Apple iPhone sales plunged by 20% in November – Counterpoint

Facing more affordable competition from the Chinese brands, the iPhone’s total sales suffered a 20% decline in November, with the cheaper XR model outselling the more expensive models, according to an update from Counterpoint.

The research firm published its monthly update on iPhone sales for November, estimating that the decline was across the board. In Europe and North America, replacement cycles are getting longer while operators are reducing their subsidies, both trends playing to the decline of iPhone sales.

One exception was China, where the sales held largely thanks to the 11.11 (“Single’s Day”) sale, where all online channels would hand out discounts. However, the China market is expected to go down in December. On one hand the Single Day sales already satisfied much of the demand; on the other hand, the ongoing trade war with the US has pumped anti-American sentiment into some consumers, which Tim Cook also employed to explain away the weakness in its phone business.

When it comes to the model breakdown, Counterpoint said the best-selling model was XR, the cheapest among the three new models recently launched. More specifically, the 64GB version, the one with the smallest memory, was selling the best. This is in stark contrast to a year ago, when the best-selling model was the then newly launched iPhone X, the most expensive one in the new line-up. The research firm also concluded that when looking at the performances of the two most expensive models of the two years, the “iPhone XS Max, when compared to iPhone X during the same month last year, shows a 46% decline in sales.”

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The decline should not come as a surprise though. In all markets the Chinese brands are gaining momentum, not the least in emerging markets like India, where smartphone market is still expanding. “iPhone has never achieved a significant share of the Indian market because it’s just too expensive. It rarely makes it above 1% of the overall market or 2% of the smartphone market. Recent changes to import taxes made the cost even more prohibitive. Apple has now decided to start assembling in India through Foxconn. This should help offset the import taxes it currently has to pay. This move may also be a hedge against potential damage from the ongoing China/US trade war.” Peter Richardson, research director and partner at Counterpoint told Telecoms.com. “However, while Apple’s brand is certainly well-regarded, Indian consumers have become accustomed to the quality of Chinese Android products, from players such as Xiaomi, Vivo and Oppo. It is questionable whether they will see the value in iOS relative to these Chinese players that are innovating much faster. Huawei (and Honor) has also been a marginal presence so far, but is expected to grow relatively quickly, adding to the market’s competitive landscape,” Richardson added.

Even in the more advanced markets Apple has shown weakness for a while. Earlier we reported that Apple was compensating the Japanese operators to offer discount and considering reviving iPhone X in Japan to boost sales.

Qualcomm pays $1.5bn to ban some iPhone sales in Germany

Qualcomm has elected to post $1.5 billion as a security bond to enable the enforcement of remedies ordered by the Munich District Court blocking the sale of iPhone 7 and iPhone 8 models in Germany.

The ban comes as the latest chapter of the long-running Qualcomm-Apple legal saga, with the chipmaker finding success in its copyright infringement claim in Germany. On December 20 the District Court of Munich decided Apple had in fact infringed Qualcomm’s technology for power savings in the older models and ordered the company to halt all sales in Germany.

Although the ruling was make a couple of weeks ago, the bond itself makes the ban official, allowing the court to pay Apple for any damages incurred should it be able to successfully appeal against the ruling. Apple has already stated it will appeal the ban and will also stop selling the devices at its 15 retail locations across the country.

But this doesn’t seem to be good enough for Qualcomm.

“Apple was ordered to cease the sale, offer for sale and importation for sale of all infringing iPhones in Germany,” Qualcomm said in a statement. “The Court also ordered Apple to recall infringing iPhones from third party resellers in Germany.”

This is one of the elements of interpretation in the case. Apple will continue to ship devices to third-parties to sell, only ceasing sales at its own retail locations. Qualcomm lawyers read the ruling differently however, suggesting this is a blanket ban on all iPhone 7 and iPhone 8 devices across the country, third-party retailers included.

