Sascha’s Commentary: Apple Disappointed at Highest Level – Samsung S3 Breaks Into iPhone Dominated Market

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26 Jul, 2012 3:56 am


Headlines in business section and on tech websites are all full of concern for Apple. Near apocalyptic comparisons are being drawn despite the fact that Apple had a 3rd Quarter that most businesses can only dream about – it was just lower than in Q2.

Apple’s quarterly results, in direct comparison with last year’s numbers are once again impressive, after all, the Californians increased sales by 23%, as well as enjoyed a profit increase of 21% to an incredible $8.8 billion. The problem, however, lies in a comparison to the previous quarter. iPhone sales were significantly weaker than predicted by analysts, and thus the total sales numbers followed.

“Apple is in the very rare situation, where it gets punished by Wall Street when it’s not excessively successful,” said John Jackson from CCS. He definitely hit the nail on the head.

The question remains, why is it showing in Q3 and not before? I’ve looked at the numbers from the last four years to fully understand the effect that the competition has had on Apple’s success.

1. Whining From a High Level

We can seen in the above chart that in the past 4 years Apple has had problems in the 2nd Quarter. Went to the 1st Quarter of the year back one more record results, so it went in the 2nd equal to bottom, then in the 3rd, Apple again recovered properly. This is related both to the turnovers and profits, as well as the sales of Mac, iPhone and iPad (the iPods we leave out here). Not so in 2012, which is a great place to see the chart on the right side.

It is even more obvious if we consider only Q2 and Q3 of the last four years:

Both turnovers, as well as profit and above all, the sales figures for the iPhone slumped dramatically, mind you … the sales are still at a spectacular level, but it appears to delineate a certain trend.

2. If the iPhone Falls, So Too, Will Apple

iPhone and iPad now account for 75% of total sales for Apple. Even though the iPad has set a new sales record (17 million units in the past quarter), the iPhone is still the engine of Cupertino and when the iPhone sales fall, Apple’s profit stutters.

Apple’s popularity is tied inexorably to the iPhone. Even when the iPad brings in record sales, it can’t save Apple from a slump in iPhone sales. It makes a mere 5th of the turnover the iPhone achieves.

Mac sales have changed only marginally and the failing iPod can’t hope to raise Apple’s sales numbers, so it’s up to the iPhone. If Apple’s iPhone 5 is a success, Apple is in for smooth sailing. If its sales are hurt by the competition, Apple will feel the doom and gloom.

For the first time in four years, sales fell two quarters in a row. This largely due to the huge demand for the iPhone 4 and 4S.

3. Europe is Weakening & China Isn’t Convinced

CEO Tim Cook defended Apple saying “We always want to deliver the best product.” With sales not rising significantly in Europe and especially not in the much weakened countries of Southern Europe, and China not picking up the slack, Apple was disappointed.

The hope Apple invests in the consumer wonderland of China is also questionable. In China, fads and trends drive brand name purchases, so as Samsung becomes more fashionable, the Chinese will swing against Apple’s wishes. The brand loyalty Apple experiences in the US doesn’t extend to Asia as sales of the iPad in China show. I see in my trips to Hong Kong and also in Taiwan, more Samsung s2 and S3′s appearing in the hands of consumers.

4. The Samsung Effect

While Apple’s iPhone sold 26 Million in Q3 2012, Samsung’s Galaxy S3 sold 50 million, nearly double the iPhone. It’s pre-order sales were also unprecedented, unless you count Apple’s earlier successes with new iPhones.

Apple seems to have lost its edge as the  leader in technology and the consumers are responding. This could very well be the last year that the iPhone can claim best smartphone. In fact with the record sales of the S3 from Samsung, this might already be a reality.

The Samsung Galaxy S3 is superior in every way and sales are reflecting that. Samsung’s advertising campaign is cleverly chipping away at the iPhone’s consumer base.

5. Waiting for the iPhone 5

Rumors, predictions and never ending coverage surround the iPhone 5. It is the most ubiquitous smartphone already and it isn’t yet a reality. It’s obviously cramping the iPhone 4S’s style and has detracted greatly from its sales. We already saw this happen before when Apple made the switch from 3GS to 4 an from 4 to 4S.

“The hype around the iPhone5 is already as strong as in no other gadget” says analyst Colin Gillis from BGC Partners. “It is really hard to meet expectations over here.”

Only if the iPhone 5 doesn’t appear in Q4 will we witness an extraordinarily strange situation for Apple: Over one year without the much needed turnover from the iPhone 5.

Outlook & Conclusion

Apple is still in the game and has sensationally huge cash reserves, but the suppliers are getting impatient. The share prices of Sharp, LG, Toshiba, and Hon Hai made the neat sliding tackle today. These companies are highly dependent on the iPhone sales.

Yes, Apple will have another record year in 2012 and enter again in the very first Quarter of 2013 with its shocking figures … if, if Apple strikes again with the iPhone 5!

(Sascha Pallenberg’s Commentary Translated from the Original German)


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