The incredible happened in the second quarter of 2020. The smartphone market fell for all manufacturers, without exception, and only Apple showed record iPhone sales, which were accompanied by victorious reports from seemingly independent sources. Before the financial report, the right mood was created for Apple, and the records were not long in coming, the pandemic did not affect the company in any way. The feeling that the iPhone manufacturer has invented a different world, in which there are no closed stores, quarantine at the level of individual countries, there is no record unemployment and everything is fine. Any anomaly requires careful consideration, because, perhaps, the numbers do not lie and Apple was able to discover something new, hitherto unknown and learned to sell their devices like no other. In this text, we will look at the numbers and how it happened that Apple was the only one to grow in the smartphone market (according to various estimates, from 15 to 25% in piece terms).
As a seed, I want to repeat an idea that for many remains unclear, in recent years Apple is not a manufacturer of hardware as such, it is secondary. The corporation has become a financial instrument, an icon of the stock market, and Apple shares determine the well-being of many people, both private investors and various investment funds. Apple makes fortunes on the rise in stocks, and that’s not a figure of speech. It is impossible to make that much money selling products that Apple makes. And therefore, the perception of Apple as a successful company, a manufacturer that solves all the problems of the world, including COVID-19, playfully, is not only important, it is defining. The US stock market is experiencing an unprecedented rise despite the real economic situation, and Apple is leading the rise. The company’s capitalization is close to $ 2 trillion.
And this is perhaps the main reason why it is important for Apple and those who gamble in the company’s stock that no one questions future sales and prospects. A game with reporting, information correctly embedded in the minds allows you to do this. And if you look at this blissful picture, it seems that Apple is not just great fellows, but great fellows. But as soon as you begin to look closely at the success story, it turns out that it is sewn with white thread.
For ease of perception, the text will be divided into small parts so as not to interfere with everything in a heap. And we will start with the main market for Apple after America.
China sales grow by leaps and bounds – record second quarter
The Chinese market is a key market for most companies because of its size, and sales of smartphones in China easily overtake any single market. According to Counterpoint Research, in the second quarter of 2020, the volume of the smartphone market in China amounted to 49.3 million units (sell-in, that is, deliveries to channels). Of this volume, 7.4 million iPhones were supplied to partners. Market shares were distributed as follows.
According to Counterpoint Research, only two companies grew in China – Apple and Huawei.
Note that Apple’s growth is outstripping Huawei’s growth in its home market, which looks odd to say the least if you take one consideration into account. For more than a year, the US trade war against China has been going on, since the first quarter, the rhetoric of the White House politicians and the US president regarding China is characterized by increased rudeness, which causes an unequivocal reaction in all strata of society.
Anyone who reads Chinese newspapers or news sites can say that the patriotic agenda has come to the fore, and weekly news from America only feeds these stories. America’s attack on Huawei is described in detail, as well as the unfair retention of the company’s CFO in Canada and various sanctions. This can be considered propaganda, but if you believe the same report from Counterpoint Research, it works and Huawei’s sales have grown in its home market. Almost all research companies adhere to this view, for example, Canalys even issued a separate press release dedicated to this, it can be found here.
Due to the home market, the rise of patriotism and the choice of Chinese smartphones, primarily Huawei, we see how this company retains the global share in sales. See how the shipments of Huawei smartphones (including Honor) have changed in the home market and in external ones.
In the second quarter of 2020, this allowed the company to take first place in global sales for the first time, overtaking Samsung.
Huawei’s marketing budgets within China are huge this year, literally from every iron they tell about the company’s products, in each publication they call on one way or another to support the company in difficult times. This negatively affects sales of other Chinese brands such as OPPO and Vivo. They do not have comparable advertising budgets, but they are also not highlighted in the media, they do not receive support from newspapers, websites and television. And so their sales are falling.
