A Lousy First Half, Eh? $AAPL FQ1 2016 Earnings “Estimate” + FQ2 Quick Look

Today, I’m takin’ it to 11.

Eleven consecutive home game AAPL quarterly earnings previews/estimates/whatevers, that is. Why? There must be some reason I keep this up. Clearly it’s not the fame. 😛

Anyway, for those of you who suffered through the “background” $77B revenue mix post (a thought exercise, but which included some genuine “estimates” on the non-iPhone revenue lines), this will (should) be shorter, and will include my for-entertainment-purposes only horseshoe toss (read: “estimate”) on FQ1 2016 results, plus a dash of comment on the upcoming Impossible Compare FQ2 2016. For both fiscal quarters, it’s still all about iPhone, with a side of Apple Watch and iPad Pro, until we see otherwise. So let’s get right to it.

(REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

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The Great 2016 iPhone Crisis (of Confidence) + $AAPL FQ1 2016 Revenue Mix “First Look”

If you prefer to only focus on iPhone, I’ve re-posted that one section here as a separate post for additional clarity and brevity.

Everyone knows that it’s out there, so I’ll spare you all the novella…on this particular sub-topic. (New Readers/New Readers from Apple News: Big-time TL;DR warning. Sorry, earnings doesn’t lend itself well to bite-sized analysis.)

All that “iPhone unease” on Wall Street (or piling on by various other journos, bloggers, etc.) that’s out there? An apparent excuse for AAPL trading at such a…appreciable discount to…a few indexes you might know? That’s why I made the (unspeakably “gorgeous”) iPhone Wall of Worry some months back. And generally speaking I think it’s still holding up quite well.

It’s probably not too far off the mark to say the “over/under” on iPhone is quite literally…whether iPhone unit sales are over or under the FY2015 total of about 231.1 million.

There are many guesses, all of them…well, no more than guesses, even the most educated ones. Whether iPhone unit sales will grow for all of fiscal year/calendar 2016 isn’t something anyone can know, and it’s hardly something Apple of all companies will ever give insight into…except, indirectly, by necessity, in the context of FQ4 2016 guidance. 😀

Base speculation on “Peak Apple” has failed, badly, since the last time Apple actually posted a true decline in YOY revenues. Which was…well…probably a few years before the iPhone Era. The point is, just arguing about it really doesn’t advance understanding. Apple looks about 90 days ahead, when Tim and Co. aren’t talking megatrends or very broad topics on conference calls, and that’s that.

So, as is the wont of your humble correspondent, let’s start with the most knowable known out there – Apple’s own revenue guidance for the biggest, iPhone-heaviest fiscal quarter it will have in FY 2016 – and see if a little home gamer guesswork, involving actual dartboard-toss “educated guesses” typed in an actual blog post, can’t compare numbers to narratives.

…I know, an actual revenue mix preview. Last seen in February 2015? Well, since I’m newly on the Apple News RSS list (please do subscribe to the channel, I promise to update…quarterly? 😉 ), and since iPhone Worry is such a hot topic, and since I haven’t updated the blog in a while, why not.

(FIRST, A REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his little corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

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Out on a Limb: comScore MobiLens Data Actually Portends the 2015 Loss of Significant Android Territory to iOS in the US Smartphone Market

The iPhone 6 Generation’s Market Potential in the US is “More Powerful than You Think”

Two simple charts.

Two storylines.

One conclusion for 2015 that seems mundane, but when digging into the data, has the potential to seriously surprise in magnitude…in what happens to be one of the most coveted regional markets.


Step 1: Take September 2014 comScore MobiLens Charts…

First, the data. comScore MobiLens issue their “U.S. Smartphone Subscriber Market Share” report every month. Subscriber market share is derived from a 3-month average, so the September report, which was just released, reports the July-August-September composite and, for reference, provides “quarter-over-quarter” comparison (in this case, the April-May-June composite).

