Gartner: iPhone Sales Suffered Worst Quarterly Decline for Three Years Over 2018 Holiday Period

[Carnegie]

Three indicators of a healthy product:
1. Volume
2. Market share
3. Revenue

Apple has 1 of 3 this year

Those aren't the only 3 indicators. There's, for example, profitability. If a product has to be priced so low that it isn't or is barely profitable in order to sell in desired volumes, that would generally be inconsistent with it being a healthy product. There's also customer satisfaction and retention. There's aspirational status or lack thereof.

But, at any rate, I'd argue Apple had all three. A consideration of market share should take into account the market which is trying to be addressed. Evaluating Ferrari's market share by looking at all vehicles sold would make no sense - or, at least, have little utility if the context was considering product health. Ferrari doesn't even try to address the vast majority of the total vehicle market. It only tries to address a tiny portion of that broader market. If a company builds only washing machines, it would make little sense (when considering its products' health) to look at its market share of all appliances.

Apple doesn't try to address most of the smartphone market. It only tries to address the high-end and part of the middle of that market. Its market share there is, by all accounts, pretty good. Perhaps it should try to address all of the smartphone market. But that assessment is about its business strategy choices, not about the health of the products it chooses to offer.

Apple also still had very good volume this past quarter, especially considering what I just talked about - that it doesn't even try to address much of the smartphone market. What company does more volume in the premium smartphone market than Apple? What company is even close?

 

[LordVic]

Come on, nobody going to spring and call out Samsung for the essentially $2000 Samsung Galaxy Fold? I mean they sprung WAY past $999 and decided to go for $2k!

There's a significant difference between the devices to account for the cost. I think $2000 is ridiculous as well, but the technology, low volume expectations and near "prototype" status makes sense.

you also get significantly more "STUFF" in the Fold than the iPhone by sheer nature of the new tech. more, newer screen tech. in addition to the 2nd display. the foldable hinge and tech, plus anything else under the hood.

this is what I've been saying all along though. if you want to charge an arm and a leg for your product in a mature market, you need differentiation that makes the above and beyond cost worth while. Samsung is attempting that with the Fold. Apple is attempting that with the iPhone that hasn't seen any real differentiation factor for a while. This context should be enough to understand why one could say the iPhone feels overpriced and of poor value while some (not me though) think $2k for the Fold is more appropriate.

 

[andrewdon]

I'm still living with a 6 plus. Apple's pricing is obscene. Here in Cape Town, a new phone is equivalent to 3 months salary for the average worker. Sorry Apple, no way a little Brick of glass and silicon is worth 120 hours of my life.

 

[LordVic]

Those aren't the only 3 indicators. There's, for example, profitability. If a product has to be priced so low that it isn't or is barely profitable in order to sell in desired volumes, that would generally be inconsistent with it being a healthy product. There's also customer satisfaction and retention. There's aspirational status or lack thereof.

But, at any rate, I'd argue Apple had all three. A consideration of market share should take into account the market which is trying to be addressed. Evaluating Ferrari's market share by looking at all vehicles sold would make no sense - or, at least, have little utility if the context was considering product health. Ferrari doesn't even try to address the vast majority of the total vehicle market. It only tries to address a tiny portion of that broader market. If a company builds only washing machines, it would make little sense (when considering its products' health) to look at its market share of all appliances.

Apple doesn't try to address most of the smartphone market. It only tries to address the high-end and part of the middle of that market. Its market share there is, by all accounts, pretty good. Perhaps it should try to address all of the smartphone market. But that assessment is about its business strategy choices, not about the health of the products it chooses to offer.

Apple also still had very good volume this past quarter, especially considering what I just talked about - that it doesn't even try to address much of the smartphone market. What company does more volume in the premium smartphone market than Apple? What company is even close?

That's the thing I have question about with the direction of Apple.

you have Cook coming out and saying "WE'RE SERVICES, we're transitioning to services, look at how big our services will grow!".. but at the same time he seems willing to bleed some market share and user numbers by massively pricing the iPhone.

