Tim Cook did something unusual on the latest earnings call, sending a signal about Apple's shrinking universe

Apple CEO Tim Cook. Picture: Getty Images
  • Tim Cook refused to talk about “Android switchers” on Apple’s earnings call Thursday night.
  • iPhone sales have gone into decline despite the launch of the iPhone X.
  • Apple showed revenue growth only because of the high price of the iPhone X.
  • This signals danger for Apple: It is charging more, in a shrinking universe, for a product that may no longer be observably better than its cheaper rivals.

Apple CEO Tim Cook did something really unusual on Thursday night’s earnings call, and it sends a signal about the iPhone X’s effect on the company’s business: He refused to answer a question about “Android switchers.”

For years, Cook has given analysts some perspective on the number of people switching from Android phones to iPhones. On one call in 2015, he mentioned “Android switchers” five times.

But not Thursday night.

About two-thirds of the way through the call, the analyst Laura Martin of Needham & Company asked Cook, “Switchers in the quarter, you often give us switchers.”

Cook responded: “It is so early on this product cycle, particularly with the iPhone X only starting in November, that we do not feel we have data at this point that would be very meaningful to share. And so I’ll punt that question until next time around.”

It is difficult to believe that Apple suddenly doesn’t have “meaningful” data on how many people are choosing iPhone over Android.

The top-line numbers, of course, were negative: The launch of the iPhone X – which costs about $US1,000 (and £1,000 in the UK) – sent unit sales into a 1% decline:

Apple iphone sales and yoy growth 4q17BI Intelligence

That is an embarrassing slide given the flagship device was launched only a few weeks ago. Historically, the last quarter has always been Apple’s biggest – it’s when the sexy new iPhone is always launched.

Not this time.

This problem is not of Apple’s making, of course. The smartphone market globally is now fully saturated, and sales have gone into decline, as this chart from the Asian investment bank CLSA shows:

Global smartphone market share q4 2017 by unit shipmentsCLSA

Historically, Apple has always underperformed the market. Its iPhone growth is almost always less than the growth of the market as a whole.

This chart from Deutsche Bank illustrates the problem. Apple is unable to defy gravity:

Smartphone unit market growth v Apple Q3 2017 Deutsche BankDeutsche Bank

Apple was able to show rising revenue only because the high price of the iPhone X boosted dollar sales. The average selling price of the iPhone is $US796 (£560), at least $US100 (£70) more than it used to be:

Apple iphone ASP 4q17BI Intelligence

The obvious conclusion here is that Apple is selling fewer iPhones at higher prices. The size of its universe is shrinking, though it is charging its remaining customers more.

That sounds bad, but historically Apple has comforted itself with its massive “installed base” of older iPhone users. Those phones last on average three years and are heavily used to buy apps, music, and movies via iTunes and the App Store. Apple’s Services business is often regarded as the great new saviour of the company, because it can – in theory – be expanded even if Apple doesn’t expand its universe of actual devices.

But even Services stalled Thursday night:

Apple services revenue and yoy growth 4q17BI Intelligence

There was year-on-year growth, but not quarter-on-quarter growth. Services usually grows sequentially in Apple’s fiscal first quarter. Not this time. Services declined as a percentage of total sales, too, falling from over 15% of sales down to 10%.

None of these developments signal anything good for Apple.

While it is certainly the case that Apple has always creamed off the high-end customers, and reaped the profits, the price of the iPhone X appears to have tested even the company’s most loyal fans. Why buy a great iPhone for $US1,000 when you can get a pretty-much-just-as-good one for hundreds less?

Finally, the universe outside Apple has also changed dramatically. Three or four years ago, Android phones were noticeably not as good as iPhones. There was an obvious justification to choose iPhone over Android: iPhones were more reliable, and the camera on the phone was often better. But now Google’s Pixel phones and Samsung’s Galaxy and Note lines have caught up. iPhone users are often surprised at how much they like high-end Androids. And those Androids are usually cheaper than the iPhone X.

It’s not until you look at global market share that you realise just how few people use iPhones. Of 10 regions tracked by Kantar, Android has more than 70% market share in six:

Apple ios android market share by region january 2018Kantar

This is the danger for Apple: It is charging more, in a shrinking universe, for a product that may no longer be observably better than its cheaper rivals.

That is one possible explanation for why Cook didn’t want to talk about the switchers Thursday night.

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