The methodology, at least as far as MobiLens is concerned: “MobiLens data is derived from an intelligent online survey of a nationally representative sample of mobile subscribers age 13 and older.”

According to the report, in September (well, the 3-month average ending September, anyway), Apple had a slight dip in share to 41.7%, from the prior-quarter-composite average of 42.1%, a change of negative 40 basis points. Samsung, on the other hand, had a 40 basis point swing to the upside, improving to 29% share from the “prior quarter” 28.6%.

As far as smartphone platforms (of which iPhone has a commanding 100% iOS share), comScore MobiLens reported that Android in the US managed to gain 20 basis points of share “quarter over quarter”, from 51.9% to the “current” 52.1%.

The takeaways from this one report? Well, if you insist on quick analysis in a relative vacuum: Apple lost share (which could be explained by the iPhone 6 sales pause), Samsung gained share (well, it has in the US for a while now – I’ll revisit that soon enough), and Android as a whole, with an assist from third-place vendor LG, gained a little ground. Oh, and since that iPhone 6 is coming out and it’s reasonably popular, Apple will probably leapfrog Samsung and Android for a while, and even if there isn’t divergence (Apple’s gain at Samsung’s/Android’s detriment), well at least Apple will outgrow both at some point for a few months or more.

Yep, you know what I’m getting at. That’s lazy, almost strawman analysis. 😀 It’s not even close to the depth you can go – and we’re only going to “home gamer” depth this post.


Step 2: Add Samsung, Apple, and Perceived Android Storylines…

Moving on to the next set of baselines. Samsung’s recent financial trends don’t just reflect a ungraceful fall from the peak, they border on crisis.

Apple, on the other hand, is a company on the rebound – though to be honest, it’s more public opinion than it is actual financial results, so “don’t call it a comeback”. Apple’s revenue and bottom line “stalled” somewhat thanks to falling iPad average selling prices (iPhone ASP downtrend and gross margin decrease didn’t help either), then were further weighed by iPad’s sharply slowing and now-negative unit growth. But iPhone units have grown year-over-year throughout (albeit at a modest 13% annual rate for Fiscal 2014 versus 20% in Fiscal 2013 – putting aside the business physics of growing from a GAAP sell-in base of 150.2 million units).

But as for Android in general? A few perspectives you may have seen around the web:

BGR, Jul. 1, 2014, Despite iPhone 6 hype, Android continues to dominate iOS market share: “It wasn’t long ago that Android overtook iOS as the most popular mobile platform in the United States, but as the release of Apple’s first large screen phone approaches, Android’s lead is beginning to look insurmountable.”

CNET, Nov. 6, 2014, Android ups its lead over iOS (which is based on the same September 2014 comScore MobiLens report): “Demand for both versions of the iPhone 6 will very probably increase Apple’s market share over the next three months and help it catch up with Android. However, Google and other Android-device makers have been busy launching their own new phones, including the Nexus 5 and the Samsung Galaxy Note. So how much market share Apple can snag from Android this quarter is the question.”

Android Central, Nov. 6, 2014, partial article title Android leads U.S. smartphone market share: “ComScore had released its mobile market share data for the September 2014. In terms of platforms, Android leads with 52.1 percent followed by iOS with 41.7 percent and Microsoft with 3.6 percent. Both Android and Microsoft grew its market share slightly compared the the prior quarter ended in June 2014.”

The Register, Aug. 29, 2014, partial article title “Too slow with that iPhone refresh, Apple: Android is GOBBLING up US mobile market”.

So, Android’s fine or better than fine, huh?

In my opinion, these next two articles carry a perspective more difficult to find, and they’re also closer to the mark:

Electronista, Sep. 5, 2014, ComScore: Apple continues to gain share in US smartphone market: “The trend [as seen in comScore MobiLens’ July 2014 report] bucks conventional wisdom that demand for the iPhone drops off the closer one gets to the debut of new models, since the rough timetable of their arrival is well-known. Nevertheless, by platform iOS gained exactly as much as Android declined between April and July, further evidence of an ongoing trend of Android holding or losing share in aggregate.”