This could signal two things to me (and I could be wrong as an armchair ceo), that there's going to be a greater push to break the walls of the Apple Ecosystem down and allowing more of Apple's services to be cross platform (so far we see a bit of this with AirPlay going to TVs, though, still not sold that this is enough). But we're not seeing that same mentality on other products. Apple Music's Android App is far inferior to the way it works on iPhones. iTunes requirement on desktop is a turn off for others. the HomePod is Apple music / Airplay only. iCloud is apple device only.

Or, Apple is perfectly willing to bleed jsome market share to remain a "high end luxury" vendor of phones. But by doing this, you decrease your share and you run the risk of everything else in your portfolio losing some potential volume as well. Which means services for those phones will likely also need it's price to increase to remain a growth sector.

Either way, i don't think EITHER method will truly keep growth going in perpetual. I think the better options will be slightly lower profits today, growth of the market share, and getting as many devices in peoples hands for product and services growth. if we look historically at virtually every tech sector, this has been the winning strategy. We have even seen many companies willingly take losses on hardware to sell services/software (Xbox 360/PS3 for example were sold at a loss for nearly 1-2 years, with most of the prifts/money coming from software/services)

Either way, we are seeing a company at the top who has to pivot/adjust to changing market and it's a very interesting thing to watch from the outside.

 

[Tiger8]

Those aren't the only 3 indicators. There's, for example, profitability. If a product has to be priced so low that it isn't or is barely profitable in order to sell in desired volumes, that would generally be inconsistent with it being a healthy product. There's also customer satisfaction and retention. There's aspirational status or lack thereof.

But, at any rate, I'd argue Apple had all three. A consideration of market share should take into account the market which is trying to be addressed. Evaluating Ferrari's market share by looking at all vehicles sold would make no sense - or, at least, have little utility if the context was considering product health. Ferrari doesn't even try to address the vast majority of the total vehicle market. It only tries to address a tiny portion of that broader market. If a company builds only washing machines, it would make little sense (when considering its products' health) to look at its market share of all appliances.

Apple doesn't try to address most of the smartphone market. It only tries to address the high-end and part of the middle of that market. Its market share there is, by all accounts, pretty good. Perhaps it should try to address all of the smartphone market. But that assessment is about its business strategy choices, not about the health of the products it chooses to offer.

Apple also still had very good volume this past quarter, especially considering what I just talked about - that it doesn't even try to address much of the smartphone market. What company does more volume in the premium smartphone market than Apple? What company is even close?

Thank you for this, you raise very good points! While I agree with most of what you said, and I still think Apple is a healthy profitable company with years to go, I want to point out a couple of things:
1. In terms of customer satisfaction, big part of that is customers feeling they get their money worth. The market has spoken loudly that they feel Apple products are overpriced, something they themselves are trying to address by offering very generous trade in value for older phones when you buy a new one.
2. You raise very good points about Ferrari, however, I cautioned that the smartphone market is very different than the vehicle market. Unless I win the lottery, I won't replace a Honda with a Ferrari, maybe I'll go up to a Lexus, if I feel like splurging. Similarly, someone who has a Ferrari will not replace it with A Honda. With smart phone market however, the lines between high medium and low are blurring, the difference between a Xs max and the almost half priced Xr are minimal, and the distinction is even less in the android world.
3. Apple losing its final entry in the lower end (aka SE) is not a good thing. Most companies use the lower entry as a brand loyalty builder. So the kids that got an affordable Samsung in high school are more likely to buy a galaxy in college, and go for a galaxy note when they graduate and start making their own money. It's a long term strategy that Apple is missing on

 

[antonrg]

Here in France the price is ridiculous for an average middle class worker. XR starts at 855,28 € while Xs starts at 1155,28 € and XsMax starts at 1255,28 €.