For Apple, this is just a bad end to a bad week. Having just reduced its guidance for what traditionally is its strongest quarter in the year, a sales ban in a large, developed market is not ideal. Some suggest it has nothing to worry about considering these are older models, though cash conscious consumers are more alert to bargains than ever before and the iLeader seemingly pushed the pricing boat too far with the ridiculously priced iPhone X.

For Qualcomm, assuming it can fight to have the ruling upheld, this is a massive win. Precedent is a very powerful concept in the legal world and this might well be an order which it can use as evidence for additional ruling in other markets. The legal battle between the two has certainly been a long one, but this ruling has handed the Qualcomm team a bit of additional incentive.

Looking at the wider patent dispute, a similar case has been heard in China, were Apple has been told to stop importing the infringing models while Qualcomm is also pushing the case in the US. Qualcomm has the better of the early exchanges, though it will be the US ruling which will dictate the winner of this battle ultimately.

Apple points finger at China for financial woes

It seems the anti-China sentiment is pretty infectious as Apple pins the blame for the company’s shrinking bank account on the misery consumers hiding behind the Great Wall.

For years it seemed Apple was able to defy industry trends. Despite the fact global smartphone shipments were slowing, irrelevant to the fact there was little innovation emerging from the handset segment and in spite of charging a small fortune for the devices, Apple was still able to bleed the iCultists dry. However, now tt appears Apple’s immunity to the plague of normality is starting to wane.

Apple has revised its guidance for the first quarter of 2019, and there’s quite a bit missing. CEO Tim Cook explained the iLeader would only be bringing in roughly $84 billion across the three months which ended December 29, compared to the previous estimated range of $89-93 billion.

And China was of course to blame.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” said Cook. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.”

This was not the only reason of course. The launch of the iPhone was too late, putting too much pressure on the channels in the lead up to Christmas. The US dollar was subject to FX swings. Supply could not meet demand. And finally, more people were holding onto their older devices instead of upgrading to new ones. All of these factors combined, plus weak performance in the emerging markets, resulted in a $5-8 billion hole.

It might be easy to blame the external factors here, and they would have almost certainly played a notable role, but perhaps Cook and co should look a bit more inwards to explain the current conundrum; when was the last time Apple did something genuinely innovative?

If you consider what devices are being brought to the market today, there are simply features and gimmicks which are better than what users had before. The age of innovation for the smartphone has temporarily ceased. This has been the case at Apple for some time, though now it appears the brand credit-line has run out. There are still iLifers out there who will upgrade when Cook snaps his fingers, but not as many as there used to be, and it does appear the idea of Apple as a status-symbol in China has died.

Apple has been the master of brand advertising, driving loyalty and asset-bleeding over the years, but this quarter might suggest the power of the Apple brand is beginning to fade due to a lack of innovation and extortionately expensive products. In every segment, Apple of course charges a premium, but it doesn’t necessarily mean the product is actually better. Is the iPhone XS better than the Huawei Mate 20 Pro? Or do the Airpods perform better than Bose? Is the Homepod the best smart speaker out there? Does the product justify the cost? Has the age of holding iLifers to ransom come to an end?

Unfortunately for Apple, at a time when innovation is at a premium a supply-chain expert is in charge of the business. The company might be the smoothest running machine around, but innovation has certainly lacked without Steve Jobs at the top, though the big question is whether the great mind of Jobs could squeeze out any new ideas in these meagre times.

After Cook announced the firm would stop detailing shipment numbers in the financial reports we should have all seen this coming, but what we have learned here is that not even Apple is immune to global trends. It can’t charge more an offer no added values in exchange. Its customers are just as cash conscious as others. New products require innovation to work.

Google is expanding eSim reach beyond Fi

With connectivity taking a more prominent role, Google has tied more partnerships to support eSim on the Pixel 3, taking the business into international markets.

While the eSim functionality on Pixel 2, claimed by Google to be “the first major smartphone with eSIM”, only worked on Google’s own MVNO, Project Fi (now Google Fi), the internet giant just announced it has built more support for eSim on its new Pixel 3 phones. The partners listed in the Google statement included Sprint in the US, Deutsche Telekom and Vodafone in Germany, EE in the UK, and Airtel and Reliance Jio in India. Also included are Truphone and Gigsky, two MVNOs that operate in multiple markets.