5G networks are actively developing in China, buyers purchase smartphones that support their work. At the end of February 2020, there were 35 million users of 5G networks and corresponding tariff plans in China (there is no point in buying them for 4G, it is uneconomical). During the pandemic and quarantine, connections to 5G networks surged, for example, China Mobile, China’s largest operator, saw 8.66 million new 5G connections in February, and the total number at the end of the month was 15.4 million. Sales soar in February and in the following months associated with the need to transfer large amounts of data from home, and not from the office. But the emergence of many 5G smartphones in the mid-price segment also affected. China is a key market for 5G, and buyers are targeting this technology, it is taking off.
Nothing has worked out in the mosaic yet? Are the pieces of the puzzle already falling into place? Patriotism gives sales to Huawei, but not to other Chinese manufacturers. At the same time, Apple for some reason year by year grew in sales and market share (many explain this by discounts, but they were not so significant that everyone rushed to buy an iPhone). In addition to patriotism, there is a moment associated with 5G, because the iPhone does not know how to work in these networks. This means that at the moment for the Chinese buyer this is at least a strange choice, the smartphone will soon have to be changed to something that can work in 5G. Agree that there are many questions.
Now my favorite report, which is impossible to ignore. CINNO Research estimates retail sales (this is a sell-out) and counted 13 million iPhones sold in the second quarter, which means growth of 62% yoy or an impressive 225% qoq. Retail sales almost never exceed channel shipments (if so, then there was a lot of inventory, but Apple had production problems that are notoriously known). The report fuels Apple’s success well and shows that the company is the only one coping with the pandemic.
But there are always indirect signs by which you can check any situation, they show what is really happening. It is impossible to correct the situation in one place, so that the ends do not crawl out in another. And part of the test for this is the Indian market. This is a large, but poor market, we are interested in it from the point of view of the closure of all activities that lasted until mid-May. See how sales fell.
The Apple brand has never been strong in sales in this market, too expensive a product. And Apple’s sales suffered less than others, falling 20% year-on-year to 250 iPhones. And this despite the appearance of the conditionally available iPhone SE.
Not convinced? Does everything seem far-fetched? Let’s turn to the primary source then, namely Apple, which has published its financials for the quarter, which contains a breakdown of sales by region.
Apple’s report indicates that sales in China grew by 2% in monetary terms year on year, while the text in black and white says that sales grew due to the sale of services (service direction), iPad, but iPhone sales decreased. In nine months (this is the third fiscal quarter of 2020, it does not coincide with calendar months), iPhone sales in China fell.
This is an official Apple report, which indicates that sales in China fell in both the second quarter and three quarters in a row. It says so, and you can not invent anything else, we are talking about a drop in revenue from iPhone sales, which also automatically means a drop in sales in piece terms. And if you remember that the average price of the iPhone is growing year-on-year, then the drop in pieces is not linear, it is much higher.
We figured out the Chinese history of the iPhone and at the same time got an idea of how to play with numbers in research companies, how accurate they are. Let’s take a look at the second quarter results for the whole world.
QXNUMX and Apple Growth Estimates – Broken Methodology?
Please note that Apple has stopped officially reporting its sales of specific devices, only the proceeds from their sale. Further, research companies release their reports, where they assume the volume of iPhone sales. The first thing you need to know about these studies is that they all come out together on the same day, as if an unspoken or open embargo is subsiding. And do you know what the event is for this? Reporting by Apple, the corporation publishes it the latest of all manufacturers.
For example, we can look at the Canalys report for the second quarter.
The world market is falling, all manufacturers have fallen without exception, but Apple is showing steady growth in unit terms, plus 25%!
IDC’s version is not so dramatic, but only Apple is growing.
Both Apple’s wholesale shipments are priced, which is true. If we recalculate it into the average cost of the sold device (Apple’s revenue divided by the figures of each company), then it turns out that for Canalys it will be $ 585, for IDC – $ 702. The discrepancy is serious, and the difference in views on this point is observed among all companies. The wholesale price for the same iPhone SE that was supposed to make the main sales (new model, up to a third of all shipments) starts at $ 320. Whatever one may say, these figures, but it is almost impossible to reach the volumes that were calculated in research companies.