Yes, it's possible to buy it, but from what I see around me, majority chooses the 7,8 or the XR and the latter is usually on a plan. I personally did not feel comfortable with Face ID and the bigger form factor of X-models, so I upgraded to the 8 from my 3-year old 6s. Before the 6s, I upgraded every year since 2008. I'd continue using the phone longer had it not been a cracked screen that Apple wanted to charge me 171,10 € for replacement.

The new S10 has already outdone the iPhone on all the price levels and it comes with the free buds. I have no confidence in Cook's direction anymore. I am stuck in their ecosystem, but I am starting to consider other options for the future.

 

[TTTedP]

This is the first Samsung keynote I have watched. The lack of crowd enthusiasm was cringeworthy but I for one enjoyed seeing everything they are offering. Same-sung gets their nickname for a reason but I think they are on to something by mimicking Apple. You have a whole group of discontented Apple users looking for an alternate. Yes, Samsung charges $1000 for their phones as well - but you get healthy trade in values, more choice and a bunch of freebies.

 

[I7guy]

Thank you for this, you raise very good points! While I agree with most of what you said, and I still think Apple is a healthy profitable company with years to go, I want to point out a couple of things:
1. In terms of customer satisfaction, big part of that is customers feeling they get their money worth. The market has spoken loudly that they feel Apple products are overpriced, something they themselves are trying to address by offering very generous trade in value for older phones when you buy a new one...

I feel I get my money’s worth from Apple products.(it’s a good thing because I do t want to go android). It’s hard to reconcile $84B of revenue in a quarter with people feeling Apple products are overpriced, especially given last years blockbuster sales of the X. I picked up a max on impulse and while I wasn’t happy with the price I’m happy with the phone. Next year will get an iPhone xi and give my wife a hand me down.

Will be interesting to see how Samsung fares in the over $1K phone space.

 

[CEmajr]

Fully content with my 8 plus. No interest in a $1000+ phone with no Touch ID. In the US I suspect Apple is sufffering mostly from the older iPhones being ‘good enough’ for most people.

 

[9081094]

It’s amazing to me that selling 64 million devices in one quarter is considered to be a problem.

It’s a problem when you sell almost 10 million phones less than the year before while your competitors are growing. No surprise here for me. With Apple’s pace of innovation and price increases, it’s almost dumb to buy an iPhone.

 

[I7guy]

It’s a problem when you sell almost 10 million phones less than the year before while your competitors are growing. No surprise here for me. With Apple’s pace of innovation and price increases, it’s almost dumb to buy an iPhone.

What’s surprising is the $84B Apple pulled in last quarter, which shows they are transitioning from pure hardware iPhone sales. The competitors (whoever they are) are only growing market share, not profits.

 

[Peperino]

How would you think Gartner backed into 4q/2018 units?
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We will see how the above $999 Galaxy line sells and where it sells.

I agree with both.
Apple is sitting in their hands in terms of innovation in the entire product line, not just iPhones, courtesy of Tim Cook.

Though I also agree that phones above 1,000 will not sell as good, and become a luxury item.
If you think, the new foldable Galaxy for $1,990 for that price I can buy an iPhone Xr and an iPad Pro and still have spare money.
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What’s surprising is the $84B Apple pulled in last quarter, which shows they are transitioning from pure hardware iPhone sales. The competitors (whoever they are) are only growing market share, not profits.

What you are doing is giving lame excuses for Apple lack of innovation and obscene prices. That is the only reason sales are going down. And not just for iPhones but for computers as well. It is Not the shift into services.

As someone mentioned before, it used to be in the old days that each upgrade the cost of the phone stayed the same, but the technology got significantly better.
These days, the prices get significantly higher, and the technology of the phone is only incremental.
Apple could have just not be that greedy and gain more market share, which eventually would have been even better for the services, but Tim Cook greed and lack of innovation just got in the way.

 

[I7guy]

I agree with both.
Apple is sitting in their hands in terms of innovation in the entire product line, not just iPhones, courtesy of Tim Cook.

