dollar value for smartphones that cost less than USD 400 is ~$180B, according to IDC. Meaning this price segment alone has the potential to increase Apple’s iPhone total addressable market by 65%. That’s a big upside growth number if Apple continues to play their cards right.
New Users to Mac
The other thing that stood out to me was a statistic I’ve never heard before because I am not sure there was a point in Apple’s history where this was the case. The noted on the earnings call that 3 out of every four buyers of Macs in the quarter were first time Mac owners. Now, this current situation with COVID-19 has been unprecedented for the PC category, so we have to acknowledge that. However, Apple had a bit of luck on their side, announcing updates to the Mac line just before the work-from-home/learn-from-home mandates came down. This put Apple in a great position to be attractive to loads of customers needing to upgrade their PCs due to working or learning from home.
We hope to never be in a situation like this again, but the fact that so many first time Mac buyers came in during this quarter is an interesting signal for Macs as a whole. I’ve long argued the lowest hanging fruit for Apple for market share growth is with Macs. I firmly believe if there were just slightly more price-competitive, they could increase their Mac market share into the high teens if not 20% or so of the market. The upside may very well be much higher, but I err on conservative for the moment.
I make those points because first, that 3 out of 4 Mac buyers being the first time Mac owners in the quarter should scare the PC OEMs. While Mac volume in the quarter was certainly not as strong as the likes of HP or Dell in the US in the consumer channel, Apple’s appeal to new Mac owners is clearly as strong as ever. If we then take current Mac momentum and add to it the potential for Apple Silicon to completely rejuvenate the Mac business, then a growth scenario for Apple’s Mac business seems like a reasonable scenario at this point.
Another factor that could get interesting is if more tech companies enable more remote work if the PC hardware dynamic changes. I do wonder if Macs become more popular for workers to choose as their notebook is if they are working from home more regularly. I have no evidence here, just an interesting shift in workplace dynamics that could benefit Apple.
The bottom line, the Apple growth story is still strong and, it encompasses nearly every business segment they have. Which, given the historical narratives of peak this or peak that, is quite interesting in my opinion.