Apple Looking to Installed Base, Switchers for iPhone Growth After Sequential Falloff
With iPhone 6 and 6 Plus sales coming in at the low end of the forecast range last quarter -- and below analyst expectations -- CEO Tim Cook on Tuesday cited areas of potential iPhone growth. Cook pointed on an earnings call to the installed base of iPhone users who have yet to upgrade, 73 percent, and to the number of users switching from the Android OS, which he called the highest rate to date. Apple sold 47.5 million iPhones last quarter, representing $31.4 billion in revenue, but both units and revenue dropped 22 percent sequentially, said the company’s 8-K SEC filing. Apple shares closed down Wednesday 4.3 percent to $125.14.
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Cook highlighted growth areas for the iPhone, including Western Europe, where Apple grew four times that of the overall market, and Japan, where it grew five times the market. Apple doubled sales in Korea against a shrinking market and grew at 93 percent in India, he said. Despite a slowing economy in China, Apple posted 87 percent growth there during the quarter, against a market that grew 5 percent overall, said Cook. Apple grows its customer base by getting customers switching from another phone, getting people to buy their first smartphone and getting current customers to upgrade, he said.
Cook cited IDC numbers projecting a smartphone market of 1.9 billion units by 2019. “I think everybody's going to own a smartphone, and I think we've proven that we can compete for a fair number of those,” Cook said.
The iPhone 6 Plus' larger screen size helped push up the average selling price of the iPhone by $99, or 18 percent year over year, said Chief Financial Officer Luca Maestri. Revenue for the iPhone was up 59 percent year over year. Maestri said the larger iPhone 6 Plus comes in at a new price point for Apple. Both 6 series models are doing “extremely well” as a percentage of the portfolio, Maestri said, but the larger 6 Plus is doing particularly well in China and other Asian markets.
As promised, Apple didn’t break out the number of Apple Watches it sold in fiscal Q3, but the “Other Products” category that includes Apple Watch, Apple TV, Beats Electronics, iPod and accessories, grew 49 percent in revenue year over year to $2.6 billion, from $1.7 billion in the previous quarter, said the company’s 8-K. The company didn’t break out unit sale comparisons for the category during the quarter, but revenue was up 49 percent year over year to $2.6 billion, and 56 percent sequentially.
Cook attributed Apple’s September decision not to disclose Apple Watch shipments to competitive reasons. He cautioned against assuming that year over year and sequential changes in the “Other Products” category were the total Watch revenue “because the aggregate balance of that category, both sequentially and year over year, is shrinking.” The discontinued iPod is an obvious contributor to the shrinking numbers, but other products in the category are shrinking, too, he said.
Cook said Apple Watch sales exceeded expectations despite the well-documented supply-demand imbalance at the end of the quarter, and he said Watch sell-through was higher than comparable launch periods for the first iPhone and iPad. June Watch sales were higher than April or May -- “very different” from what has been written, he said. Cook said Apple’s objective for the quarter "wasn’t primarily sales” with the Watch but "starting a new category," saying there are already 8,500 apps. The next generation of the Watch OS will bring native apps that will be “killer” for the Watch, he said.
Apple is planning to expand the store channel for the Watch in time for the holiday season, said Cook, who said the company expects the digital timepiece to be “one of the top gifts of the holiday season.” Cook said customer satisfaction is “off the charts” for Apple Watch, a good indicator for future success.
IPad sales in the latest quarter slipped to 10.9 million, down 16 percent sequentially and 23 percent year over year. In Q&A, Cook said he’s “still bullish” on the iPad. He cited productivity improvements coming in iOS 9 including split view, slide over and picture in picture. Enterprise business is picking up for the iPad, he said, and a consumer upgrade cycle “will eventually occur.” Looking at usage statistics, he said, iPad is six times greater than that of the closest competitor. “It's not like people have forgotten iPad or anything,” said Cook, calling it a “fantastic product” with “a lot of runway.”