Though I also agree that phones above 1,000 will not sell as good, and become a luxury item.
If you think, the new foldable Galaxy for $1,990 for that price I can buy an iPhone Xr and an iPad Pro and still have spare money.
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What you are doing is giving lame excuses for Apple lack of innovation and obscene prices. That is the only reason sales are going down. And not just for iPhones but for computers as well. It is Not the shift into services.

As someone mentioned before, it used to be in the old days that each upgrade the cost of the phone stayed the same, but the technology got significantly better.
These days, the prices get significantly higher, and the technology of the phone is only incremental.
Apple could have just not be that greedy and gain more market share, which eventually would have been even better for the services, but Tim Cook greed and lack of innovation just got in the way.

In the old days, the phones were subsidized. Used to be buy an iphone for $300 and extended your contract for two years. If you look at the msrp of iphones through the 5s, they are shockingly high. The Max almost seems like bargain, but I don't agree the tech over the 8+ is incremental. (Of course everything is incremental depending on how big your increment is).

I also do not agree with the lack of innovation. To each their own on their personal yardstick of what constistutes innovation.

 

[Roadstar]

In the old days, the phones were subsidized. Used to be buy an iphone for $300 and extended your contract for two years. If you look at the msrp of iphones through the 5s, they are shockingly high. The Max almost seems like bargain, but I don't agree the tech over the 8+ is incremental. (Of course everything is incremental depending on how big your increment is).

The Max is anything but bargain.
We never had subsidized iPhones here but paid the full price either straight away or in instalments, and the cheapest Xs is more than twice the amount I paid for the best 3GS. The best Max is more than thrice as much.

 

[Nuvi]

Apple needs to lower the prices of the XS and XS Max by at least 300 euro in Europe. A possible 100 euro price drop isn't going to cut it. And even at that price point they're moderatly competitive compared to other brands. If you look outside west Europe, the price of an iPhone is a month's wage or sometimes even more.

Paying close to 1500€ for iPhone XS Max doesn’t make much sense. In reality it’s closest comptitor is either the high end 5G Galaxy or that fold thingy from Samsung. It’s unfortunate but Apple has lost most of European market to Android. My only problem is that sooner or later developers will shift their main efforts towards Android. When I can’t get the apps I need then iOS has lost me. That’s hard since I truly hate Google...

 

[antonrg]

Paying close to 1500€ for iPhone XS Max doesn’t make much sense. In reality it’s closest comptitor is either the high end 5G Galaxy or that fold than thingy from Samsung. It’s unfortunate but Apple has lost most of European market to Android. My only problem is that sooner or later developers will shift their main efforts towards Android. When I can’t get the apps I need then iOS has lost me. That’s hard since I truly hate Google...

I am the exact same position with the apps and Google. Also, I have to add that Android definitely made huge leaps here in Europe. All is see is Huawei, Samsung, Mi and other Android devices.

There are not that many X-series in the wild in France. Majority still uses 6,7,8, and their Plus models.

 

[chatin]

Apple made some outrageous mistakes with the X-designed iPhones. Customers told Apple what they needed to seal the deal and Apple ignored them completely.

 

[Nuvi]

Those aren't the only 3 indicators. There's, for example, profitability. If a product has to be priced so low that it isn't or is barely profitable in order to sell in desired volumes, that would generally be inconsistent with it being a healthy product. There's also customer satisfaction and retention. There's aspirational status or lack thereof.

But, at any rate, I'd argue Apple had all three. A consideration of market share should take into account the market which is trying to be addressed. Evaluating Ferrari's market share by looking at all vehicles sold would make no sense - or, at least, have little utility if the context was considering product health. Ferrari doesn't even try to address the vast majority of the total vehicle market. It only tries to address a tiny portion of that broader market. If a company builds only washing machines, it would make little sense (when considering its products' health) to look at its market share of all appliances.

