Smartphone Wars: Apple iPhone Sales Fall To 26M, Market Share Drops To 16%. But…

Apple posted its results for the third fiscal quarter 2012 (calendar second quarter), and even though the company shipped record number of iPads, iPhone and iPod sales took a tumble.

Following Nokia and other players, it is Apple’s turn to publish the second (calendar) quarter results of ‘Smartphone Bloodbath’. We expected the iPhone sales to fall from the level it had reached in the first quarter of 2012 (and remember, these are calendar quarters, not fiscal quarters, so Apple’s FQ32012 is obviously the April-May-June calendar quarter). I expected iPhone sales to come in somewhere in the low 30s (millions of units), but the iPhone ‘only’ sold 26 million units. This is somewhat disappointing, but in terms of overall market patterns, while the sales declines at RIM, HTC and Nokia are all severe causes for distress, at Apple the 26% decline from Q1 sales is not a cause for alarm. This is normal for Apple, as it only makes one annual product release and after the new product sales peak, the sales flatten and even decline into the last quarter(s) before the next iPhone iteration. Apple could avoid this see-saw sales patter, if it released more iPhone models per year to balance out the sales (and also gain significantly more sales, market share, and profits).

26 million iPhones in Q1 gives the iPhone a preliminary market share of 16% (down from 24% in Q1). However, when we take the rolling 12 month period to cancel out the launch peak seasonal sales pattern, we still find Apple increasing its market share, although at very slow pace. The 12 month moving average market share for Apple is now 20% of global smartphone sales.

Sign of things to come?

Even though Apple followers will not be concerned, we have some words of warning. The decline was far bigger in this Q2 than we have seen before. There are a few reasons why this is happening, but they suggest Apple may face tougher times ahead. First, Samsung is on fire. The Galaxy S3 alone sold 10 million units in just two months from launch. In the second quarter 2012, Samsung is expected to report sales of about 50 million smartphones and might even sell 52 million, which would be twice the size of the Apple’s iPhone market. The Samsung surge is powered by a wide portfolio across very wide and strong distribution, with ‘super-phones’ like the Galaxy Beam (the phone with the pico projector) to oversized smartphones e.g. ‘phablets’ like the massive-screen Galaxy Note, to low-cost Bada-based smartphones that sell well in many developing markets. Remember that just two years ago, Samsung smartphones sales were one third the size of the Apple’s iPhone, now they may be twice as many.

Samsung is the obvious reason why the iPhone is under pressure. The other reason is more subtle, but many carriers/operators with handset subsidies have been working to extend the time span of their contracts. AT&T in the USA for example has pushed its average contract length up by 2 months. We learned also from Britain that the median contract lengths are increasing, as reported in the annual telecoms report by the regulator, Ofcom. Apple has exceptional loyalty, and can rely on not bleeding much market share to rival brands. However, as those contracts become longer, it means that Apple’s replacement sales suffer. We may well be seeing the early signs of a pattern here. I do expect for calendar third quarter (Apple’s F4Q 2012) the iPhone sales will dip again from the current levels, until the new iPhone model launch. That launch should rocket the iPhone sales level to a whole new level once again [unless the rumored change of iConnector causes a revolt among customers and the ecosystem, Ed.]. Apple is incredibly profitable, the iOS ecosystem with robust iPad sales only grows stronger, and there is the inevitable waiting for what will the next iPhone have. There are no major stumbles here, and the loyalty of the Apple users continues unmatched. This sales decline in the second quarter is no cause for alarm. Although, these new market developments may take some of the peak sales performance away from the iPhone going forward.