After Apple threw its weight behind eSim with its latest products, projections of the penetration of eSim have been raised. ABI Research now predicts 420 million eSim compatible phones will be shipped by 2022, 100 times higher than the four million sold in 2017. Established mobile operators may still view eSim with suspicion, as it makes churn so much easier. But, like new technologies in the past, from VoIP to OTT services, it would be hard to hold back the tides of progress. Moreover, it does force operators to be more innovative and customer centric, in addition to helping improve operational efficiency. On the other hand, consumers will benefit from the flexibility and easy roaming arrangements that eSim enables.

This trend has certainly been embraced by MVNOs too. Ralph Steffens, CEO of Truphone, one of Google’s partners, said in a statement, “This new technology signifies a massive shift in the telecommunications industry. It’s having an impact on everyone from phone providers to chipset manufacturers to mobile network operators. But most importantly, it directly impacts businesses and consumers by offering them more flexibility over their mobile connectivity.”

Pixel has never been one of the best sellers, and Google needs to get the whole Android ecosystem behind it to build the eSim momentum. To this end Google is rallying the Android OEMs.

“To enable a consistent and simple experience across the ecosystem, we’re also creating a program that allows Android device makers to build eSIM-capable smartphones. We look forward to continuing our work with our partners on the potential benefits of eSIM—whether that’s getting you connected to a phone, watch, tablet, or laptop—in the future,” Google said in the announcement.

Apple is said to offer discount on iPhone in Japan

The Wall Street Journal has reported Apple is subsidising operators in Japan to offer discounts on its phones because they’re not shifting as quickly as it would like.

After claiming that the new iPhone models are moving slower than planned through its supplier and manufacturer checks, WSJ reported again that Apple is going to offer discount to its XR model in Japan, which is said to be falling short of plan the most. Due to channel price protection, it needs to compensate the mobile operators to do so.

The fact that XR, the cheapest of the three new iPhone models, was the worst performer may come as a surprise, though it is to do with Apple’s positioning. One could only speculate that those going for the premium would rather buy the more expensive models (the XS and XS Max). While those who are not after the newest would go for the older models.

Since last year’s premium model the iPhone X was stopped when the new models were launched in September, to avoid cannibalisation of the new XR, some consumers went back to the older models, the iPhone 8 series. The WSJ reported that Apple may resume the X both to move consumers to more premium (therefore higher margin) model and to fulfil its OLED display commitment to Samsung. The X is said to be cheaper to make than the XS and XS Max, said the WSJ.

Japan was one of the harder to crack markets for Apple when the iPhone was first launched. The country was dominated by DoCoMo’s internet-enabled iMode phones. It took Apple a couple of years before it could convince the Japanese users of the advantage of smartphones and app stores. It looks that Apple is once again having a difficult ride in Japan again.

Apple iPhone sales are reportedly flagging

Gadget giant Apple has apparently cut its orders with suppliers in response to lower-than-expected demand for its latest iPhones.

The scoop comes from the WSJ, which spoke to the usual, shady people close to the matter in the Apple supply chain. They’re apparently bent out of shape because they have planned according to a previous, more bullish Apple forecast and are now faced with over-capacity problems.

Of the new models it seems that the cheaper XR is the one that is most undershooting initial expectations, with the WSJ suggesting orders may have been cut by a third. This has apparently all come as a nasty shock, although if those suppliers had been tracking Apple’s recent earnings announcements, in which it down-graded its forecast,  they might have been better prepared.

The piece cites a bunch of circumstantial evidence, such as overtime being cut at Foxconn, as further evidence and it’s interesting to speculate about the reasons. It’s unlikely to be price, with the X having sold plenty and the cheaper model heaviest hit, so this is probably a cyclical thing. The global smartphone market has been in recession all year and people are probably waiting longer to replace their phones, especially the most expensive ones.

