Analysts Say Quarterly Shipments Could Hit 32 Million Units
As Apple’s success in the West continues to impress, one can not help but wonder why the same level of success has not been easily mirrored in the Asian market. In fact, a sharp drop was seen in Apple’s revenue in China from April to June.
Apple Faces Stiff Competition in the Asian Mobile Phone Market
The decline in sales brought to light all the threats and challenges Apple faces in its second-largest market. Firstly, a lot of cheaper, local entrants have been gaining momentum in the industry. Secondly, Samsung Electronics has been keeping up a steady stream of new models across all price ranges. Thirdly, there is cannibalization of Apple's market share from competitive mid-tier models that cost a lot less but perform as well, or even better, from manufacturers such as Xiaomi and Vivo.
Yet, despite the decline in Asia, and even without releasing a new product, Apple successfully sold 31.2 million iPhones in the last quarter, which was more than analysts had predicted. Moreover, despite continued concerns about Apple's failure to penetrate the market in China, the firm's forthcoming quarterly figures are expected to reveal that iPhone sales are continuing to rise. Despite contradicting statistics with regards to Apple’s dollar sales and its overall market share, the actual units sold suggest that there is still room for iPhone sales to grow in the quarters ahead.
Analysts Predicting Strong Q3 iPhone Sales
Data suggests that Apple could ship somewhere between 29 million and 32 million smartphones for Q3 – a figure that would eclipse the 26 million units sold in Q3 2012. In fact, citing demand from Morgan Stanley’s AlphaWise Smartphone Tracker, as well as various supply checks, analyst Katy Huberty said that she believes that stronger than anticipated iPhone shipments will drive revenue and earnings per share above market consensus.
Surprisingly, it’s not just the iPhone 5 that is driving the positive sales. In fact, the spike in shipments can also be attributed to the business model Apple employed to push the sales of its previously released iPhone models. Apple offered impossible-to-resist discounts on older models, such as the iPhone 4 and iPhone 4S. This move, which was initially speculated to cause devaluation, has proven to be one of its wisest business decisions, as it has had a big impact on take-up, allowing Apple to reach out to consumers with a tighter budget.
Aside from its handheld phone sales, iPad sales are also expected to rise to 18 million in the third quarter. Apple also projects that it will be shipping 3.9 million Macs in the next quarter. If all shipments were to materialize, this would definitely help Apple push its net earnings per share beyond the $7.32 consensus expectation on Wall Street.
While investors are concerned about Apple’s current closed-shop approach in China, when it comes to revenue generation, Apple certainly knows what it is doing. Data shows that if every phone sold was the cheapest iPhone 4, Apple would still bring in revenue greater than $36 billion – a figure that would top Apple's own guidance range of $33.5 billion to $35.5 billion.
Current Outlook in the Mobile Phone Market for Apple
Although Huberty is bullish for Apple’s upcoming quarterly conference call, she did show concern for the current quarter, as she believes the projections and sales estimates are currently too high. She expects Apple’s next iPhone will only be available for “a few days” in the September quarter. In fact, for the period ending on June 29th, Apple only reported a net income of $6.9 billion, or $7.47 per share, compared with net income of $8.8 billion, or $9.32 per share, for the same period last year.
However, putting net income aside, revenues grew slightly to $35.3 billion, with gross margin coming in at 36.9%. Moreover, total cash at the end of the quarter was more than $146 billion.
For the third quarter, Apple is projecting revenue in the range of $34 billion to $37 billion. In fact, to be more accurate, analysts are estimating revenue to be $37.1 billion in the third quarter. Apple is also projecting a gross margin range of 36% to 37%. Analysts expect the launch of a new iPhone in late September, though many have been trimming their forecasts for the quarter over the last month.
New Product Launches on the Horizon Include the iPhone 5S, iPad, and a Lower-Cost iPhone
When quizzed about the details of the up-coming product launches, Cook and CFO Peter Oppenheimer refused to comment. However, rumor has it that the company is widely expected to launch the iPhone 5S, a lower-cost iPhone for emerging markets, and new iPad models in late September.
Nothing is concrete yet, but one thing is for sure: Apple should learn how to adapt in the Chinese market if it really wants to succeed.
If there’s anything about emerging markets, it’s that price points are going to be dramatically different. As such, there is no way for Apple to be able to gain a foothold in the developing world as long as its products are in the higher price tier. In order for the firm to grab a significant portion of the Chinese market, it will need to completely redesign its current models. Not only will this require a change in strategy, it will also require a total overhaul in its supply chain process.
Apple Must Compete With Samsung in China
Another big challenge that Apple is facing in the Chinese market is stiff competition, something that Apple is not accustomed to. The most prominent challenger is, of course, Samsung. The Korean company enjoys the high flexibility of being able to manufacture phones at different price points, a competitive advantage that Apple does not currently have.
With this rivalry predicted to continue into the foreseeable future, ultimately, it is up to Apple to rethink its strategy in order to gain a foothold in the Chinese market.