Is Apple Growing or Just Upgrading? (Updated)

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Update 1/28/2015: So, Apple’s Q1 2015 (fiscal) financial results are in, and they had their best quarter ever. Maybe any company’s best quarter ever. They generated $74.6 billion in revenues, $18 billion in net profit (wow), and sold 74.5 million iPhones at a higher average price per unit (thanks to the iPhone 6+, of course). Those iPhones represented over 68% of Apples sales, making them even more so the “iPhone” company.

Perhaps most interesting, and according to Apple at this point but I don’t doubt it: last quarter saw more switchers from Android to iOS than ever before. I’m not sure if this was in the US or overseas, or both, but it doesn’t really matter. The question I originally posed back in October seems to have been answered, at least in part: either the iPhone 6/6+ just filled pent-up demand for a larger iPhone (entirely possible, I think), or this is the start of Android’s deceleration, not Apples.

I’m avoiding any conclusions at this point. I do believe that Google is facing some serious challenges to its business model, and that Apple’s product line has stagnated a bit (which isn’t really fixed by the Apple Watch, in my opinion). At the same time, Microsoft is making some bold and potentially disruptive moves, and only time will tell if they’re successful in implementing a very challenging strategy. If they are, then all bets are likely off starting around 2017. For 2015/2016, perhaps we’ll see Apple dominate even more strongly, particularly in the consumer space, while Microsoft cements its hold on the enterprise and starts chipping away at Google.

In short, the technology industry will be even more dynamic over the next few years than it’s been in the past, and that should be very exciting to watch.

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I’ve often wondered over the last few years if Apple is growing faster than the market, or merely upgrading its once-dominant installed base? Yes, it sells a ton of iPhones (and increasingly fewer iPads) and, this past quarter, a record number of Macs, but are these purchases by new Apple customers (and hence an increase in market share) or simply upgrades by current (and intensely loyal) Apple customers?

I’m not the only one who wonders this, as analysts are starting to do the same. As Adnaan Ahman of Berenberg Research asserts:

The lone bear in Apple’s fleet of bullish analysts, Adnaan Ahman of Berenberg Research, warned that the flurry of iPhone 6 upgrades may be causing a “once in a lifetime” upgrade/catch-up cycle, raising concerns over future demand.

“If this process plays out, 2015 will be an amazing year for Apple earnings, but there is a risk that 2016 will see a deceleration,” he said. “Despite a number of areas where Apple’s growth could be stronger than forecast, Berenberg’s conviction right now is not waning: the Apple stock price must now be nearing its peak.”

That’s pretty much the gist. Certainly, Apple created (or contributed greatly to the creation of) the modern smartphone market, and enjoys a huge installed base from the days when they dominated that market. Today, though, Android holds 85% of the global market or so, and X% of the US market, and so Apple’s not dominating as they used to. Has the iPhone 6/6+ release reversed that trend of decreasing market share, or is it simply the result of pent up demand among the Apple faithful.

Time will tell, of course. With Windows 10 already generating tremendous enthusiasm and very likely to reverse Microsoft’s own trend, this one being away from Windows given the unpopularity of Windows 8.X, it remains to be seen whether Apple’s resurgence in Mac sales will maintain over the long-term as well. If Windows regains its long-term strength, we could see Apple turn into a company that simply churns iPhone sales amongst a dwindling base.

I tweeted just this morning that I see things shaping up as a two-way race between Microsoft and Apple, with Google relegated to irrelevancy due to what I see as some fundamental weaknesses in its strategy–I just don’t know that Android can maintain its relevancy and if Google’s reliance on advertising for its profits can be sustained given the rise of mobile.

Whatever happens, it’s going to remain a vibrant and dynamic market that’s fascinating to follow.

Update: The Wall Street Journal reports on a statement by Toni Sacconaghi, Bernstein Research tech analyst, who had this to say about Apple’s reliance on the iPhone:

IPhone has stunningly contributed about 90% of revenue growth over the last 12 months.”

That is a pretty remarkable statistic, and if it holds true definitely means that Apple has become, mostly, the iPhone company.

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