Apple shares fall 5% on weak forecast

With Apple pointing the finger at fluctuating currency, poor performance in emerging markets and supply issues, its busiest quarter might not be as busy as investors had hoped.

While CEO Tim Cook has defended the soundness of the supply chain, worries over whether the business can keep up with demand over the final quarter leading into Christmas seem to have spooked investors. Combined with warnings over performance in emerging markets as well as volatile currencies around the world, the team has stated it might miss guidance over the next three months, sending share price down 5% in afterhours trading.

“The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia,” said Cook. “These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.”

India should be seen as quite a worry for the iChief’s as while the country has been undergoing its own digital revolution over the last 18 months, Apple seem to be missing out on the biggest rewards. With India now being the second-largest smartphone market in the world, but with half the penetration of China, the opportunities are clear. Despite attention from Apple, it’s opening new production facilities and shops across the country, according to data from Canalys it is yet to break into the top-five smartphone brands.

Shipments in India across the most recent quarter dropped by 1%, though Xiaomi grew 31.5% year-on-year to claim the number on spot, at the expense of Samsung, where shipments dropped 1.6%. Vivo, Oppo and Micromax complete the top five, while the ‘others’ saw shipments decrease 34%. The Chinese brands seem to have found the right recipe to appeal to the Indian user, while Apple is still searching for the sweet spot.

“To give you a perspective in of some detail, our business in India in Q4 was flat,” said Cook. “Obviously, we would like to see that be a huge growth. Brazil was down somewhat compared to the previous year. And so I think, or at least the way that I see these, is each one of the emerging markets has a bit of a different story, and I don’t see it as some sort of issue that is common between those for the most part.”

One market where this isn’t the case is China, with the business growing 16% year-on-year. On the money side of things, it certainly is a different story. Total revenues across the business grew to $62 billion, an increase of 20% over the same period in 2017, though guidance is not as positive. Cook expects Apple to pocket between $89 billion and $93 billion over the next three months, though Wall Street has generally been hoping $93 billion would be the bottom end of the guidance.

Looking at the explanation, CFO Luca Maestri has pointed to four areas. Firstly, the team have launched products in reverse order compared to last year. Secondly, with many international currencies depreciating against the US dollar, Maestri anticipates a $2 billion headwind as a result. Thirdly, due to the number of products Apple has pumped into the market, the team is nervous about supply/demand. And finally, at the macroeconomic level in some emerging markets consumer confidence is not as high as it was 12 months ago.

Heading back to the positives, Apple is making more money now than it was a year ago. Despite there being no shipment growth in any of the major product lines (iPhone was flat year-on-year, iPad was down 6% and Mac was down 2%), Apple is still a money making machine. iPhone revenue increased 29% thanks to ridiculously high unit costs, while the services business was up 17%. This is an area which will be of significant interest to investors, as there is only so much Cook and co. can increase the price of iPhones to compensate for flat growth.

As part of the services division, the App Store has been trundling along positively, though with companies like Netflix and Fortnite stating they would be circumnavigating both the App Store and Google Play, all involved will hope this does not encourage others to do the same. Cook pointed out that the largest developer only account for 0.3% of revenues at the App Store, losing one or two won’t matter, but if the trend spreads too far the product might find troubling times ahead.

Overall, Apple is still in an incredibly dominant position, though the inability to capitalise on opportunities in the developing markets should be a slight worry.

Apple Financials

Apple Products

Qualcomm points the industrial espionage finger at Apple

The long-running legal battle between Qualcomm and Apple has been stepped up a level as the chipmaker effectively accuses the iLeader of industrial espionage.

After Apple released the iPhone XS without a shred of Qualcomm technology inside, it was only going to be a matter of time before there was a reaction. In a filing with the Superior Court of California, seen by Bloomberg, Qualcomm suggests Apple leaked trade secrets to Intel to overcome performance and develop a more suitable alternative in its chips.

