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  • iPhone Sales and Cannibalization

    May 11th, 2017

    Despite the fact that iPhone sales in the March quarter were a tad below the year-ago quarter, Apple continues to lead the smartphone market. Now on the surface, that may not seem logical. Isn’t Samsung the world’s largest maker of mobile handsets? Doesn’t Android control over 80% of the market?

    So what, pray tell, is The Night Owl talking about?

    Yes, it’s true that, if you count mobile handsets rather than specific models, Samsung is on top. It’s not about profits, but volumes. But the flagship Galaxy smartphones don’t come close to matching iPhones. This despite all the hype that Apple can’t keep up with Samsung.

    So where’s that put Apple?

    Well, according to a survey from Strategy Analytics, the iPhone 7 took 6.1% of worldwide smartphone sales, making it number one. The iPhone 7 Plus received 4.9% for the runner-up slot. The only Samsung handsets among the top five were a handful of cheaper Galaxy handsets. No, not the high-end models, even though the Galaxy S8s are getting tons of promotion, and big discounts. There are plenty of two-for-one sales to be had. Sure, you’ll see some for the iPhone 7 too, but it’s been out for eight months, so it’s near the end of its original product cycle. The Galaxy S8 just shipped last month.

    Of course, Apple’s critics won’t see it that way.

    Beyond that, though, Apple gave excuses for the slight sales shortfall. So it was a matter of inventory management, meaning that sell-through of the iPhone in the March quarter was higher than the comparable period last year. But since sales are reported as shipments in the financial report, the numbers weren’t quite as good. A positive outcome is that more people are buying the larger handset than expected, which is borne out in the Strategy Analytics survey. iPhone 7 Plus sales were only a few million behind its smaller counterpart.

    So even though phablets are more awkward to manage — and Apple made a huge deal of that limitation before the 4.7-inch iPhone 6 was introduced — the public doesn’t seem to care. It’s about large and larger for many, even though there’s still a demand for smaller smartphones. The iPhone SE, for example, was evidently more popular than Apple expected, because there are still people out there who just can’t deal with bigger handsets.

    But it’s also likely that some people who bought the largest iPhone may have, as a result, opted not to buy an iPad. In some parts of the world, a phablet — a big smartphone that doubles as a reasonably functional tablet — is the only personal computer. It’s an all-in-one device.

    This factor may explain why iPad sales continue to falter. The iPad mini may suffer the most from this apparent change of customer preferences. But to Apple, it doesn’t matter. A sale is a sale, so long as it’s for an Apple product, and average sale prices of iPhones are higher than those of iPads.

    At one time, the iPad was touted as a next generation personal computer, but it hasn’t worked out that way so far. Some people do use them that way, at least if they aren’t choosing iPhones instead. But the argument in favor of an iPad as a productivity machine is not very compelling.

    Tablets, in general, have been regarded as consumption devices. Whether it’s an Amazon Kindle Fire or most other lower cost tablets, they are almost universally used for reading books and watching Netflix and other streaming services. Sure, people will also manage email and use a browser, but when it comes to doing something more productive, the use case isn’t as compelling.

    I realize some people happily type away on glass or an accessory iPad keyboard. So there are quite useful versions of Apple’s iWork and Microsoft Office for iOS. While not as full-featured as their desktop counterparts, they manage enough chores for many people so it may not matter.

    Apple’s advantage over most of the tablet market is a decent selection of productivity apps. With an iPad Pro, an Apple Pencil is quite a compelling input device for creatives. Clearly Apple continues to invest in the platform, but it’s not as yet certain when or if sales will grow once again.

    iPads are evidently being used by a high percentage of Fortune 5o0 companies. The number was 98% as of just a few years ago, but the fact that a company has some around for testing or other purposes doesn’t really mean there’s widespread deployment.

    Apple is also continuing to tout iPads in the educational market, and setting a $329 purchase price for the fifth generation model, introduced in March, may be part of that initiative. If a school system orders them by the thousands, the prices will be much lower. But Chromebooks are a growing presence in higher grades, partly because of the low purchase price, and also because they are notebooks with regular keyboards. Using a keyboard with an iPad is just plain clumsy.

    But if the iPad continues to lose sales to an iPhone Plus, does that mean that Apple should consider making a special smartphone keyboard for them? Sure, there are plenty of Bluetooth keyboards that can be used with an iPhone. Some are foldable for easy carrying. Some allow you to put your iPhone in a slot above the keyboard for convenience. Is there a better way? Or does Apple prefer to leave this market to accessory makers?

    When it comes to the iPad, Apple may be happy to keep it going, so long as sales don’t drop too much further. Selling nearly nine million of anything in a single quarter is nothing to be embarrassed about.



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