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Chinese mass market iPhone adoption drives strong Apple quarter

Apple iPhone iOS8

US tech giant Apple continued to ride the popularity of its new iPhone 6 models to another very strong quarter. Apple sold 61.2 million iPhones globally in the March quarter, which was 40% more than the year-ago quarter and generated 55% more revenue, implying improving margins too.

Macs and services (which includes iTunes, App Store, etc) were also up annually, with the only downer being the iPad, which saw sales decline 23% year-on-year. All this helped Apple add another $13.6 billion to its massive cash pile on the back of $58 billion in revenues, which was up 27% annually.

“We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever,” said Tim Cook, Apple’s CEO. “We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

Apple offers some regional breakdown of its revenues and they revealed another strong quarter for Apple in China. Revenues from Greater China were up 71% yoy and are closing on Apples largest reported region: Americas. APAC minus China and Japan as did well with a 48% increase. “IPhone sales more than doubled in Korea, Singapore, Taiwan, and Vietnam, and they were up 80% or more in several other markets including Canada, Mexico, Germany, and Turkey,” said CFO Luca Maestri in the Apple analyst call.

“The strong mix of iPhone 6 and 6 plus combined with the popularity of higher capacity offerings led to iPhone ASPs of $659, an increase of $62 year over year, despite the very significant foreign exchange headwinds I already mentioned.” In other words, the dollar got stronger and 69% of Apple’s revenues are now international.

When questioned about the higher rate of switching to the iPhone observation, Cook said: “…if you look at the overall worldwide, we grew iPhone 40%. And IDC’s estimate of the market for last quarter is a 16%, so we grew two and a half times. And if you kind of look through at the different countries, in almost every country, we grew at a multiple of the market.

“Our current estimate is that about 20% of the active installed base has upgraded to a 6 or 6 plus. And so as I look at that number, that suggests there’s plenty of upgrade headroom in addition to we want to keep inviting over as many switchers as we can. So between both of those and the first time buyers as well, it seems really, really good right now.”

Cook made the point that the March quarter is especially good for China as that’s when their ‘holiday season’ occurs, but the year-on-year comparison remains. Cook also estimated that will mean Apple has gained 9 points of share once the analyst totals are confirmed. On the matter of declining iPad sales he confirmed there is cannibalisation from both the iPhone and Mac, but said he wasn’t bothered about that.

“It was another solid quarter for Apple. Apple iPhone is on a roll in all regions of the world, especially China,” said Neil Mawston, analyst at Strategy Analytics. “Pent-up demand for big-screen phablet models like the iPhone 6 Plus is continuing to drive Apple to quarterly highs. Apple is fortunate the iPhone is over-performing, because the iPad range is badly under-performing and casting a grey cloud over part of its financial results.”

“Apple’s forays into emerging markets have begun to bear fruit as iPhone sales in China are surpassing those in the US plus international sales account for 69 per cent of total sales in the most recent quarter,” said Loizos Heracleous, Professor of Strategy at Warwick Business School. “The decline in iPad sales is more than made up for by higher iPhone sales, and the introduction of the Apple Watch represents significant potential for the company.

All in all it was another very strong quarter for Apple, which once more managed to arrest a temporary decline with a big product launch and strong performance internationally. While it’s not immediately obvious why the mass market needs to spend hundreds of dollars on the Apple Watch, the chances are will sell quite a few and serve up another record performance.


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