Apple reports Fiscal second-quarter financial results after the close of the markets today and so brings the week-long exercise where pundits spend the first half of the week talking about what Apple will say followed by the second half of the week where the selfsame pundits talk about what Apple said. Here’s some food for thought:

Apple has enjoyed a tremendous run and each subsequent quarterly result is more heavily scrutinized than the last. It has been 11 years since Apple reported a year-over-year decline in revenue. That simple statistic sums Apple’s “big” problem. It is a problem all large companies face – how to produce the growth rates once enjoyed now that you are grown. Eleven years ago, Apple reported quarterly revenue of $1.48B. That figure has grown 30-fold over the subsequent years. Analysts today are looking for $43.54B – slightly lower than a year-ago.

Last quarter iPhone sales represented about 56% of total revenue. By far, the largest share of company revenue. Analysts are expecting 38.2M in the quarter – with a range of 34M to 43M. To beat consensus, I think Apple will need to have shipped more lower-end models (4S and 5C) during the quarter. This will show-up in the average price of iPhones sold during the quarter. But it will also point to traction in emerging markets – places like China and India – so I think Apple will tout this fact if it materializes. Geographic expansion is how most large companies grow (think Coke and Pepsi) and Apple will need that within their arsenal in addition to any new product classes (read: wearables) or service sectors (read: streaming services, mobile payments) they might enter over the next two years.

In the year-ago quarter, Apple sold 37.4M iPhones so the average expectation of 38.2M represents a roughly 2% year-over-year increase. Everything I’m tracking suggests the first calendar quarter of 2014 has been dismal for tech. I take the under on iPhone sales and think the figure will be close to 37M for the quarter.

Last quarter, iPad sales were the second largest share of total revenue – representing about 20% of total revenue. The current consensus quarterly estimate for the iPad is 19.3M – with a wide range between 15-22M. Again, everything I’m watching suggests a pretty strong headwind in 1Q14 for spending on consumer tech. There are also a number of items specific to the tablet market. Lower tier and lower priced tablets have continued to gain momentum as the market has matured. These tablets are getting better and in an expanding set of use cases are “good enough.” Moreover, tablet ownership in the US is approaching 50 percent. Households are holding onto tablets longer or buying secondary and tertiary units for the household. I take the under on iPad sales and expect a figure closer to 17M – a year-over-year decline of about 13 percent.

Here are some historical slides that I’ll update once the results are in later today. 

The new iPhones went on sale today.  Since the announcement, much as been written about the two models – and especially the implications for Apple.  I previously reviewed some of the insights gleaned from Apple’s financial statements and wanted to enumerate on that discussion.  As the following charts illustrate, Apple’s reported price for the iPhone has declined slightly over the last 18 months. The average price in 3Q13 was a reported $581 – roughly 10 percent below the $646.53 reported in 1Q12.

average iphone price
iphone asp change











This price decline could tell us a number of things. Naturally, on the surface it tells us buyers are moving to lower priced iPhone models.  They could be buying older models or simply iPhone models with less storage. This could tell us interest in the product class is waning and while individuals aren’t abandoning the product they are feeling satisfied with “good enough” and willing to buy either an older model or one with less storage. Both of these options are also consistent with a maturing market.  As a product matures late adopters tend to buy less feature-rich options.

Apple’s fiscal 4Q13 (and subsequently fiscal 2013) ends on September 28, 2013. As a result about eight days of sales of the new iPhones will end in 4Q13 while any after that will land in 1Q14 and fiscal year 2014.  I expect sales to be brisk through those first eight days, but because it is only eight days I don’t expect it to have a material impact on the average iPhone price as reported by Apple at quarter end.  Perhaps the average iPhone price in 4Q13 will be in the $572 range – lower than 3Q13 but not significantly lower.  I do however expect to see the price materially lower in 1Q14 – dropping to something in the $540 range – or about 16 percent below the year-ago price of $640.

This isn’t meant to be a pricing forecast exercise but rather a narrative around the evolution of technology adoption.  As much as we might want to ignore it, supply is upward sloping and demand is downward sloping.  By introducing a lower priced option – even if it isn’t as low as the financial markets think it needs to be – supply shifts in. Even with no change in demand, a higher quantity of demand is, well, demanded.  So if the average reported price does come down as I expect, then unit volume will move up – perhaps significantly. iPhone demand is price elasticity so consumers will respond to prices – as we’ve seen with tablets.




