Bidness Etc

Bidness Etc sheds light on the new iPhone 6s and whether it will help Apple in sustaining iPhone growth

Apple Inc. (AAPL) stock has slid a surprising 16%, since the tech giant unveiled its third quarter of fiscal year 2015 earnings, in July. It outstripped the Street’s estimates in the quarterly results, but fell short of the consensus iPhone shipment predictions. Not disclosing Apple Watch sales and providing light fourth quarter (4Q) guidance sparked a huge sell-off.

Bearish Outlook

Previous articles have outlined the problems associated with Apple’s overreliance on the iPhone. The bearish outlook reflected those quarterly results, combined with the ongoing economic problems in China. There is more to digest with the launch of the new iPhone 6s.

The phone launched at an official event on September 9. It features 3D Touch, a 12 megapixel back camera and an upgraded A9 processor. Last week, CEO, Tim Cook, announced iPhone 6s and 6s Plus sales of 13 million, in its first weekend, beating the 10 million shipments of its predecessor’s (iPhone 6 and 6 Plus) opening weekend. The number even exceeded the Street’s expectation of 12–13 million units.

It’s Good, But…

While this does provide for a 30% year-over-year (YoY) growth in iPhone shipments, there are other factors to bear in mind.

Firstly, this was the first time the company introduced China as a launch country. This status stems from its posting the largest revenue growth (112%) in the last quarter. China is now believed to be the biggest smartphone market after the US. Last year, the iPhone launched in China a week after the US.

Secondly, the introduction of the iPhone Upgrade program allows individuals to buy an unlocked iPhone 6s, paying for it in installments spread over two years. Users can opt to exchange the device with a new one, a year after purchase. This played a significant role, tempting consumers to sign up for the program to exchange the device in the next refresh cycle.

These two factors were instrumental in pushing up initial weekend sales of the iPhone 6s and 6s Plus. Without their contribution, iPhone shipment growth could have been flat.

What Apple Didn’t Say

Apple didn’t announce the pre-order numbers in the first 24-hours after the launch, reversing its previous practice. Pre-orders are a good gauge of the level of demand, providing insight into the device’s performance. Given that opening weekend sales are realized on phones that have been supplied, it is difficult to predict the level of demand on the basis of sales alone.

The organization faced no supply constraints. Previously, it has never been bashful in discussing supply-side issues, to highlight the overwhelming demand for its flagship product. Had there been supply constraints, demand would have been greater than supply. Instead there were enough devices to meet demand. If we factor out the contribution from China and the iPhone Upgrade program, demand might be fewer than 13 million units.

Maturation And Saturation

In 2QCY15, the research firm, International Data Corporation (IDC), reported that iOS market share had fallen to 22.30% sequentially. The rival Android OS held its dominance with an 82.80% market share, says IDC. It predicts a slowdown in global smartphone shipments this year, as China joins the list of regions where the handset market is maturing, alongside North America and Western Europe. Concerns of smartphone market saturation in China have previously been raised by research reports from Gartner and Canalys.

The iPhone 6s is not a big jump from iPhone 6, which motivates consumers to wait for the next iPhone refresh where Apple has to overhaul the current lineup to create something new. This could provide an explanation for lower iPhone 6s demand. It should be pointed out that saturating global markets and increasing competition from low-cost and high spec smartphones, does not look good for the iPhone.