Can Apple Sustain Its iPhone Mojo?
Could it be that a smartphone, long in the tooth and approaching the end of its flagship life cycle, actually outsold a brand new model by a fearsome rival?
That was the question Apple investors asked after a recent survey of global customers revealed Apple’s iPhone 5s, launched last September, outsold the latest high-end phone from Samsung, the Galaxy S5, in May, just a month after its splashy debut.
When Apple reports its June quarter earnings on Tuesday after the market closes, investors will finally get a definitive answer. Once again, questions around the product responsible for 57 percent of Apple sales — how well it sold last quarter and what Apple has in store in the next version — will dominate attention.
Perhaps more so than at any other time in recent memory, the iPhone business faces threats in a market it has defined. It faces incursions from low-cost Chinese makers such as Xiaomi, from longtime rival Samsung as well as other Android makers backed by Google, and even from Amazon, whose Fire phone was designed to build a deeper moat around the e-commerce giant’s customers.
And yet, for now, the iPhone has been holding strong. Analysts estimate Apple sold approximately 35 million iPhones in the third quarter — significantly higher than the 31.2 million units sold in the same period a year ago. Its strength in the high end of the market comes at a time when Samsung warned that its operating profit would fall to a two-year low in the second quarter on slower smartphone and tablet sales.
Also worth watching will be iPad sales, especially after last quarter’s numbers fell short of estimates — something Apple blamed in part on its efforts to manage inventory. Tablet growth has been slowing, but there are at least some indications that Apple may be faring better than the competition.
Online ad network Chitika says that iPad usage numbers show Apple’s tablet gaining share from the prior quarter — the first sequential gain in a year. Chitika noted Apple’s heavy efforts in the education market and the iPad’s return to Costco as among the factors that may have helped the tablet gain market share.
That said, most analysts are projecting iPad sales of around 14 million or 15 million, a further drop from the 16.4 million shipped in the prior quarter.
Apple declined comment, but the earnings results should speak loudly as to just how well Apple has managed to deal with the challenges that Samsung faces.
The company told investors to expect $36 billion to $38 billion in revenue for its third quarter, with the consensus being that Apple may have slightly exceeded the high end of that range. Analysts expect per-share earnings of $1.23, a gain of roughly 15 percent from a year ago.
As important as anything Apple says about the past quarter will be what it says about the future, both explicitly as well as implicitly through its financial outlook.
While Apple is unlikely to give an exact date for any new iPhone, its guidance for the current quarter — which runs through September — could offer some clues.
The current quarter is typically a lull for iPhone sales as customers hold out for the new model that is widely expected to be announced in September. That’s likely to be the case this year as well.
Anticipation is certainly high, especially after surprising statements by Apple Senior VP Eddy Cue, who said at our Code Conference that Apple has the best product pipeline in his 25 years at the company.
Though it has made moves that would have been unheard of in a different era — the purchase of Beats Electronics as well as last week’s pact with longtime enemy IBM to sell iPhones and iPads into businesses — Cue’s declaration has been hyperbole so far. The company has shown little more than a lower-cost iMac and a speed-bumped MacBook Air.
And Apple badly needs some new areas of growth. Even though iPhone sales have remained strong, that segment of the market is seen growing far more slowly in the coming years.
Investors have been buying up the company’s shares in anticipation of its entry into new product categories.
The stock is up more than 25 percent since Apple’s March quarter, buoyed by, among other things, a June developer conference in which the company laid the groundwork for its moves into new areas such as health care, wearable computing and home automation.
And even if, historically, Apple hasn’t focused on short-term share price, what is clear is that to maintain its dominant position, Apple will need to both find new markets and redefine the ones it is in.