Ubergizmo, Oct. 8, 2014, ComScore: iOS And Windows Phone See Slight Gains In US Market: “[A]ccording to the latest figures by comScore, it seems that iOS and Windows Phone are seeing an increase in their market share, while Android has actually declined by a bit. However these changes are minute, with iOS and Windows Phone going up by 0.1% market share each, and with Android dropping by 0.1%.”

Now to be fair, reporting on the news/statistical releases of the day isn’t trend analysis, so it’s inherently ill-suited to information dives. And you won’t tend to see all that much editorial as a consequence – in particular, any editorial claiming Apple’s about to make the most serious territory push in its stronghold US market in at least a year – because the data in that one release, paired with ongoing perceptions, just doesn’t support that notion at present. Sure, there’s iPhone 6, but there was iPhone 5S, and 5, compare against a comScore MobiLens Android US market share data point some months back, looks about the same for Android, iOS isn’t actually doing any damage to Android share, there you go. Not only that, the US market is just a subset of the entire world, with its much more exciting emerging and higher-growth markets. So it’s 100% understandable that many news sources and authors just don’t bother much with the US data.

I did do a modest data dive, though, and based upon it, I’m making an Out on a Limb™ call that iOS is primed to make a significant, long-term market share grab from Android in the US next year.


Step 3: Blend Well With Some comScore MobiLens Data from January 2013

Here’s the results of said comScore data dive (click for full size):

comscore-data-jan2013-sep2014-apple-android-samsung

The takeaways:

1) Android share as measured by comScore has been remarkably steady since at least January 2013, hovering slightly above 50% US market share.

2) iOS share has been making steady but slow gains over the past “21 months”, currently slightly over 40% but not yet making a meaningful move higher (though it’s possible the survey has yet to capture a representative sample of iPhone 6 users, which it soon will).

Here’s where things get much more interesting:

3) Samsung’s market share of the entire US smartphone market has mostly steadily increased from a low of 21.3% to a high of 29% in the Jan 2013 – Sep 2014 period.

4) Samsung’s “Android Share” (easily obtainable by dividing Samsung US market share by Android US market share, both being subsets of the same number of US smartphones) has risen from a low of 40.9% to the current peak of about 55.7%.

5) Samsung’s experienced a recent, fairly sharp drop in “quarter-over-quarter” market share gains in basis point terms – and in September 2014, turned in its weakest market share gain since at least January 2013, at just 40 basis points. Note that the prior blended 3-month average basis point gain (ending August) was 110 basis points.

Sure, it could just be the result of a saturated market or Samsung nearing some growth potential peak. But that’s ignorant of context. As you know, Samsung’s financials are in genuine disarray punctuated by a drastic year-over-year drop in smartphone/tablet operating profit, and it sure doesn’t look like increasing channel fill (sell-in) is the solution.

Also, no other smartphone vendors are even close to Samsung’s scale in the US, they usually aren’t gaining share (though LG experienced a 50 basis point boost in September), and HTC and Motorola combined for 10.7% OEM share (Sep. 2014), a far cry from the combined 18.3% share reported for January 2013.

Similarly, given Samsung’s recent smartphone growth phase, no other smartphone vendor has ever gotten anywhere close to 50% share of Android smartphones in the US, at least not at this scale.

Basically, as I’ve mused on Twitter in the past, Samsung’s been holding up Android’s US market share for quite some time. Not growing – just maintaining. And now the evidence is clear that Samsung Electronics is seriously faltering – just when Apple launched the iPhone 6 series to record initial sales, powering a blowout fiscal Q4 and analyst-expectations-beating Q1 guidance. Oh, and iPhone 6 shipping times are still far from “within 24 hours”, to say nothing of the iPhone 6 Plus.