Apple released quarterly results for their fiscal third quarter yesterday.  While a tremendous amount of ink has been spilled dissecting every ounce of the most recently concluded quarter as well as pontificating about the implications, I thought it worthwhile to look back over the last 15 quarters to see if any insights might be gleaned. Here are few nuggets:

On Unit Volumes

Apple reports quarterly unit sales for iPhone, iPad, iPod, and Macs.  All, but iPhones experienced a unit volume decline in the fiscal third quarter on a year-over-year basis.  iPhone sales were up 20 percent on a year-over-year basis – driven in part by international growth. Mac sales were down 6.6 percent – the third consecutive quarter of year-over-year declines. Sales are off about 4.5 percent over the last three quarters. iPad sales slipped 14.2 percent on a year-over-year basis – the first quarter to experience a decline in sales. Apple suggested the decline was primarily driven by tough year-over-year declines.  As the chart below illustrates, the iPad sales growth on a year-over-year basis has been slowing over the extended time period as the product category matures. Growth in the second fiscal quarter was 65 percent on a year-over-year basis. Even comparing 3Q13 unit volume to 2Q12 unit volume shows a growth rate of 23 percent. iPod sales declined 32 percent on a year-over-year basis and have been in decline since at least the close of 2010.

One Average Selling Prices

Because Apple reports both unit volume and revenues for the segments for which they provide breakout details, one can also look at changes in realized prices over an extended period of time.  Beginning in the fourth fiscal quarter of their 2011 fiscal year, Apple changed slightly how they report revenue for the four hardware categories for which they provide a breakout. While they had previously included product specific accessories in the reported category revenue (ie iPad accessories in the iPad category), they stopped doing so with the first fiscal quarter for their fiscal year 2012.  The prior inclusion of revenue for these accessory categories essentially inflates the average price (because it increases reported revenue without a corresponding change in units sold) so take that into account when looking at average price information.  With that said, year-over-year information for the last three fiscal quarters is a like comparison. For the fourth fiscal quarter of 2012 Apple reported results in both ways.  The average iPhone price is about $18 less under the current method and the average iPad price is about $27 less. I believe these figures also provide a rough estimate of the dollar value of accessories purchased by consumers.

Price changes over the last 15 quarters provide interesting insights into the evolution of these categories. Quarterly sales for iPod were down 32 percent from a year ago, 39 percent from two years ago, and over 50 percent from three years ago. At the same time, the average price has increased slightly (up 2 percent on a year-over-year basis).  While unit volume is down significantly, the units they are selling have a slightly higher price. This could simply be an iPod Touch story (raising the average selling price) – though the average iPod price is very close to the price of the iPod Nano. iPod prices remain nearly ten percent below their high.

Mac prices have actually been up for three consecutive quarters on a year-over-year basis and were up over six percent in fiscal Q3 – though they remain about 5 percent below their highest quarter. Conversely, iPhone prices were down roughly 4.4 percent on a year-over-year basis and have fallen for six consecutive quarters. Prices are down about 12 percent from their peak.

The biggest change in average price come from the iPad category where average prices have fallen nearly 35 percent from their peak. Prices were down 15 percent on a year-over-year basis in fiscal Q3 – consistent with recent quarters. This price story tells perhaps the richest story and highlights the evolution within this category. When iPad first launched, cellular connected tablets were a significant share of sales but as usage patterns became more solidified consumers came to learn more clearly how they would use tablets. As opposed to devices that you frequently used in a mobile-connected setting, they became devices that one uses more heavily in a static location (like a home or office) where Wi-Fi  is readily available. Wi-Fi networks have at the same time become more prevalent. Perhaps the long-run decline in price is also a story of consumers shifting more tablet activities to the cloud and therefore requiring less storage on their devices. At the same time Apple did most recently introduce a model with 128GB of storage. Price declines in recent quarters are clearly a sign of composition shift – as consumer adopt the smaller screen (and lower priced) iPad mini.



J.P. Morgan’s chief economist, Michael Feroli, estimated sales of the iPhone5 could boost annualized GDP growth in calendar Q4 by 0.25 to 0.5 percentage points.  You can read more here.

Nielsen recently announced that the majority of teens now own smartphones.  Fifty-eight percent of teens now own a smartphone – up from 36 percent in 2011.  What is perhaps most interesting, is the strength of Android devices among this audience.  According to the same data, 59 percent of teens adopting smartphones in the last three months have acquired an Android smartphone.  That compares 33 percent for iOS.