Apple doesn't try to address most of the smartphone market. It only tries to address the high-end and part of the middle of that market. Its market share there is, by all accounts, pretty good. Perhaps it should try to address all of the smartphone market. But that assessment is about its business strategy choices, not about the health of the products it chooses to offer.

Apple also still had very good volume this past quarter, especially considering what I just talked about - that it doesn't even try to address much of the smartphone market. What company does more volume in the premium smartphone market than Apple? What company is even close?

Sorry mate but smart phones are not some luxury products like high end cars and therefore can’t be compared to something like Ferrari. Even more so, Ferrari is ownened by Fiat which has products and brands for every user segment. In any case, smart phones need integration to greater infrastructure, be it services from the operator or apps from the developer. The fact is that in all of Europe Apple has lost market share to Android and that matters because operators prioritise Android compatibility in many cases. Lost market share will also matter to developers since most of the potential users are using Android platform so eventual it will have the priority. Cars like Ferrari can drive the same roads as common Ford but iOS can’t use the Android app infrastructure. In reality this is all that matters.

Regarding challengers in high end market, you have the Galaxy line from Samsung. The problem that Apple has in Europe is the fact that kids don’t even want iPhone. They want Android since they view iPhone as “old people’s device”. This will be huge problem in the future.

 

[anthogag]

What about Apple's total debt which is 114 Billion?
Why doesn't that count?

Apple having a $114 billion debt, where did you get this information? Apple has been making healthy profits every year. If they have a debt it would be paid-off.
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SHAREholders own a SHARE of Apple (all of its assets, cash and debt)

I don't know exactly what kind of arrangement Apple has with its shareholders but agreements vary. I would guess Apple shareholders get dividends and perhaps voting rights if there is some kind of company issue to vote on. Otherwise shareholders expect Apple to run a profitable company and Apple decides how they manage the cash pile. I believe the only way a shareholder can cash-in is to sell his/her stocks.
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Gartner could have used independent estimating techniques similar to what they do for other companies which hadn't been providing unit numbers. I'm not sure what those techniques are.

But I suspect they started with what we do know from Apple's reporting and guesstimated some things. We know that iPhone ASP was down YoY, and we know that it was $790 (using new accounting methods) in the year-ago quarter. So, if we used $760 as the iPhone ASP, and based on $51.982 billion in iPhone revenue, we'd get 68.4 million units.

But that's sell-in, and Gartner is estimating sell-though. So we'd still need to guesstimate channel build. In the year-ago quarter it as 4.2 million which was historically high. That year-go quarter had a new model (i.e. the X) released in the middle of the quarter putting all of its initial channel build in the quarter, something similar happened this year with the XR. So a similar channel build - say, 4.0 million - would make sell-through 64.4 million and Gartner says 64.5 million.

I'd note that Apple's reporting quarters don't line up with actual calendar quarters, but the effect of that in this case likely wouldn't be large. The reported quarter for Apple is a day shorter than the actual calendar quarter.
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The Canadian Apple website shows a price for the base iPhone XS of 1,379 CAD. That would be about 1,040 USD. So that model could feasibly be priced at 1,000 USD instead, that would only be around a 4% decrease. If you mean 1,000 CAD, that would - even if we assume the Canadian base iPhone XS's gross margin is well above average for iPhones (say, 50%) - slash its gross profit per unit by more than half and mean that Apple would need to sell more than twice as many units in order to generate the same gross profit.

The cost-to-make numbers we often see floated for iPhones don't make sense. They typically can't, based on what Apple reports, be right. The aggregate iPhone gross margin this past quarter was, at most, about 40%.

Right, I paid around $1,400 CDN for my Xs. And I meant $1,000 CDN. Right, Apple would have to sell many more units and perhaps they would if the newest iPhone is $1,000 instead of $1,400. Apple is talking about service revenue increasing every year and service revenue is surely tied to number of devices.

 

[Nuvi]

What about Apple's total debt which is 114 Billion?
Why doesn't that count?

