The Apple aura and iPhone enthusiasm has been steadily growing year after year and at a much faster pace than the incremental features, specs Apple brings to the shelves every fall. But the incremental updates have been (so far) (& more than) enough to help create meaningful experiences and consistently build the Apple mania. After the iPhone 5 launch in 2012, the negative sentiment for iPhone rose for the first time being the first iPhone post-Steve Jobs era and Apple doom theory began to surface with Samsung at that time was also growing faster and bigger than any other vendor in the market.
However, every iPhone model in spite of having its own share of issues at launch (Antennagate or BendGate), continued to grow on the consumers over the time and performed better (in volume sales) than every previous generation model. Part of this can be attributed to Apple’s astute sense of steadily adding newer distribution channels (e.g. China Telecom, NTT Docomo, China Mobile, etc) every year, effective Apple “aspirational marketing“, good enough evolving hardware and software design and rising fan following not only amongconsumers but also a greater fan-base of Apple-loving media (which is a huge plus to gain and maintain positive mindshare).
iPhone 6 series launched last month is another step up from the previous generation of iPhone 5 series sporting bigger displays as Apple finally acknowledged the growing demand for larger form-factor smartphones. According, to our latest Market Pulse report more than half of the global Android smartphones sold in the $199 to $399 wholesale price segments sported a five inch or higher display. This has unlocked a pent-up demand of global maturing smartphone user base ready to upgrade their couple of year old smaller iPhones and Android to the latest and greatest iPhone against an alternative to likes of Samsung Galaxy S and Note series flagships which dominated the larger screen segments until now.
The initial demand for the newer iPhones has been phenomenal and Apple has already moved more than 10 million units just on just the Sep 19th launch weekend across following countries: US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK. This is better than the last year’s 9 million units record of the opening weekend sale of iPhone 5s/5c which also included China as the launch country. As a result, we believe the growth in new iPhone demand was roughly 40% higher than last year. Furthermore, Apple iPhones will go on sale in one of the important market – China from October 14th onwards and should contribute to a significant uptick in demand and should be able to break previous records.
However, from supply point of view it has been challenging for Apple to meet the demand for its newer form-factor iPhones causing stockouts everywhere. The order fulfillment lead time for the new iPhones has gone up to 3-5 weeks in many markets such as USA, China whereas in Europe it is somewhere between 1-3 weeks. So a consumer purchasing an iPhone now at carriers such as Verizon or AT&T will have to wait for atleast two weeks to receive the unit. The delay is more pronounced for higher capacity iPhone 6 (64GB or 128GB) and iPhone 6 Plus which are more popular SKUs thanks to Apple’s 16-64-128 GB strategy enticing consumers to actually buy a 64GB iPhone 6 by paying just extra 100$. This clever ploy will definitely boost Apple’s ASP in coming quarters. This strategy was first seen from Xiaomi and players such as OnePlus. Apple is certainly learning from the competition but the only difference being Apple is able to charge more for the higher capacity configuration than Chinese vendors and when you multiply it by the demand and scale it is highly lucrative.
We believe Apple is either conservative (or purposefully so) with the demand planning or facing serious bottlenecks in sourcing/ramping production or closely scrutinizing the QC and testing process in light of the Bendgate fiasco or combination of everything above. Nevertheless, we expect the iPhone 6 series stock situation to streamline by third week of November as Apple continues to roll out into more countries and accelerate the production and supply into top-gear for the holiday season period in Western countries in December and China in January.
The supply situation especially in USA is critical for Apple’s quarter performance as it roughly contributes to more than a fourth of all iPhone shipments during a quarter. Apple’s smartphone market share in North America in Q2’14 was roughly 30% and we believe it can climb up to above 45% in Q4’14. On the other hand, Apple’s global smartphone marketshare could jump to 16% in Q4’14 from 11% in Q2’14 capturing a lion share of premium smartphone market.
Following is the snapshot of iPhone lead-times at leading US carriers as of October 3rd 2014.