Apple posted a record December quarter which included record revenues, record installed base, tremendous growth in all business units (exception: supply constrained iPad), and double-digit revenue growth in most regions (Japan the lone region with a decline of 14%). If there was suspicion that the iPhone 13, Apple’s second generation 5G smartphone, would be a weak upgrade, these results squashed this thinking. Counterpoint Research estimates Apple led all competitors, shipping 67.2 million smartphones during Q4 2021.
Details of the quarter:
iPhone: iPhone 13 had a great opening full quarter — a record $71.6 billion in revenues, which was 9% growth over Q4 2020. Additionally, iPhones were supply constrained but less supply constrained than most of its competitors. Apple does an admirable job locking in components by using many customized parts and locking in volumes early — even if it means additional upfront costs. In addition, with large volumes and limited SKUs, it has massive scale to be suppliers’ #1 customer. Apple has even invested in R&D support for some suppliers.
In multiple countries, the iPhone 13 Pro Max was the top seller, bumping Apple ASPs and overall revenues. The elongating life cycles are now baked into Apple sales. There is less of a large year followed by a weaker year. The iPhone holding period has grown — over three years in most regions and almost four years in some regions. This means a more regular upgrade since there is always a substantial part of the base holding an aged iPhone ready to be upgraded.
Apple will likely see good sales longevity of the iPhone 13 family. It will continue to heavily market its camera functionality (for example, Cinematic mode), battery performance, and durability. This will help justify the iPhone’s higher cost relative to most of its Chinese competitors.
Mac: Mac saw the largest percentage growth among Apple business units, growing 25% YoY in Q4 2021. Mac revenues rode the wave of increased PC purchases during COVID-19. Second, its in-house designed M1 chips are now powering the latest Macs and have impressive performance metrics. Finally, Apple has gained PC market share within education and business verticals.
iPad: iPad was the single business unit which saw revenues decline. Revenues declined 14% YoY in Q4 2021. Main reason for the decline was component shortages. Common components between the iPad and iPhone were prioritized for iPhones. Supply constraints for iPad were worse in Q4 than Q3. Pent-up demand within education and business will likely help sales in Q1 and Q2 as component shortages ease.
Apple Watch: Apple Watch and AirPods make up the vast majority of revenues which are lumped into ‘Wearables, Home and Accessories’. The category grew 13% YoY in Q4. Apple Watch continues to gain momentum. Apple Watch will likely continue to see revenue growth as the health and fitness utility continues to improve. Health coach, sleep analysis and heart rate analysis during exercise continue to improve. Apple continues to successfully market health and safety features, such as fall detection and the ECG feature for early detection of irregular heart rhythms.
Services: Apple services hit new highs in Q4 2021, growing 24%. There are over 785 million active service users. Music, video and the app store registered all-time revenue highs. Apple continues to see very low churn to Android and receives very high satisfaction ratings for all of its hardware. The active installed base of Apple devices has eclipsed 1.8 billion – this is a great flywheel for growth within services.
Apple Fitness+ is a unique service. Combined with Apple Watch, it has some interesting synergies for tracking health improvements. With its $203 billion in cash, there are other accompanying fitness hardware companies it could purchase (think Peleton) or develop on its own to increase the utility of Apple Fitness+.
Regions: Apple’s installed base of devices grew in every region. Two years ago, China was a huge problem due to its slowing economy and US-China trade tensions. In Q4 2021, China witnessed 21% growth, highest among all regions. Rest of Asia Pacific grew an impressive 19%. Japan was the lone region which did not see growth — revenues fell 14%. There are a few reasons for the decline in Japan. The main one being the Japanese government’s ban on SIM locking. This has hit operators’ ambition to subsidize iPhones if consumers can freely switch operators.
Outlook: Apple did not give formal guidance for the March quarter. However, the company did comment that its assumption was COVID-19 pandemic would not worsen. In addition, it is expecting solid YoY growth for the March quarter despite some challenging comps due to last year’s lockdowns, which helped companies such as Apple, Netflix and Amazon.
Often successful brands have difficulty keeping the interest of the next generation, which wants to be different. This has not been the case for Apple. It remains an aspirational and ‘hip’ brand to the young. This makes the outlook for Apple, at least medium-term, very promising.