Let’s put it this way, if you have money you want debt because interest is tax deductible and allows better strategic control of your total assets. Apple could pay off their debt but it would be poor financial decision.

 

[anthogag]

Let’s put it this way, if you have money you want debt because interest is tax deductible and allows better strategic control of your total assets. Apple could pay off their debt but it would be poor financial decision.

This is ludicrous. Apple may want some debt if interest is "tax deductible" but interest paid on the debt is most likely more than potential tax savings.

 

[Baymowe335]

Thank you for this, you raise very good points! While I agree with most of what you said, and I still think Apple is a healthy profitable company with years to go, I want to point out a couple of things:
1. In terms of customer satisfaction, big part of that is customers feeling they get their money worth. The market has spoken loudly that they feel Apple products are overpriced, something they themselves are trying to address by offering very generous trade in value for older phones when you buy a new one.
2. You raise very good points about Ferrari, however, I cautioned that the smartphone market is very different than the vehicle market. Unless I win the lottery, I won't replace a Honda with a Ferrari, maybe I'll go up to a Lexus, if I feel like splurging. Similarly, someone who has a Ferrari will not replace it with A Honda. With smart phone market however, the lines between high medium and low are blurring, the difference between a Xs max and the almost half priced Xr are minimal, and the distinction is even less in the android world.
3. Apple losing its final entry in the lower end (aka SE) is not a good thing. Most companies use the lower entry as a brand loyalty builder. So the kids that got an affordable Samsung in high school are more likely to buy a galaxy in college, and go for a galaxy note when they graduate and start making their own money. It's a long term strategy that Apple is missing on

Every financial metric indicates customers are more than willing to spend money on Apple products.

Without the struggle in China, Apple sets a new revenue record and blows away profit.

Global business is hard and many other companies blamed a China for lowered guidance and/revenue.

You can’t look at the $84B number objectively and say Apple is struggling. Yes, it was lower than $88.1B last year, but China was more than 100% of that difference.

US, Europe, Canada, Korea, Netherlands, and several other markets set revenue records.

Apple is addressing the issues in China, but to say consumers have voted against Apple is just a incorrect generalization of the reality.

Even if the struggle were more widespread than China (it wasn’t) I don’t think $84B in revenue and $20B in profit in a 90 day period is where you want to look to support the “voting with their wallet” argument, because you’d just be supporting that people love Apple products. Apple only looked slightly weaker because of their y/y compares, but the number on its own is staggering.

Be critical of their strategy in China or their execution. But the overall numbers? Come on.

With $20B in net income in Q1, Apple made more profit in 90 days than every company in the world in 2018 besides Microsoft, Google, and Berkshire Hathaway. And even those companies still made under $25B in profit for the year.

 

[ipponrg]

Every financial metric indicates customers are more than willing to spend money on Apple products.

Clearly, I’m sure no one has hesitated in purchasing Apple products due to pricing.

 

[dazed]

I’m going to keep my 8 plus till it falls apart. I chose it over the X and see nothing in the current slate of phones that make me want to change it.

 

[9081094]

What’s surprising is the $84B Apple pulled in last quarter, which shows they are transitioning from pure hardware iPhone sales. The competitors (whoever they are) are only growing market share, not profits.

See the phones getting introduced next week and see how far Apple is getting behind. Those are the competitors. And as the ancient iPhone 8 is similar priced over here than the newly Samsung s10 with air buds included, it’s not hard to see that iPhone sales will take another hit.
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In the old days, the phones were subsidized. Used to be buy an iphone for $300 and extended your contract for two years. If you look at the msrp of iphones through the 5s, they are shockingly high. The Max almost seems like bargain, but I don't agree the tech over the 8+ is incremental. (Of course everything is incremental depending on how big your increment is).

I also do not agree with the lack of innovation. To each their own on their personal yardstick of what constistutes innovation.

So how do you explain the new galaxy S10 with free air buds is only € 4,- a month more expensive than the ancient regular iPhone 8 over here?

Pure greed from Timmy ruins the business.