My conclusion/prediction: With Android’s bedrock support and “growth driver” suddenly on its heels, the stage is set for Apple to make a major, long-lasting run at US smartphone market share gains much more similar to 2013 (~400 basis points) than the flat growth of 2014 thus far. And much of it will come at Android’s direct expense.[1]

Let’s see how my prediction turns out about a year from now.


[1] Supplemental prediction: The share gains will also manifest as significant (basically, noticeable) Apple revenue growth in the Americas region, although the impending addition of the Americas-Retail segment will provide convenient “obfuscation” for Apple very shortly. Yes, any “nova effect” from iPhone 6 (sales/market share spike) might also come at the “expense” of the iPhone 6S generation. But the overall trend in Android/iOS market share divergence should still be evident throughout 2016.

The Journey of 1,000 Miles

“…in the December quarter…and these numbers [are] coming from a third party, 57% of the mobile browsing traffic in China was on an iOS device.  And so I…think you can see from this regardless of what you might hear about unit market share, our products are being used a lot more…”
– Tim Cook, CNBC interview, 1/15/2014

“…before China Mobile and Apple joined hands, I used a cell phone of another brand. Now I’ve decided to switch to an iPhone.  I’m very thankful to Tim Cook that this morning he gave me one of the first iPhones made for China Mobile.  And it’s gold, the most popular color amongst youngsters.” (via spoken translation)
– Xi Guohua, Chairman, China Mobile, the same CNBC interview

The first segment of Apple and China Mobile’s journey is paved with the predictable Apple platitudes (“making the best, not the most”, “usage matters more than market share”, etc.) and “deep respect” for China Mobile; the also-predictable reciprocated sentiment and “personal product endorsement” from China Mobile’s chairman; and the just-as-predictable endless skepticism about Apple’s ability to improve its position in the absolute market battlefield that Apple calls the Greater China geography.  Oh, and then there’s the whole “iPhone is too expensive for China, even with that not terribly impressive subsidy from China Unicom/Telecom/Mobile”.

Safe to say that Apple’s strategy in China will continuously evolve if and as needed. Tim Cook and his team clearly know how fiercely competitive and far-from-guaranteed the Greater China market is,¹ and that it will require immense quantities of time, attention, resources and perseverance. It could be several quarters (maybe even a few years) until Apple’s success or lack thereof can be better assessed. It’s going to be a long game, just like everything else Apple does. But that first, single step of the China Mobile/Apple partnership has finally been taken.

It’ll be fascinating to see where things go from here.

_______________________________

Bonus quotation (Xi Guohua, via spoken translation, CNBC interview): “You asked a very important question to Tim Cook on [iPhone unit sales] numbers. I cannot tell you completely of course but since December 23rd, when people didn’t know pricing, we had millions of preorders. This is very encouraging.”

_______________________________

1 Fiscal Q2-Q4 2012 to Q2-Q4 2013 Greater China YOY revenue growth (less than 1%) tells a story that Apple – or any company in that position paying attention – obviously can’t (and won’t) ignore.

The Loop’s Jim Dalrymple (aka “The Beard”) Addresses an Apple Rumor

For the first time in a while. And it’s a “nope”. Given The Beard’s perfect record – consider that rumor 100% debunked.

Why wasn’t WS all that upset, if they were even paying attention at all? Well, Sep. 6 is still a bit early for Fall. And an actual launch on Sep. 6 implies pre-ordering 10 days or so before the launch, which implies an Apple media event some days before that, which implies a media invite at least a few days to a week before that. Before you know it, we’re in mid-August or so with Apple media invite news.

Then there’s that whole “iOS 7 needs to get done and released a few days before the new iPhones” deal, too.

So maybe Dalrymple can “yep” more solid intel that might put the actual first-stage launch of the new iPhones more like mid/late September.