The accusations come as an amendment to a complaint filed in November, which again suggested Apple broke confidentiality agreements by sharing information with Intel. With the trial already scheduled for April 19, if the judge allows this amendment it could push back the courtroom date. Qualcomm are pushing for the timetable to remain the same however.

The filing states:

“Apple has engaged in a years-long campaign of false promises, stealth, and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating the time to market of lower-quality modem chips, including those developed by Intel. Apple used that stolen technology to divert Qualcomm’s Apple-based business to Intel.”

The initial complaint came from Apple blocking Qualcomm attempts to audit the iPhone maker’s use of Qualcomm’s trade secrets. At the time, Qualcomm suspected Apple was leaking information to Intel, though there was little evidence to support the claim. Apple had requested deep access to its software and tools, but with strict limits on how those products could be used. Apple’s reasoning was to improve the performance of the devices when using Qualcomm chips, though this is now being contested.

While this is the latest chapter in the long-running tale which has seen dozen of complaints and counter-claims lodged with the courts, it all comes down to a single issue. Apple believes the royalties charged by Qualcomm to use its technology in its products are too high. The original argument has blossomed into a complex tapestry, offering collateral damage to other companies in the supply chain, but keeping the legal team at both the technology giants in gainful employment.

Apple first began using Qualcomm chips in 2011, before eventually using them exclusively. In 2016, it started using some Intel chips though due to the difference in performance, it was unable to drop Qualcomm completely. After the legal back-and-forth started in early 2017, the relationship continued to deteriorate until the point Apple decided to exclusively use Intel chips in its devices.

While this is certainly a considerable customer for Qualcomm to lose it does not look like the relationship can be repaired. Reading between the lines, Qualcomm does seem to have accepted this and is looking to salvage something from the disastrous ending. For some, this could be seen as more pressure to force Apple into settling outside the courtroom.

That said, Qualcomm’s loss is Intel’s gain. Securing an exclusive supplier relationship with Apple is certainly a win for the business.

No Qualcomm inside the Apple iPhone XS

The latest Apple iPhones are a Qualcomm-free zone according to people who have taken them to pieces.

Technology repair site iFixit did its usual thing of carefully disassembling the new iPhone XS to see what’s inside and there was no sign of Qualcomm. No Qualcomm modem, baseband, RF transceiver or even sensors. There is an NXP NFC controller though (too soon?).

This doesn’t come as a great surprise as the move had been rumoured at the start of this year, when litigation between the two was especially vigorous, and Qualcomm had indicated it feared the worst in a subsequent quarterly call. But this outright snub by the world’s most significant smartphone player is still a pretty negative moment for Qualcomm.

The big beneficiary is Intel, which has been in the modem game since the acquisition of Infineon a few years ago but has struggled to steal significant share from Qualcomm. We wouldn’t be surprised to hear that Intel had almost given its components away to Apple, such is the importance of Apple’s switch to its mobile efforts.

As you can see from the following screenshots of the iPhone XS RF board from the iFixit site there is a complete absence of anything Qualcomm. The logic board is dominated by Apple’s own ARM-based chips, as has been the case for while, but until now Apple  had felt compelled to stick with Qualcomm for radio stuff. It will be interesting to see if users notice any difference in performance.

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eSIM smartphone market set for growth following Apple iPhone support

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Logan Armendone-Mowbray, Content & Communities Manager at KNect365, explores how with Apple onboard the eSIM market is set for accelerated growth and why the technology is likely to impact operator’s roaming revenues.

The benefits of Apple’s eSIM adoption in the latest iPhones will extend further than just consumers, who will be able to choose an operator dynamically. The decision to expand eSIM support to iPhones is expected to accelerate eSIM market growth in general, boosting deployment and development of the technology.

The eSIM smartphone market is set to reach 420 million units annually by 2022, according to ABI Research. This represents a shift in the eSIM smartphone market from one which was solely occupied by Google and its Pixel devices, which shipped 3.9 million devices in 2017.