Over the last few weeks both Google (see Nexus Tablet and Nexus Q) and Microsoft (see Surface) have announced major hardware initiatives.  In both cases, these hardware initiatives have been primarily focused on the mobile/tablet ecosystem.  Even Microsoft’s recent software announcement – Microsoft SmartGlass – is targeting the growing tablet ecosystem.  Both companies are taking a more hands-on approach to the growing tablet ecosystem as they seek to more closely integrate their software strategy with a hardware component.  These moves are partly in the hopes that a hardware component will spur software demand and help buoy their entire platforms respectively.

Good Technology is a privately-held company which offers a mobile solution for corporate and government clients. The core offerings include email, calendar, and secure mobile access to applications and company data.  While the customer base is likely small relative to the entire universe of tablets and smartphones and many end-users are likely bringing personal, mobile tech devices like smartphones and especially tablets into the enterprise directly (ie the consumerization of IT, or CoIT), the companies activations are up 50 percent in the last year.  More, the technology has been deployed with more than half of the Fortune 100 companies.  Each quarter, Good Technology releases a summary of the past quarter’s activation activities so exploring the trends there within can be insightful for understanding some of the trends currently influencing the tablet ecosystem.

Good Technology recently released their Q1 2012 Activation Report.  Here are a few of the highlights:

  1. iOS devices accounted for 80 percent of the activations in 1Q12
  2. the top 6 devices are iOS devices.
  3. iPad (both the new and the old) represent 97 percent of tablet activations in 1Q12
  4. iPads were activated the most in three industries: Financial Services, Business/Professional Services and Life Sciences, with Life Sciences showing disproportionately higher rates of iPad activations when compared to overall device activations
  5. Good released support for Windows Phone 7.5 in April 2012, so activations of Windows Phone devices like the Nokia Lumia might be underrepresented in the Q1 results. Related data will be included in the Q2 2012 activations report

Apple surprised to the upside (though it really shouldn’t be a surprise) with their quarter results today.  Here is a quick overview of what they reported for fiscal 1Q12:

  • Revenue: $46.3bn (+64% q/q +73% y/y) v. consensus of $38.9bn and company guidance of $37.0bn.
  • Gross margin: 44.7% for the quarter (up 440 bps q/q) v. consensus of 40.8%.
  • Operating margin: 37.4% (up 660 bps q/q) v. consensus of 32.5%.
  • Earnings Per Share: $13.87 v. consensus of $10.08 and company guidance of $9.30.
  • Mac sales: 5.20M (+6% q/q +26% y/y) v. consensus of 5.16M.  This figure includes 1.48M (+16% q/q  +21% y/y) desktops and 3.72M (+3% q/q +28% y/y) portables.
  • iPhone sales: 37.04M (+117% q/q  +128% y/y) v. consensus of 30.2M
  • iPad sales: 15.4M(+39% q/q +110% y/y) v. consensus of 13.9M
  • iPod sales: 15.4M (+133% q/q) v. consensus of 13.6M

There has already been much written on the results so I’ll just add my thoughts (in bold) to the commentary below:

Later today, Apple will report Q1 figures.  We know much has changed in the tablet market over the last three months.  Earlier this week, Pew Research Center’s Internet & American Life Project reported tablet and eReader ownership (unsurprisingly) surged during the 2011 holiday season.

This is consistent with what I expected (and subsequently reported) following Black Friday and the (unofficial) start of the holidays. Starting with Black Friday (but really through the entire holiday season) several things too place to help drive tablet sales.  First, prices came down significantly.  Prices for many of the “high-end” tablets were marked down significantly and lower priced tablets entered the market in calendar Q4.  A declining price helps up-take.  Secondly, both devices have been in the marketplace for 18+ months and are moving quickly into mass market appeal.  We are moving into the fat part of the adoption curve.  Finally, tablets were the loss-leader for many retailers on Black Friday.  While the volume wasn’t high on a single-store basis, in aggregate there were a plethora of tablets (from a variety of OEMs) bought during the weekend across a myriad of retailers from Best Buy to Big Lots to Radio Shack to Staples, to ToysRUs.  CEA estimates 14 percent of those who purchased tech over the weekend bought a tablet – up from six percent in 2010. eReaders also did well over the weekend with an estimated 15 percent of tech shoppers buying an eReader.  This figure is up from 13 percent in 2010 and two percent during the 2009 Black Friday weekend.

According to Pew, both tablets and eReaders are now owned by about roughly 1/5 of the US population.  More than a third of those living in households earning more than $75,000 (36%) now own a tablet computer and almost a third of those with college educations or higher (31%) own tablets.