Lower-Priced Models Drove Strong Quarterly Rise in iPhone Shipments, Apple Says
Apple shares rose more than 5 percent Wednesday following its Tuesday fiscal Q3 earnings call, despite a drop in profit to $6.9 billion from $8.8 billion in the year-ago quarter. Apple surprised financial observers with a 20 percent jump in iPhone sales to 31.2 million for the quarter, compared with a year ago. Apple sold 14.6 million iPads during fiscal Q3, versus 17 million in the year-ago quarter.
Financial observers cited a 600,000-unit reduction in channel inventory during Q3 as positive ahead of a new iPhone release rumored for September launch. Strong sales of iPhone 4, 4S and 5 prompted some observers to question recent reports of a slowdown in high-end smartphone sales. Apple reported strong year-over-year growth in iPhone sales in developed and emerging markets including the U.S., the U.K., Japan, Brazil, Russia, India, Thailand and Singapore, but sales fell 4 percent year-over-year in China, said Apple CEO Tim Cook. While mainland China had a rise in iPhone sales, Hong Kong experienced a “more dramatic downturn” of roughly 20 percent in sellthrough, Cook said.
The iPhone 4 is attracting a “very, very impressive” number of first-time smartphone buyers, Cook said. Apple offered more affordable pricing on a wider scale in the quarter and was “very happy with what we saw,” he said. On additional products Apple is developing for the first-time buyer market, Cook said a lower-priced smartphone is “a great way for a buyer to get into the iOS ecosystem,” saying the “stickiness” of the iOS 6 platform is “huge.” He cited a 93 percent loyalty rate from analyst firm Kantar and high customer satisfaction ratings from J.D. Power & Associates.
On how Apple can reinvigorate the premium side of the business, Cook referenced future products and services in existing and new categories but didn’t elaborate. Other opportunities exist in expanding distribution through carriers and at Apple stores and through the indirect channel, he said. The company is also growing in the enterprise market where it has more than 60 percent share of the phone and tablet categories, he said.
IPads had a 2.4 million unit decline over the year-ago quarter, which Cook attributed largely to “changes in channel inventory.” The company reduced inventory by 700,000 units in the quarter, compared with a bump of 1.2 million units in the year-ago quarter after the company had announced the iPad with Retina display. The 3 percent sellthrough downturn in the most recent quarter “was not a surprise,” he said. Responding to a question on whether the falloff was a pause in the market as consumers wait for the next iPad refresh, or whether something broader was at play in the tablet market, Cook didn’t comment directly on market dynamics. He cited a figure released Tuesday by ad network company Chitika, which said the iPad accounts for 84 percent of the Web traffic from tablets. “If there are lots of other tablets selling, I don’t know what they are being used for,” Cook said, saying the basic function of a tablet is for Web browsing.
On Apple’s comments at its developer conference that iOS 6 would be embedded in some vehicles in the automotive segment next year, Cook called the car market “very important” to Apple and “something consumers want.” Providing the iOS ecosystem in vehicles is a “key focus” for Apple, which will enter the automotive market “in a unique way and better than anyone else,” he said.
For the quarter ended June 29, Apple had a $6.9 billion profit on revenue of $35.3 billion, compared with net income of $8.8 billion on revenue of $35 billion in the year-ago quarter. Apple shares closed 5.1 percent higher Wednesday at $440.51.