“This is the moment industry players were waiting for. With both Apple and Google deploying eSIM enabled devices, this is only going to speed up the adoption of this technology. It is now more important than ever to refine profile portability and management, how greater connected devices can be added to user accounts and to have a clear customer journey mapped out,” says Tania Ferreira, Senior Producer for KNect365’s e-SIM Connect.

Analysts have started to put their bets on Samsung as the next OEM to integrate the eSIM technology to their devices. Phil Sealy, Principal Analyst at ABI Research, shared that “Samsung will likely adopt a tiered approach, integrating the eSIM into its S and Note range first, then expand into its A and C ranges later.” Other names on the ‘who’s next’ list include Huawei, LG and Xiaomi, all companies which offer a range of high-end smartphones. More localized vendors are also expected to come onboard, including OPPO, who are looking to expand beyond China.

As we contemplate which other devices might become eSIM enabled, it is likely that the technology will feature inside the multiple ‘smart’ devices in people’s homes, and shipping companies might start to explore the advantages of eSIM within IoT devices to track goods as they move along the supply chain. Ivan Laden, CEO at Blue Wireless, believes “IoT, 5G, eSIM are all developments which will offer major opportunities in the enterprise and government sector, enabling new applications around augmented reality, robotics and autonomous vehicles to name a few”.

Due to different eSIM solutions for different scenarios, like M2M and consumer market, “there’ll be more start-ups and small companies dedicated to different segmented areas, which could be too fragmented for traditional MNOs to tag in,” says Godfrey St. Claire, Chief Business Officer at Joy Telecom.

eSIM might impact operators’ roaming revenues as it might be incredibly easier for travellers to switch to a local operator when visiting a new country. On a Google’s 2017 blog post, Joy Xi, a product manager for Project Fi, highlighted the flexibility eSIM brings to consumers by explaining that “you no longer need to go to a store to get a SIM card for wireless service, wait a few days for your card to arrive in the mail, or fumble around with a bent paper clip to coax your SIM card into a tiny slot.” Adding that “getting wireless service with eSIM is as quick as connecting your phone to Wi-Fi.”

Joy Telecom focus on roaming and the outbound travel market in the APAC and Europe regions, specially travellers from China, Japan and Korea, is an interesting case study for operators and other MVNOs who might consider the flexibility brought by eSIM a threat to their roaming revenue. Joy combined MVNO and travel businesses together to best serve this niche customer group.

In Godfrey’s own words “for end customers, outbound travellers, telecom service is merely one part of their needs overseas, flight/cruise, hotel, attraction ticket, coupons… so many services they would want during the travel, and Joy wants to be an integrator of these areas.”

The eSIM form-factor is a transformative technology, which will undoubtedly impact the entire SIM value chain, including business models, sales channels, and processes across the smart card, secure IC, Mobile Network Operator and OEM vendor landscape. “This will mark the beginning of a significant required change in the SIM card hardware value chain,” adds Sealy.

Back in 2017, Joy Xi shared that whilst Google was piloting eSIM on their newest Pixel devices with Project Fi. They also looked forward to sharing what they learnt and “work together with industry partners to encourage more widespread adoption”. Now that Apple is onboard, eSIM integration into smartphones seems like fair game and widespread adoption looks much closer to reality.

But for Sealy, “today the market is not ready to completely embrace the eSIM for a number of reasons, and notably this is due to lack of MNO eSIM readiness. OEMs will need to remain mindful of this to continue supporting their respective global client base until all MNOs are ready to make the switch full time.”

The traditional SIM card is not going to disappear anytime soon, and Apple’s new range of iPhones is a testament to this fact, given its dual-SIM functionality. Yet, embedded SIMs present operators with multiple opportunities, including multiple devices subscription which could generate new revenue streams.

 

The e-SIM Connect 2018 is the only dedicated eSIM event. It’s your chance to meet with the eSIM industry leaders; including Kerrie Lenhart Hogan, Google’s Director of Business Development, Communication and Connectivity Products.