Apple announced its Q3 results on July 26 posting a revenue of $42.4 billion even as iPhone sales continued to fall. Cupertino sold over 40.3 million iPhones in the quarter, down from the 51 million iPhones it had sold in Q2, and well below the 47 million iPhones sold in the Q3 2015. For Apple, the iPhone which had boosted revenue and profits in the past, is seeing growth stall. Apple’s results stand in contrast to rival Samsung, which has soared back to profitability thanks to the success of the Galaxy S7 and S7 edge smartphones.
In the Earnings Call, Apple CEO Tim spoke about the iPhone SE and how the smartphone saw a strong demand, that “outstripped supply throughout the quarter”. But Apple did not give a specific number on how many iPhone SE units were sold in the quarter from the total iPhone sales. Apple iPhone SE was launched in March end, the first time a new smartphone product was launched mid-cycle. Cupertino has traditionally kept iPhone launches for September.
The iPhone SE officially went on sale in April in most parts of the world and in India, it was launched at a starting price of Rs 39,900. iPhone SE is 4-inch screen device with specifications of the latest iPhone 6s including the A9 processor chip, 12MP camera with 4K recording support. For Apple, this was a new product in its portfolio, meant to be a budget offering to those who wanted an iPhone. Even though Apple says the phone did “exceptionally well in developed and emerging markets”, the iPhone SE has failed to boost sagging sales.
If you take a look at the chart below, iPhone sales have traditionally done well in the first and fourth quarter, with the second and third quarter seeing some sequential decline, though always growing on an yearly basis. The jump between the Q4 to Q1 in iPhone sales is also exceptionally high as the chart shows. For Apple Q4 is July to September, while Q1 is October to December, which traditionally marks the holiday and sale season for most parts of the world and thus explains the blockbuster sales. But what is worrying is that both Q2 and Q3 in 2016 have seen iPhone sales decline on an yearly basis, which a first in recent years.
“The percentage of iPhone SE sales going to customers who are new to iPhone is greater than what we have seen in the first weeks of availability for other iPhones…,” said Tim Cook in the investor call, stressing that the iPhone SE is another device for the company to gain new customers. But as numbers above show it hasn’t given a big push to sales, at least not the kind the market was expecting anyway.
While Apple’s iPhone sales are down, the company claims it has seen the highest number of switchers from Android to iPhone in this quarter. According to Cook, the active installed base of iPhones is growing in double digits. The other bright spot for Apple in the results was the Services segment with App Store, Music, iTunes, iCloud sales seeing a 19 per cent year-on-year jump at $5.9 billion.
Tim Cook admitted the upgrade cycle for iPhone 6s has not been as strong as they had expected, and that’s something which is worrying analysts. Cook said the upgrade rate for iPhone 6s was more in line with the iPhone 5s. He went on to add, “Maybe that was a predictable thing, although we didn’t predict it in the beginning. It took us a little time to realize that.”
While Cook refused to talk about the future iPhone 7 during the call — a product which has the rumour mills working overtime like with any new iPhone launch — the Apple CEO said he was optimistic about the future iPhone.
However, in 2016 Apple’s iPhone woes are apparent. The company reduced channel inventory by $3.6 billion, which was more than $2 billion expected reduction. While India, Brazil, Turkey are seeing double digits growth, it is clearly not enough. In China, Apple is struggling and its sales were down in Greater China region by 29 per cent sequentially.
Cook in his remarks said he is optimistic about China, and will continue to invest in the market, adding that “switchers and first-time smartphone buyers” were majority of iPhone buyers in China. But as he admitted the company is facing challenges in the market, especially in light of the economic slowdown and depreciation of Yuan relative to the US in recent months.
Traditionally, Apple has made up its sales numbers in the fourth and first quarter with the latter being especially important as the new iPhone sales are accounted in it. Now it remains to be seen whether Apple will manage to do so once again with the iPhone 7.