Let’s turn to Apple’s report, it contains a lot of interesting things. The key market for Apple is America, the home market has the highest sales. But with the onset of the pandemic, shops were closed, they were closed throughout April and part of May, there were no sales. Online could not replace regular retail, all American operators announced this (they also sell iPhones, this is one of the two main smartphones in their sales). The market sank heavily. But the pandemic pushed up sales of tablets and computers, as well as services (but not phones). And this is stated in the report.
Maybe everything was fine in Japan, where the iPhone has always felt good?
And something went wrong in this market as well, iPhone sales are falling. But in the Pacific region they have grown noticeably, but the whole region in sales is less than Japan alone!
It is gratifying to see sales of iPhones, iPads and accessories increase in Europe in the second quarter.
Europe is the main market where the iPhone is doing relatively well. The Russian market is key in Europe, it grew abnormally (almost like an iPhone) in the first and second quarters and was the largest among all European countries. The iPhone SE appeared on the market, which was supposed to push sales up, increase the company’s share, right? But the figures from Russia say something else – the share of the iPhone in sales remains at the level of 8-8.5%, smartphones do not receive noticeable discounts, as a result, they do not fly like hot cakes. There is no point in making analogies with the operator’s markets, since they are arranged somewhat differently and there the demand for the iPhone is traditionally higher, since the operator subsidizes the replacement of the device. But the share of the iPhone is sagging in Europe, albeit not so quickly. But what is there in Europe, even in America, the share fluctuates greatly, and this is the home market (in absolute numbers, at the beginning of 2020, this is a drop).
Short takeaways from Apple’s success
Convincing fans of a brand or sports team that something is wrong with their favorite is a thankless task. And he did not set such a task for himself, since it makes no sense, everyone will remain with his own. The problem with iPhone sales is only one thing – that it is the only and most important Apple product, it takes half of the company’s revenue and Cupertino could not come up with something else. Moreover, the same services need to be sold to the iPhone, without this product they are often useless.
Apple has failed to come up with a new way to get around the pandemic’s limitations. Apple stores were closed for most of the second quarter, but we didn’t see any impact on channel shipments. Why? America has a record unemployment rate, but iPhone sales don’t seem to be falling. Why? All manufacturers lost sales (shipments to the channel), but Apple did not notice this. Why? Apple’s own report verbally says iPhone sales have dropped in America, China and Japan (three key markets), but growth in Europe (numbers show that the growth is not that huge). And this is where research companies come in to turn delivery figures into pieces and talk about a successful quarter. This is nearly impossible in the current economic environment as shipments are a reflection of retail sales.
There is always a certain meaning in everything. And it is also in the way Apple shipments are shown, and it is obvious. Apple’s apparent success against the backdrop of the problems of all other companies makes it possible to manipulate the stock market, pull it up. And we watch this bubble inflate. This is the game of the big guys, that before the market crashes, they stuff their pockets with money and manipulate it quite skillfully. Real sales don’t support the colorful picture painted, unless Apple has found a way to sell its products to aliens.
The main question that needs to be asked is whether Apple’s top management is involved in this game. If they simply solve their problems and embellish reality (for this there are many legal ways, and they are well known), then this is one thing. It is completely different if they deliberately play, and then it is already a criminal offense. But in any case, all these painted successes are worth absolutely nothing, since this is just a snag.
And as another indirect sign, I recommend looking at the stock of components, devices and everything else that Apple has. And how they changed. In 2020, they decreased by 31.7% yoy. The company purchases fewer components, since production does not require them in the same quantity as a year ago. And this is against the backdrop of the launch of new products, computers, tablets, and so on.
PS I am sure that we will hear about Apple’s “successes” all the time and references to certain studies will be given without the slightest attempt to grasp the overall picture of what is happening. We saw the market of China, India, partly America and how Apple evaluates its success there, albeit without numbers. The company’s statements in the report speak for themselves.
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