Apple Product Rumors, Part 20,000: The Intersection of Potentially Solid Product Intel and Common Sense

Let’s start here:

http://www.macrumors.com/2013/07/22/low-cost-iphone-and-ipad-5-to-ship-in-early-september-with-iphone-5s-to-coming-later-no-retina-ipad-mini-in-2014/

Let’s assume for fun that the iPhone 5S will be delayed due to the infamous production constraints that always pop up like clockwork, every, single, year. Thankfully, this time we’re looking at late September for Apple’s bread-and-butter flagship iPhone. A couple weeks of delay isn’t the biggest deal in the world.

But let’s assume “iPhone go” (as I like to call it) is ready a couple of weeks earlier.

So…launch iPhone go first and iPhone 5S or whatever later?

Why would Apple want to launch the “lesser” iPhone before the newest iPhone, if the original plan was presumably to launch the two at the same time? Is Apple so desperate for sales that it’ll potentially hamper demand for the flagship? The calculus gets even trickier if iPhone go happens to have more than one price point.

Let’s now assume for fun that iPad 5 is on schedule, but iPad mini “isn’t”. Does anyone seriously think Apple doesn’t have contingency plans? Or that Apple will delay THE most popular iPad by not launching a new iPad mini at least once a year?

And while Ming-Chi Kuo has a pretty decent overall history of predictions and supply chain sources, it’s hard to believe that Apple hasn’t “mastered” the Retina Display just yet. It’s had them since June 2010 (iPhone 4), it’s probably been working with them before that point, it’s made even bigger Retina Displays since then (2880×1800, anyone?), and it’s had a 2048×1536 Retina Display to “shrink down” since March 2012.

Last but not least, a quick comment about iPhone go. A $450-550 iPhone 5-based iPhone doesn’t have to be the only “cheaper option”. The A5 would still be expected to be in play as SoC behind the “$0 iPhone” this year, and A5 + current-gen Retina Display are clearly able to be paired together. There’s that common sense thing again. If Apple is trying to reach the lower end of the market, the venerable iPhone 5 hardware isn’t the only option that’s available for this year.

My Prediction for What Apple Will Specifically Name the Rumored Cheaper iPhone With New Form Factor, If It’s For Real

iPhone go.  (Italics optional.)  I know, what an incredible revelation.  Anyway:

IF Apple has chosen an iPad mini-without-the-mini*** path for a new form factor iPhone (be it polycarbonate unibody-based or whatever), that’s the only “suffix” that makes sense to me.  Why?

An iPhone that’s got worry-less (not worry-free, but getting there) unibody polycarbonate or something durability (Jony Ive’s done it before with the one-off unibody polycarbonate MacBook).  Add some water resistance or splash protection?  Sure, why not.

An iPhone with everyday usability, necessity and style (mix Jony Ive’s proven design sensibilities with COLORS).

An iPhone which, with the above qualities, fits the “on the go” lifestyle.

An iPhone which seems a bit more “youthful” (though that won’t necessarily be part of the public-facing marketing pitch), more iPod touch-“playful” than iPhone 4/5-“purposeful” – which corresponds to being more active, which also feeds back into the whole “go” deal.

An iPhone which, if the pundits are “finally” correct, is based on the pay-as-you-go (or something like it) concept, being unlocked or unsubsidized or less-subsidized or whatever.  (Though I’m sure it’ll also be available for $99 or so on a typical carrier-subsidized 2-year smartphone plan.)

Hence, “iPhone go”.

***By which I mean iPad mini is basically an iPad 2 with a dash of more current-gen-type tech (in iPad mini’s case, LTE) in a new form factor.  If iPhone go were to have, say, the A5 SoC + current-gen 1136×640 Retina Display + LTE, it’d be a similar product packaging concept, with the two exceptions of iPhone go having the the same-size-and-pixel-count Retina Display, which also means iPhone go would be roughly the same size and perhaps a bit thicker than the iPhone 5S (unless Apple boosts screen size and/or resolution for the 5S, in which case Apple might have a striaght-up iPhone 6 in the works this year).